Giovanni Peri reviews research on how immigration impacts cities. The research shows that "the less-educated [are] relatively unaffected by
immigration while highly-educated and houseowners gain from it":
Immigration and cities,
by Giovanni Peri, Vox EU: Immigration is one of the new century’s ‘hot
button’ issues. Whether it is Romanians in Milan or Mexicans in Los Angeles, the
concern and the debate has intensified. Political campaigns are fought and won
on the issue in several nations and it has shifted party politics in many
others. Most of the concern and political backlash focuses on the large and
increasing presence of immigrants in cities – especially low-education
This is easy to understand from the facts. In the US and Europe, immigration
is disproportionately directed to cities, especially large metropolitan areas.
In the recent decade immigrant arrivals – currently around 1.25 million people
per year – accounted for 40% of the US population growth and for 50-75% of the
growth of its largest metropolitan areas. For instance, 27% of people residing
in London are foreign-born, as well as 28% of people in New York and 17% in
Paris, vis-à-vis much lower national averages (respectively equal to 9%, 12.1%
and 10% for the UK, the US and France).
Percentage of Immigrants in Top US cities
||Population in millions
||Percentage of foreign-born
|Top 17 metropolitan areas
Source: U.S. Bureau of Census, July, 2006.
What are the real effects of immigration on wages, rents and local prices
faced by the natives? Does immigration drive out the native population? In
theory it can work either way. In a static Walrasian world with homogeneous
workers, an inflow of workers tends to depress wages, drive up rents and push
out natives. However if variety of skills, complementarities in production and
agglomeration economies are important, immigration could raise productivity of
natives; immigration can drive urban growth which then makes the cities more
economically attractive. The matter cannot be settled by logic. Facts are
Recent research One recent strand of research uses data from US cities
and states to explore issues such as the response of natives to immigrants and
the impact of immigration on the local economy. Recent research by David Card
and others is identifying important regularities that point to a positive
productivity effect of immigrants on natives overall, and to an increase of
average housing value in high immigration cities. These average effects,
however, are accompanied by an important distributional component. Highly
educated natives enjoyed the largest benefits while the less educated did not
gain (but did not lose much either) from immigration to their cities. In a
series of recent papers coauthored with Gianmarco Ottaviano, I use US data to
analyze the impact of immigration on wages, rents and local prices faced by
native workers accounting also for the response of natives to immigrants in the
form of relocation.
Crowding out natives? From a pure accounting perspective, immigrants
were responsible for about 50% of the population growth of the top 100 US
metropolitan areas during the 1990s. However, if the inflow of immigrants caused
an outflow of native workers (towards areas with low immigration), it would
simply change the composition of a city but would not produce net population
growth. Analyzing the response of native population to immigrant population
across cities, we find instead that large inflows of immigrants over the period
1970-2005 were not associated with any reduction of native population growth. In
fact, in most cases, large immigration flows were associated to larger
population and employment growth for natives as well. A part of this positive
correlation is due to the fact that booming cities attracted natives and
immigrants alike. However, we also isolated an immigrant-specific 'pull factor'
in each city, in the form of enclaves of earlier immigrants that preferentially
attracted co-nationals in period of large outmigration from the country of
origin. Even these 'pull-driven' inflows of immigrants were not related at all
to outflows of natives, which disproves the theory of crowding out.
Effects on wages and house prices A second result emerges from the
cross-city analysis and it is similarly robust and significant. The average wage
of native workers and the average housing price increased significantly more in
cities with large immigration flows than in cities with low immigration flows
over the period 1970-2005. While part of this effect is also explained by the
'booming city' theory, isolating the immigrant-specific pull-driven variation we
still find that a 1% increase in the share of foreign-born increased the average
native wages by around 0.3-0.4%, and the average house prices (and rents) by 1%.
These positive average effects, however, are accompanied by distributional
effects. Analyzing the impact by education group we find that native workers
with no high school diploma experienced a small reduction in wages and small
increase in their rents as a consequence of immigration, while those with
college education experienced a significant wage and rent increase.
