Immigration’s Real Impact on the Labor Market

Donald Trump’s proposal to build a border wall to seal off Mexico and deport all undocumented immigrants has made immigration a top issue in the 2016 presidential campaign. Unfortunately, much of public policy discourse around immigration stems from misconceptions about how immigration affects wages and employment in the U.S. labor market.

The concern that immigrants are taking jobs away from natives has existed for a long time. The primary motivation for this concern comes from a large absolute number of immigrants. There are over 42,000,000 immigrants[1] (legal and illegal) in the U.S today. As such, we may have seen many eye-catching headlines[2] like “More illegal immigrant workers than unemployed natives”[3] and “Immigration cut salaries of natives $2,470 a year”[4].

However, people who feel uneasy about this number may ignore the fact that over the past few decades, the number of jobs in the U.S. has also increased. Another fact that has been ignored is that all immigrants do not arrive in the U.S. at the same time, which basically eliminates the possibility of severe economic shocks. Furthermore, researchers including Nowrasteh[5] found that for each additional job performed by an immigrant, there are approximately 1.6 new jobs for natives. This demonstrates that the labor market has the capacity to absorb new immigrants entering into the workforce. Additionally, a number of studies have provided direct evidence that immigrants do not displace natives from work.[6]^,[7],[8],[9]

Additionally, the downward slope of the labor demand curve has seemed to always govern our judgment. This downward slope is based on the assumption that capital stock is fixed. Examples of capital stocks are buildings, machines, computers and other inputs to produce products other than the labor itself. When companies hire immigrant workers, given the fixed capital stock, computers or space will be shared among workers. Since “diluted” capital stock will decrease workers’ productivity, workers have to accept lower wages to be able to stay in their jobs, according to the basic economic theory that suggests that wage is decided by workers’ productivity.

In reality, economists hold the view that capital stock adjusts quickly to immigration, which is supported by the statistical fact that the capital stock per worker in the U.S. has been more than doubled over the past 15 years[10]. Lewis and Peri (2014) explain that high capital returns nowadays may allow investors to respond to workforce growth by creating new capital. Therefore, in the long run, the labor demand curve would be completely horizontal, meaning there is no wage impact from just adding workers.

Generally speaking, economists tend to agree that the effects of immigration on native workers are not straightforward and immigration policy should be designed according to different types of immigrants.

For example, Lewis[11] believes that immigration only affects native workers when it changes the relative numbers of skilled and unskilled workers in the workforce and not the absolute number of workers overall. He also posits that a skill-balanced inflow of (skilled or unskilled) immigrants has no impact on the labor market in spite of a large flow of immigrants into a country.

Holzer[12], on the other hand, thinks high-skilled immigrants who would benefit the economy overall should be greatly welcomed. In addition, less-educated immigration also appears to have some net benefits. He advocates for allowing an amount of unskilled immigration, ultimately helping only those who stay legally and eventually become citizens here.

The negative effect of immigration on the labor market in the country has largely been misconceived, and the fear of it has been heightened irresponsibly by Donald Trump and his campaign antics. Studies have shown that immigration itself does not necessarily affect the labor market negatively, and it depends on the characteristics of the immigrants themselves. These are the facts that should be guiding the nation’s current discussions about immigration policy.

[1] http://cis.org/Immigrant-Population-Hits-Record-Second-Quarter-2015

[2]https://www.us-immigration.com/us-immigration-news/us-immigration/undocumented-immigrants-outnumber-unemployed-citizens/

[3] http://freebeacon.com/issues/illegal-immigrants-outnumber-unemployed-americans/

[4] http://www.washingtonexaminer.com/immigration-cuts-salaries-of-americans-2470-a-year/article/2585219

[5] http://www.cato.org/blog/cis-all-job-growth-2000-went-immigrants-flawed

[6] http://www.nber.org/papers/w21123

[7] http://www.sciencedirect.com/science/article/pii/S0094119010000628

[8]http://www.frbsf.org/economic-research/publications/economic-letter/2010/august/effect-immigrants-us-employment-productivity/

[9] http://davidcard.berkeley.edu/papers/immig-inflows.pdf

[10] http://dc1.chass.utoronto.ca/cgi-bin/pwt/jump?t=1

[11] https://www.dartmouth.edu/~ethang/Waterloo-v4.pptx

[12] http://50.87.169.168/OJS/ojs-2.4.4-1/index.php/EPRN/article/view/1898