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Sunday, March 12, 2006

Immigration and Wages in High-Skill Labor Markets

This paper is from the NBER. It examines the impact of the immigration of high-skilled labor on the earnings and finds that immigration has reduced earnings significantly:

Immigration In High-Skill Labor Markets: The Impact Of Foreign Students On The Earnings Of Doctorates, by George J. Borjas, NBER WP 12085, March 2006:   I. Introduction The rapid growth in the number of foreign students enrolled in American universities has transformed the higher education system, particularly at the graduate level. In 1976, 72.4 thousand foreign students were enrolled in graduate programs, making up 5.5 percent of total enrollment. By 2000, 232.3 thousand foreign students were enrolled, or 12.6 percent of enrollment. The impact is even greater at the doctoral level. For example, the fraction of doctoral degrees awarded to foreign students rose from 11.3 to 24.4 percent during the same period, with nonresident aliens receiving a remarkably high share of the doctoral degrees awarded in the physical sciences (36.5 percent of all doctorates awarded in 2000), engineering (50.7 percent), and the life sciences (25.7 percent).

Many of these newly minted doctorates remain in the United States after receiving their doctoral degrees... Despite the large size of the supply shock and despite the importance of the labor market for doctorates in determining technological change and economic growth, there has not been any study of how the foreign student program affects labor market conditions for high-skill workers. This paper provides an initial attempt to address a question...: Has the foreign student influx into doctoral programs harmed the economic opportunities of competing native workers?

There already exists a large literature ... that attempts to analyze the ... impact of immigration. This literature, however, has been in a state of flux and confusion for many years. The simplest supply-demand framework implies that “an increase in supply will, other things being equal, tend to depress wage rates” (Samuelson, 1964, p. 552). Despite the intuitive appeal of these theoretical implications, ... it has proved surprisingly difficult to demonstrate empirically that immigration has a sizable and significant adverse effect on competing workers. For example, a widely cited survey by Friedberg and Hunt (1995, p. 42) concludes that “the effect of immigration on the labor market outcomes of natives is small.” This conclusion is difficult to reconcile with the textbook model because the immigrant supply shock in recent decades has been very large, and most studies of labor demand ... conclude that the labor demand curve is not perfectly elastic (Hamermesh, 1993)...

This paper uses data drawn from the Survey of Earned Doctorates and the Survey of Doctoral Recipients to analyze the impact of the influx of foreign students on the earnings of doctorates. ... The empirical analysis ... clearly shows that a foreign student influx into a particular field at a particular time has a significant and adverse effect on the earnings of competing doctorates in that field who graduated at roughly the same time. A 10 percent immigration-induced increase in the supply of doctorates lowers the wage of competing workers by about 3 to 4 percent—remarkably similar to the elasticity estimates reported in Borjas (2003)... Because the magnitude of the immigrant supply shock in particular fields has been sizable, this elasticity implies that many doctorates employed in the United States, whether native-born or foreign-born, have experienced a substantial wage loss.

These results have implications in a number of different policy contexts. For instance, there has been a long-standing debate about whether immigration affects labor market conditions for native workers at all. This study ... seems to suggest that the supply-demand textbook model is correct after all: increases in labor supply do move the labor market along the demand curve and lead to lower wages for competing workers.

It is also the case that economic opportunities in high-skill labor markets are among the key determinants of the career decisions made by the native-born student population. The increase in the number of foreign doctorates has clearly reduced economic opportunities in some fields relative to others, and may be an important factor driving native students to enter particular occupations and avoid others. For example, the wage that could be earned by native postdoctoral workers employed in research biology labs is much lower than it would have been in the absence of the immigrant influx, perhaps motivating bright U.S.-born undergraduates to pursue professional occupations that have not been targeted by immigration. The low wage paid to postdoctoral workers in these biology labs, however, still offers a very attractive opportunity when contrasted to the compensation available in other countries, so that the incentives for even more foreign students to enter the United States are not greatly reduced. ... In the resulting equilibrium, research labs find that they must keep recruiting from abroad because “natives do not want to do the type of work that immigrants do.”...

Finally, although the foreign student program grew rapidly in the past three decades, this growth occurred without any systematic study of the costs and benefits that such a program entails for the native-born population. This paper addressed an important component in such a cost-benefit analysis—the cost borne by doctorates in the U.S. labor market. There is an equally important component that has not yet been analyzed carefully, namely the benefits of the program, such as the possibility that the sizable increase in the skill endowment of the workforce accelerates the rate of scientific discovery. These benefits could be very large and accrue to particular parts of the population, so that high-skill immigration may have significant efficiency and distributional effects that have yet to be analyzed.

    Posted by on Sunday, March 12, 2006 at 10:22 AM in Economics, Immigration | Permalink  TrackBack (0)  Comments (27)


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