Immigration has long had the stigma of reducing wages for native labor by competition for employment and the willingness of the newcomers to work for less. Several studies have been made to see if this is indeed the case. In addition, immigration’s effects on economic growth and fiscal costs are also looked at. The results are more inconclusive than anything, showing that immigration’s effects are rather slight, whether they are positive or negative.
Rachel Friedberg’s and Jennifer Hunt’s essay, "The Impact of Immigrants on Host Country Wages, Employment and Growth", takes stock of many different studies concerning this area. From this Friedberg and Hunt show that immigration is a large part of American life. In 1980, twenty-five percent of the country’s population growth can be attributed to immigration. And these immigrants were less skilled than the native population they were joining. Over forty percent of adult immigrants lacked a high school diploma, while only twenty-three percent of natives fell into that category. This is the reason why experts believe immigrants hurt host countries. Looking at an open economy model, where labor and goods were free to move, Friedberg and Hunt found that immigrants drove down the wages of unskilled workers, increased the number of workers employed, but also increased the unemployment rate.
Yet Friedberg and Hunt go on to cite a number other models in an open-economy situation. Some cite that a 0ne percent increase in foreign workers will drop wages one percent. Others induce that unemployment will fall and mean income will rise. Others say that immigrants only take jobs away from immigrants that have already arrived. Another cites that the "generational over-crowding" is the culprit, caused by the baby-boom. "To induce the same wage reduction [as generational over-crowding] would require a 140 percent increase in the immigrant share" of the labor force. The studies are very diverse. One claims that by simply eliminating the illegal alien population in California, that state’s wages will rise by as much as five and a half percent. Yet, a similar study with the same parameters in Germany found "no detrimental effects on employment, unemployment, or wages. The only conclusions that Friedberg and Hunt could say was that it is too difficult to accurately measure the effects of immigration. But some numbers seem to be true. One: immigrants do drive down the wages of unskilled workers, especially other immigrants or native high school dropouts. Two: a one percent increase in immigration increases GDP by 0.1 percent, by simply adding more workers to the workforce. Three: at most, a ten percent increase in immigrants will lead to a one percent drop in wages, not a very large problem.
The next article, by the National Research Council, looked at immigration’s effects in terms of the three inputs of an economy; skilled labor and capital, and unskilled labor. In a controlled economy, if the influx of immigrants matches the native population in terms of ratio of skilled to unskilled worker, than there will be no effect on wages or per capita income, and GDP will rise. If different, immigrants will temporarily drive down wages of unskilled workers, but that will only drive native workers to move towards skilled positions, so that equilibrium is again reached. The Council also noted that the younger generations derived from immigrants will become "native" in terms of output, skills, and fertility, within two generations. So, there is no long-term effect of immigration. And when the Council added technology to their study, they found that immigration is harmless. Technology increases the output of workers, so that each year, less workers produce the same amount than their counterparts the year before. So, "wages per actual worker are growing." In addition, when one looks at the number of entrepreneurs in the population, one finds that native men and immigrant men have the same percentage in regards to their respective groups: 13.1 percent. In conclusion, the Council stated that, "The evidence points to a substantial capacity of the economy to absorb immigrants." And immigration has a negligible effect on wages and GDP per capita.
Lastly, George J. Borjas looks at the economic benefits of immigration. He does concede that immigrants earn 30 percent less than native workers, and that many need public assistance, which "has increased the fiscal costs of immigration substantially." But Borjas contends that natives benefit from immigration, especially if those immigrants have different skills. The people who benefit the most are capitalists and those that employ immigrant labor. Here’s why. In the economy, the market wage is in equilibrium. But, when an influx of unskilled immigrants enter the country, they drive down wages below the market wage. The "Immigration Surplus," as Borjas calls it. "because the market wages equals the productivity of the last immigrant hired, immigrants increase national income by more than what it costs to employ them." This works even better if the majority of immigrants are skilled workers, because skilled wages are more flexible. Either way "immigration causes a large redistribution of wealth from labor to capital." Because skilled workers will grow, either from immigrants or natives forced to adjust, and capital is needed to keep pace.
Borjas concludes that the national income of the natives will rise, but hose natives who have to compete with immigrants will have lower wages and increased unemployment. But he states that the fiscal costs of maintaining an immigrant population are well worth the benefits that that population brings to national growth and national income.
These three journals differ from each other. Borjas contends that immigration will have a negative effect on native wages, but the economy as a whole will benefit. The National Research Council believes that there are no real costs to immigration, and can point to an economy that can handle immigrants without trouble. Friedberg and Hunt show the inconsistencies of any study on immigration, but conclude that any effect that it does have on any aspect of the population, it is rather small.
Borjas, George J. "The Economic Benefits of Immigration". Journal of Economic Perspectives. Vol. 9, No. 2. Spring 1995.
Friedberg, Rachel M. and hunt, Jennifer. "The Impact of Immigrants on Host Country Wages, Employment and Growth." Journal of Economic Perspectives.
Vol. 9, no. 2. Spring 1995.
National Research Council. The New Americans: Economic, Demographic and Fiscal Effects of Immigration. James B. Smith and Barry Edmonston, editors.