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Wednesday, April 05, 2006

Krueger: Immigration Does Not Hurt Lower-Skilled Workers

Alan Krueger says we shouldn't be so quick to conclude that immigration hurts lower-skilled workers in this memo appearing at American Progress and discussed at Think Progress. The evidence he presents on the effects of immigration on lower-skilled workers is in contrast and rebuttal to much of the recent commentary on this topic. He also discusses the guest worker proposal in the memo, but those sections are not included here:  

To: Interested Parties
From: Alan B. Krueger, Bendheim Professor of Economics and Public Policy, Princeton University
Date: April 4, 2006

Re: Two Labor Economic Issues for the Immigration Debate

Immigration policy involves fundamental issues about what and who we are as a country. There are no simple answers on immigration policy because different people can legitimately assign different weights to the welfare of new immigrants, recent immigrants, and various groups of natives. In addition, there is considerable debate and disagreement among economists about the economic impacts of immigration...

[C]onfident predictions that immigrant inflows have depressed the wages and employment opportunities of U.S. workers, particularly of the less skilled, belie an unsettled and often unsupportive research base. The best available evidence does not support the view that large waves of immigrants in the past have had a detrimental effect on the labor market opportunities of natives, including the less skilled and minorities. Any claim that increased immigration ... will necessarily reduce the wages of incumbent workers should be viewed as speculation with little solid research support...

None of these comments are meant to deny the fact that problems faced by low skilled workers in the labor market are serious, or to argue that public policy should not address the problems of less skilled workers. Real earnings for those at the bottom of the income distribution have been stagnant or falling for a generation. There are many policies that would be helpful for less skilled workers that deserve consideration, such as an expansion of the Earned Income Tax Credit, an increase in the child tax credit, a boost in the minimum wage, and increased job training. Stricter immigration policy, however, is unlikely to materially affect the earnings or job prospects of less skilled workers.

Effect of Immigration on Natives’ Wages and Job Opportunities

  • One of the clearest and most compelling studies of the effect of immigration on natives’ labor market opportunities was conducted by David Card of the University of California at Berkeley and published in Industrial & Labor Relations Review in 1990. Specifically, Professor Card examined the effect of the Mariel Boatlift — which resulted in 125,000 new Cuban immigrants arriving in southern Florida between May and September of 1980 — on the labor market in Miami. This sudden and unexpected wave of immigration increased the city’s labor force by 7 percent. Most of the new workers were unskilled. Yet Professor Card found that the wages and employment opportunities of unskilled workers who already lived in Miami were not hurt by this large inflow of immigrants. “Even among the Cuban population,” he concluded, “wages and unemployment rates of earlier immigrants were not substantially affected by the arrival of the Mariels.” He reached his conclusions by comparing Miami with other cities that were not affected by the Mariel Boatlift. This study, which is a model for research, was specifically mentioned in Professor Card’s citation when he was awarded the Clark Medal, a prize given by the American Economic Association every other year.
  • The central finding of David Card’s study of the Mariel Boatlift — that an unanticipated influx of immigrants does not have a harmful effect on the employment or wages of natives — has been replicated in other settings by other researchers. For example, Professor Jennifer Hunt of McGill University found similar results in a study of the impact on the French labor market of 900,000 people who were repatriated from Algeria in 1962. In addition, Rachel Friedberg of Brown University found that a large inflow of Russian immigrants into Israel after emigration restrictions in the Soviet Union were lifted, which resulted in a 12 percent jump in Israel’s population, did not have a harmful effect on the labor market outcomes of other Israelis.
  • Another line of research uses cross-city data to examine how natives’ job market outcomes vary with the share of the workforce in the city contributed by immigrants. This line of research finds mixed results, but is arguably less compelling than studies that focus on large influxes of immigrants to a particular labor because immigrants choose the city in which they settle, and economic conditions in the city are probably an important factor in that decision. By contrast, studies that focus on the natural experiment created by a sudden and unanticipated influx of immigrants to a specific country or labor market have the advantage of analyzing an event in which immigrants entered a labor market for reasons largely beyond their control and unrelated to the state of the economy in the labor market where they sought work. In addition, because these natural experiments are often large relative to the size of the labor market, it is hard to argue that any effect of immigration was offset by an outflow of other residents.
  • Studies that claim to find a deleterious effect of immigration on natives’ wages are typically based on theoretical predictions, not actual experience. These theoretical predictions are very sensitive to their underlying assumptions, which are often controversial. Existing theoretical predictions typically do not factor in relevant consequences of immigration, such as an increase in demand for goods and services produced in the U.S. that results from greater demand due to immigrants. They also do not account for entrepreneurship of immigrants. Those studies that predict the largest adverse impacts of immigration on natives’ wages assume that as new workers are added to the U.S. labor market, the size of the capital stock remains unchanged. More realistically, as workers come to the U.S., the capital stock is likely to expand, particularly in the industries where immigrants are most likely to be employed. An increase in investment would mitigate the effects of increased immigration on workers as a whole. Existing theoretical simulations that take investment into consideration show very small effects of immigration on low skilled natives and on average a small positive effect for U.S. residents as a whole.
  • Why does immigration apparently have such a benign effect on natives’ wages and employment opportunities? The answer to this question is not clear, but it is probably more complicated than the simple response that immigrants take jobs that U.S. workers do not want. One likely factor is that, in addition to increasing the supply of labor, immigrants increase the demand for goods and services produced in the U.S. This leads to higher wages and employment for all workers in the U.S. Immigration can also result in an increase in capital investment. And many immigrants become entrepreneurs, creating jobs for other immigrants and natives. Immigrant entrepreneurs may be particularly likely to develop export opportunities for American products given their connections abroad and language skills.

    Posted by on Wednesday, April 5, 2006 at 04:08 PM in Economics, Immigration, Income Distribution, Unemployment | Permalink  TrackBack (0)  Comments (33)



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