Newswise — Immigration clearly services businesses' interests. The more controversial question is: Does it hurt labor's interests? Are the job prospects of native-born workers who potentially compete for lower-paying jobs hurt by increased immigration? While controversy persist, a majority of professional economists believe immigration's effects on the job prospects of U.S.-born workers are limited.
Reviewing a large set of papers analyzing the effects of immigration on the wages of native workers in the U.S., the National Academy of Science's Panel on Immigration (1997) concluded "there is only a small adverse impact of immigration on the wage and employment opportunities of competing native groups."
While the political left may rejoice in this result, professional economists have been troubled by it. This finding apparently violates the most basic principles of economics -- when the supply of any commodity goes up, all else being equal, its price should fall. To economists, labor is no exception. As immigration increases the number of workers available for jobs in the U.S., simple logic should dictate that the price of labor -- the wage rate -- should fall.
Since this appears not to be the case, should we conclude that economists don't know what they are saying? That there are no potential effects from a more open immigration policy? Emerging research suggests there may well be effects, but perhaps not the effects we have all been expecting.
First, with whom are immigrants really competing? New evidence suggests that when immigrants arrive in this country, they are most likely to find jobs in the same firms where previous immigrants from their homeland are already working. Networks for finding jobs are important for all workers, and immigrants are no exception. Therefore, the workers most likely to find their job prospects limited by new immigrants are those immigrants who preceded them. There is real potential for displacement effects here because of the tension between immigrant arrival cohorts in a competitive environment. Very little empirical evidence exists one way or another, but the little that does suggests this might be important.
Second, firms are unlikely to sit idly by as the government cracks down on what is, from their point of view, a productive and abundant source of labor. These businesses continually make decisions on which production process to use and whether to substitute capital for labor or automate to save on labor costs. At least within the manufacturing sector, recent evidence suggests firms that face a steady stream of immigrant labor tend to automate less than firms without this source of labor available to them. I should emphasize that while many critics may see immigration retarding capital growth as a negative outcome, firms clearly do not view it this way. Firms make choices as a rational response to the productive resources available in the market. Given this, at least in part, the likely effect of a more restrictive immigration policy would not be to create more jobs for U.S.-born workers, but instead to force U.S. firms to automate those jobs out of existence.
Finally, while it appears not to be generally true, there are specific sectors that grow much faster with a large pool of immigrant labor, specifically the Household Service sector. These immigrant workers provide many of the services married women provided 40 years ago. While I am unaware of research in this area, one does wonder about the role of immigrant labor in the rapid expansion in the labor supply of married women over the last 40 years, especially the rapid expansion among educated women.
The American economy is extremely flexible and we should remember this when we contemplate immigration reform. From the point of view of displacing other workers, I believe this is likely to be limited and when it occurs, is likely to have the largest effect on previously arrived immigrants. If this is true, then immigration to some degree may be self-regulating.
There is a reasonable argument that immigration may not only have not displaced workers, but even allowed some people who could not otherwise have worked to do so. With this, you might think immigration would be unambiguously good for the U.S. The biggest complication to this view is that the U.S. provides enormous benefits to all people within its borders through social transfer programs, the availability of health care, and public education. From a public finance perspective, any person who takes more out of the social insurance system than pays into the tax rolls lowers the services available to others. This remains a real concern and one which probably argues that access to this social system should be limited in some way.
How to do this in an ethical and responsible manner remains a challenge. Not facing this challenge will mean limiting the number of workers and firms that could benefit from mutual exchange, which is at the heart of economic prosperity.
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