One of the fears recurrently raised by those who oppose immigration is that inflows of immigrants negatively affect the native-born labor force in general, and less-educated working class individuals in particular. The idea upon which this assertion relies is that when less-educated workers immigrate into the host country, they systematically bring down the wages of similarly educated native-born workers. This notion is oftentimes overstated and is to a large extent fueled by prejudice rather than being backed by hard evidence.
In fact, there are numerous studies that show a range of positive economic outcomes that result from immigration across sectors. This past week, for example, the National Bureau of Economic Research released an article by economists Mette Foged and Giovanni Peri that analyzes the effects of immigration on native-born workers in Denmark. In the piece, based on a study that spans a 17-year-long period, the authors find that the increased supply of less-skilled immigrants from non-EU countries allowed native workers to pursue more complex occupations. In other words, when more manual skills became available in the labor market as a result of immigration, natives were encouraged to specialize in more complex tasks. Specifically, immigration increased mobility of natives across companies and across geographic locations, but did not raise their likelihood of unemployment. In addition, such increased mobility preserved individual wages from immigrant competition and enhanced their wage effects.
These findings are in line with a host of recent studies that demonstrate the positive or neutral effect that immigration has on native wages. But what explains these effects? According to Foged and Peri’s interpretation of the literature, there are three main factors at play. First, foreign-born and native-born workers have differentiated sets of skills that tend to differ widely among both groups. Second, immigrant labor creates new opportunities for specialization and productivity gains within and across companies. Third, when new immigrant labor is added into the economy, investment and technology do not remain constant, but adjust to absorb immigrant labor.
These findings are very much applicable to the United States as well. The key to understanding the effects of immigration on the U.S. labor market is to abandon static models of interpretation that do not fully account for the inherently dynamic nature of the economy. Specifically, when new labor is added into the economy via immigration, the other factors of production do not remain the same. Consequently, the economy does not stay unchanged. For example, investment and technology tend to catch up to the increase in labor supply, and the native-born labor also experiences mobility and change.
As demonstrated by economists Giovanni Peri and Chad Sparber in an earlier study, immigration has a very small impact on the wages of less-educated U.S.-born workers because immigrants and natives have different abilities and specialize in different tasks. The analysis, based on an examination of the U.S. occupational structure between 1960 and 2000, found that: (a) less-educated immigrants tended to specialize in occupations that require physical labor; (b) in states with large immigration inflows, U.S.-born workers transition into jobs that require communication/English language skills; and (c) because immigration increases the supply of manual labor in these states, wages rise in the communication-intensive occupations in which natives work. All in all, these findings indicate that less-educated U.S.-born and foreign-born labor are not substitutable, primarily because they are not the same.
With immigration reform on the political agenda, lawmakers should keep in mind that the demonstrated complementarity between native-born and foreign-born workers would inevitably lead to a win-win scenario in any comprehensive reform legislation.