Are We Accepting the Wrong Migrants?

by Adil Husain

---

The Statue of Liberty is perhaps the most enduring visual association that non-Americans have of the U.S., and indeed it is an important symbol for Americans as well. The statue has welcomed generations of immigrants to what is essentially a land of immigrants. The economic wisdom of allowing immigration has been questioned since the Immigration and Nationality Act was amended in 1965. The amendment established a new quota system and abolished the natural origin provisions. The questions we must ask about immigration are: Is immigration beneficial for the U.S. economy? What impact does it have on the domestic labor market? How do skills of recent immigrants compare with those of native-born workers? Has immigrants’ role in U.S. labor markets declined?

The benefits of immigration are many. There are the obvious benefits that come from cultural contact and an increase in diversity. Economic benefits include: i) an incentive for native born domestic workers to acquire more skills in order to compete with immigrants ii) an incentive for native born domestic workers to acquire more skills so that they can occupy higher skill jobs since immigrants typically tend to begin with lower skills jobs iii) highly skilled immigrants are an integral part of the research and development sector within corporations and educational institutions iv) immigration grows the size of the economy—although it does not change the distribution of income or the rate of capital formation v) immigrants bring specialty services and skills that natives do not have, and native consumers gain from the lower price of these services (e.g. ethnic restaurants).

Those domestic workers who will face competition for employment from immigrants most keenly feel the disadvantages of immigration. Those workers tend to be lower-skill workers whose wages might fall because of competition in the job market. Finding employment has become more difficult for immigrants. In 1970, men aged 25-34 years who had been in the U.S. less than five years had an employment rate 5.4% lower than the natives. By 1980, the gap was 11.4 percentage points, and by 1990 it was 9.6%.

Borjas found that the relative wage of immigrants who entered the U.S. more recently was lower than the relative wage of earlier immigrants. The growing relative wage gap implies an absolute decline in real wages and earnings of recent immigrants. A change in the quality of immigrant human capital is responsible for the increasing wage gap. As schooling within the U.S. and has improved, education standards in certain developing countries such as Mexico have remained stagnant. This has resulted in a larger disparity in the skills between immigrants and natives. The decrease in immigrants’ skills can also be linked to the shift in immigration between 1970 and 1990 from Europe to Latin America and Asia. In 1970 the wage gap for immigrant men was about 10% of native wages; in 1990 it was 22%. In the six states receiving the largest number of immigrants between 1980 and 1990 (California, Florida, Illinois, New York, New Jersey, and Texas), 17.7% of immigrants fall in the bottom 10% of the native wage distribution. Immigrants did not achieve wage parity with U.S.-born workers and new immigrants did not reach wage parity with members of the same ethnic group who were native born. In Borjas’s estimation, the overall contribution of immigrants to the U.S. labor force was pessimistic.

Supporters and opponents of immigration cite its effects on the economy and wages. A study by the National Research Council found that given constant returns to scale, immigration will not affect long-term growth in per capita incomes of natives. It is only the original immigrants who do not fully assimilate into U.S. society. For immigrants, relative wage increases over time due to economic assimilation, but only slightly. For the group of immigrants who arrived between 1965 and 1969 and who were between 25-34 years of age, over a 20-year period the process of assimilation increased the relative wage of this group by about 10%. However, the relative wage of the immigrants who arrived between 1975 and 1979 and who were aged 25-34 in 1980 grew only 7%. This is important because it suggests that recent immigrants have experienced slower wage growth.

Subsequent generations are usually fully assimilated and have a wage equal to other native born citizens. If the children of immigrants are just like children of native-born Americans, the affect of immigration is only one generation long, and there is no long-term affect on per capita income. Immigration can alter the long-term growth of the U.S. only if immigrants and their offspring do not completely assimilate. Evidence shows that even the fertility rates of immigrants converge to the native-born norm.

There is however, variation between different types of immigrants. Since the late 1980s, immigration through ‘lottery’ has been instituted in order to attract immigrants from countries that are otherwise underrepresented in the annual immigrant pool. Alan Barrett found that the immigration lotteries have improved the average labor-market quality of immigrants. The largest group of immigrants—‘family immigrants’ who are reuniting with family members already in the U.S.—have access to family networks that aid immigrants in finding jobs, housing, and community. Lottery immigrants do not usually have a family network to fall back on for support. Unskilled or inadequately trained workers are unlikely to enter into lotteries in the first place, because they would face significant problems if they were to immigrate. Those who enter into lotteries are a self-selected group because they are optimistic of their chances of succeeding in the U.S. Lottery immigrants therefore have a higher skill level than family immigrants.

There is a third group of immigrants that has an even higher probability of success—those who are given the opportunity to immigrate because of significantly valuable skills or education. Many of those immigrants originally enter the U.S. as foreign students or highly skilled workers on specialty visas such as the H1-B. Education is an important variable because it is the single best predictor of an immigrant’s relative wage when he arrives in the U.S. The mean years of schooling among men range from 8 years for immigrants from Mexico or Portugal, to about 15 years for immigrants from Europe and Japan. Though the average immigrant assimilates to an extent after his arrival in the U.S., this average conceals a substantial disparity across national-origin groups. The educational institutions in Mexico and Latin America are quite poor compared to those in the U.S., and this plays a fundamental role in this widening gap of the relative education of immigrants, which, in turn, affects the relative wage of immigrants. The mean years of schooling among men in Mexico is about 7.7 years.

In 1970, 48.9% of male immigrants were high school dropouts, and 18.2% had graduated from college. On average, immigrant men had attended 10.7 years of school. 40.2% of native-born men were high school dropouts and 15% were college graduates, and the typical native male had 11.4 years of schooling. The wage rate of the typical male immigrant was only 0.7% lower than the wage rate of the typical male native worker.

By 1990, 37.1% of male immigrants were high school dropouts, and 26% were college graduates. The typical male immigrant had 11.6 years of schooling compared with 13.2 years for natives, an education gap of 1.6 years. Only 14.4% of native men were high school dropouts and 26% of male natives were college graduates. As a result of the widening education gap between immigrants and natives, the typical male immigrant earned 16.0% less than male natives in 1990.

How can America improve the quality of the human capital of its immigrants? The widening gap in the relative wage of immigrants and native-born workers is attributable to the increasing gap in education and skills. The U.S. should restrict the number of immigrants with low-level skills, and ease the limitations on the entry of highly skilled immigrants.

References:

George Borjas, "Assimilation and Changes in Cohort Quality Revisited: What Happened to Immigrant Earnings in the 1980s?", in Journal of Labor Economics, Vol. 13, No. 2, 1995, pp. 201-245.

National Research Council, "Immigration's Effect on Jobs and Wages: Empirical Evidence " in The New Americans: Economic, Demographic and Fiscal Effects of Immigration, edited by James P. Smith and Barry Edmonsten, National Academy Press, Washington, D.C., 1997, Chapter 5, pp. 173-219 .

Alan Barrett, "The Greencard Lottery Winners: Are they More or Less Skilled than Other Migrants?", Economic Letters, Vol. 52, 1996, pp. 331-335.