Click to enlarge
Our explanation of the positive wage effects relies on an important mechanism
that seems to be operating in cities as well as in the US economy as a whole,
and is based on the fact that the skill composition of immigrants is
complementary to that of natives. Foreign-born individuals in the US are
over-represented among workers with low skills (no degree) and among those with
very high skills (graduate degrees particularly in science and technology). On
the other hand, foreign-born are under-represented among workers with
high-school and some college education. Most American workers, therefore (70% of
which have high school or some college education), do not compete with
immigrants for similar jobs but benefit from their complementary productive
tasks. Moreover, even at similar levels of education native and immigrant
workers tend to specialize in different occupations.
For instance, in related research I found that among less educated
workers, immigrants specialize in manual intensive tasks such as cooking,
driving and building while natives specialize in language-intensive tasks such
as dispatching, supervising and coordinating. The productivity of supervisors,
clerks and accountants benefits from the productive services of construction
workers, hand packers and janitors in their company. Similarly at high levels of
education foreign-born specialize in analytical-mathematical tasks and natives
in managerial-language intensive tasks. Again, lawyers’ productivity benefits
from the competence of their computer and information technology assistants.
Such skill differences translate into limited competition in the labour market
and rather complementarities, inducing higher demand (and productivity) for
native skills in economies where the supply of immigrants increases. As these
complementarities work within as well as across education groups, there is a
benefit for natives overall in producing in an economy with immigrants (the
positive average wage effects). However the largest benefits are for those with
intermediate and high education that do not compete at all for jobs with the
large group of less educated immigrants.
On the other hand, this higher productivity of natives overall and the
increased city population generates upward pressure on housing prices and rents.
These effects, in the long run, induce more house building, so that their impact
on house prices should not be large. This is true for housing of less educated
workers who live in less desirable locations whose supply is very large.
However, more educated individuals, who concentrate in highly desirable urban
locations (e.g. Manhattan, Santa Monica or Downtown San Francisco), face a space
constraint and experience increasing house values even in the long run.
Interestingly, our quantitative estimates imply an almost exact wash between
the increase in average wages and that in average rents, at least on average, so
that the real local wage, corrected for local prices is left essentially
unchanged. This can be interpreted as an effect of native’s mobility as they
'arbitrage away' real wage differences by moving across cities. The productive
effect of immigrants ultimately accrues to house-owners who see the value of
their houses increase.
Other effects The positive average wage effect combined with a
somewhat adverse distributional effect and a positive house price effect (mostly
for highly educated) leaves the less-educated relatively unaffected by
immigration while highly-educated and houseowners gain from it. Where,
therefore, does the vastly negative reaction to immigration come from? Two
important channels, relative to local public good provision, are left out of our
analysis. First, fiscal cost of immigrants at the local level may be relevant,
especially if they use public goods (such as hospitals and schools) more than
natives do and, because of their income, they contribute less in local taxes.
Second, people seem to attribute positive value to living in ethnically
homogeneous neighborhoods and to sending children to school with better-educated
high-income families. Moreover, there may be important peer effects in education
and learning. Opinion polls suggest that people may care significantly about
these aspects of immigration.
Bottom line Our research shows that market-mediated economic effects
of immigrations are mostly positive for natives. However, in order to affect
policies it is also crucial to understand better the welfare-related effects and
the peer effects that may explain most of the negative attitude towards
1 David Card (2007) “How Immigration Affect U.S. Cities” CReAM Discussion
paper #11/07, June 2007.
2 G.I.P. Ottaviano and G. Peri (2007) “The Effects of Immigration on U.S. wages
and rents: a general equilibrium Approach” CEPR Discussion Paper # 6551; G.I.P.
Ottaviano and G. Peri (2006) “The Economic Value of Cultural Diversity: Evidence
from U.S. cities” Journal of Economic Geography, Vol. 6, Issue 1, Pages
9-44; and G.I.P. Ottaviano and G. Peri (2005) “Cities and Cultures” Journal
of Urban Economics, Volume 58, Issue 2, Pages 304-307.
3 G. Peri and C. Sparber (2007) “Task Specialization, Comparative Advantages,
and the Effects of Immigration on Wages” NBER Working Paper, # 13389, September
4 As reported above an increase in the share of immigrants by 1% increases rents
by 1% and wages by 0.3-0.4%. As housing cost account for about 30% of total
family expenditure the change in the local price index due to immigration is
0.3*1%=0.3% which is similar to the change in wages.