Effect of Immigration on US Wages

“Yes, Immigration May Lift Wages,” Virginia Postrel, NYT, November 3, 2005
"Rethinking the Gains From Immigration: Theory and Evidence From the U.S.," Gianmarco I. P. Ottaviano of the University of Bologna and Giovanni Peri of the University of California, Davis (The paper is available at www.econ.ucdavis.edu/faculty/gperi.)

From 1990 to 2000, the number of people working in the United States grew by more than 9 million, or around 8%, from immigration alone. What effect did all those new foreign-born workers have on the wages of native-born Americans?

In a new working paper for the National Bureau of Economic Research, two economists estimate that immigration in the 1990's increased the average wage of American-born workers by 2.7%.

Although it still relies on a highly stylized model of the economy, their paper adds two complexities that bring it closer to reality.

First, the two economists assume that businesses can make additional capital investments to take advantage of the expanded supply of workers. Companies may open new restaurants or stores, add new factory lines or build more houses.

In their model, as in the real world, "investment adjusts not to keep fixed the amount of capital but to keep fixed the return to capital," Professor Peri said. As long as businesses can profitably add new production, they hire more workers, and wages do not necessarily go down. Instead, he said, "more workers means more business."

As businesses expand, hiring foreign-born workers to do one job may also require hiring more native-born workers with complementary skills. Immigrant engineers, for instance, may create demand for native-born patent lawyers and marketing executives.

That is the paper's second refinement. It assumes that immigrants do not always compete for the same jobs as American-born workers. The two groups are not "perfect substitutes," even when they have similar education and the same occupation.

Immigrants often bring different skills to the American labor force, and concentrate on different occupations from natives. Among high school dropouts, the paper notes, the "foreign-born are highly overrepresented in professions like tailors (54 % were foreign-born in 2000) and plaster-stucco masons (44% were foreign-born in 2000)." By contrast, American-born workers make up more than 99% of all crane operators and sewer-pipe cleaners.