Immigration Has Positive Wage Impact for Native Workers, Study Says

Fear has been among the most persistent and nettlesome obstacles to reform of our immigration system – fear stoked by popular misconceptions about immigrants and their impact on the economy and society of the United States. One especially persistent myth is that immigration leads inexorably to lower wages for native-born workers, based on a view of the economy as a zero-sum game, where immigrants’ gains are assumed to require a corresponding loss among the native-born.

Not true, says a new study from the Economic Policy Institute (EPI), Immigration and Wages: Methodological Advancements Confirm Modest Gains for Native Workers (PDF 698KB), by Heidi Shierholz. According to the report, there is widespread consensus among academic economists that immigration “has a small but positive impact on the wages of native-born workers overall: although new immigrant workers add to the labor supply, they also consume goods and services, which creates more jobs.” [emphasis in original] In other words, the “You win/I lose” approach to immigration and wages is overly simplistic, because it neglects the increasing demand for goods and services occasioned by growth in the workforce. Examining statistical data from 1994 through 2007, the study found that immigration actually raised the wages of U.S.-born workers, relative to foreign-born workers, by 0.4%, and lowered the wages of foreign-born workers (compared to U.S.-born workers) by 4.6%. In plain English, this means “the negative effects of new immigration over this period were felt largely by the workers who are most substitutable for new immigrants – that is, earlier immigrants.”

Even workers with less than a high school education experienced a modest gain in wages, due to immigration in this period; according to the EPI study, these workers gained 0.3% in wages, compared to foreign-born workers, while their foreign-born counterparts lost 3.7% in wages. Here again, foreign-born workers displaced each other, and suffered the economic consequences in the form of lower wages, while American-born workers with less than a high school degree actually saw their wages increase. In economic parlance, this was due, in part, to the fact that “native-born workers and immigrants are not perfect substitutes,” because many immigrants lack fluency in English.

The EPI study makes interesting reading, and joins a growing body of scholarly research that shows substantial economic benefits to immigration – benefits that clearly outweigh the costs. (See Immigration Reform Would Bring Massive Economic Benefits, Study Says, MurthyBlog, January 22, 2010.) Old fears die hard, and shining a light under the bed will not convince everyone that there are no goblins there – but the work of labor economists has exposed, slowly but surely, just how much irrationality lies at the core of opposition to immigration. In any case, there is mounting evidence that immigration is good for the economy, and that is increasingly hard to ignore.