Economic Impact of Immigrants on Native Workers

Immigrant workers have long contributed to the power behind the motor of the U.S. economy. However, concerns that immigrants compete with native workers to the latter’s detriment still abound in the public mind. A review of the literature about immigration’s impact on native wages and job displacement is a starting place to resolve this question. But before doing so, any serious observer has to acknowledge that immigrants affect the economy in ways that are not reflected by wage and job displacment studies. Immigrant entrepreneurship may create jobs; immigrants are increasingly associated with further openings to trade and other forms of exchange; high-skilled immigrants innovate in key sectors of the economy; immigrants make tax contributions and receive public services; the presence of significant numbers of immigrants in a sector helps make that sector’s products and services cheaper–and thus more affordable by all consumers; and immigrant workers both produce and, in turn, consume goods and services–thus having much wider ripple economic effects.

Most economic competition discussions generally focus on the short- and medium-term impacts of immigration. When immigrant workers enter a labor market, there may be initial pains to accommodate them, and in response to those difficulties, the labor market may adjust, perhaps by creating more jobs that immigrants and/or natives could fill, or inducing natives to move. However, in the long-term, the impact of an immigrant cohort depends on the degree to which immigrants assimilate into U.S. society (i.e., become like native workers in terms of the skills they have). If they, or perhaps more importantly their children, assimilate economically, a given immigrant cohort will tend to make the economy larger without putting downward pressure on natives’ wages. Also, keep in mind the possibility that immigrant employment often complements that of native workers.

Immigrants are an important and growing part of the U.S. labor force. Estimates indicate that one of every two new workers in the 1990s was foreign-born. As a result of these flows, from 1990 to 2002, the immigrant share of the workforce rose from 9.4 to 14 percent. Immigrants are also disproportionately low-wage workers, comprising 20 percent of the low-wage population, though they also make up much higher proportions in several high-skill occupations and sectors.

In 1997, the National Research Council concluded that immigration had a small effect on the wages of native workers. Evidence showed that immigration reduced the wages of competing natives by only 1 or 2 percent. Effects were also weak for native black workers, a group often assumed to be in competition with immigrant workers. Earlier immigrant cohorts were more significantly affected: they could expect 2 to 4 or more percent wage decline for every 10 percent increase in the number of immigrant workers. The report also noted that immigration, as a whole, resulted in a net benefit to the economy of between $1 and $10 billion annually, a small but still significant positive impact. Certain groups within the economy, such as those with capital or high-level skills or those consuming immigrants’ goods or services, benefited from immigration, even if low-skilled natives stood to lose in the process.

While there is still general agreement that some native groups, particularly the high-skilled or those with capital, benefit from overall immigration flows, since 1997, the assertion that immigrants do not significantly affect natives’ wages is now more broadly contested. Many studies continue to find no effect or only weak negative effects of immigration on low-skilled workers or workers in general. Others suggest that newly arriving immigrants do not have a statistically significant impact, but the degree to which immigrants substitute for natives increases with time spent in the United States. Still others contend that the negative wage effects are larger, perhaps on the order of a 3 or 4 p4ercent wage decline for competing wokrers for every 10 percent increase in immigrants with similar skills. Other the other hand, some research found that immigration actually had a slightly positive and statistically significant effect on all natives’ self-employment earnings.

Findings now are contested regarding immigrants’ wage effects for highly-skilled native workers. Some researchers estimate that immigration during the last two decades depressed wages by 4.9 percent for native college graduates. In contrast, others have found that high-skilled immigrants actually raise native wages, for example that a 10 percent increase in high-skilled immigrants raised native skilled workers’ earnings by 2.6 percent.

In essence, the literature indicates that the impact of immigration on native workers is an isue that is still up for debate, perhaps now more than ever. Some researchers have found divergent, large negative, small negative to non-existent, and positive impacts from immigration on native relative wages, even among the most vulnerable populations. Furthermore, most research has found some job displacement or native exclusion within given sectors or cities as a result of immigration, but the criticism that many of these studies have looked where they would expect to find impacts is a valid one to keep in mind when viewing this literature convergence. Certainly, immigration’s impact on the most vulnerable native workers is increasingly contested ground, which makes predicting future impacts doubly difficult.

In the end, whether or not immigrants actually depress wages or displace some workers may be only one consideration within a larger policymaking context. Whether the effects are slightly negative, somewhat positive, or tend toward zero, they may be far outweighed by other impacts, both positive and negative, that immigrants have on the United States.

Source: Migration Policy Institute
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