Immigrants Don’t Drag Down The Economy — They Make Us All Richer

If basic human kindness doesn’t interest Trump, maybe a lesson in economics will.

Immigrants have long been a scapegoat when economies are sputtering, jobs are being lost, or security is a concern.

President Donald Trump’s planned wall along the Mexican border, for example, is premised on the notion that immigrants are pouring across the border (they’re not), taking Americans’ jobs (they haven’t) and committing a disproportionate share of crimes (they don’t).

The presumed threats of immigration were also front and center in Trump’s recently announced plan to deport millions of people who were in the U.S. illegally.

We saw something similar when U.K. voters opted for a “Brexit” from the European Union last year, after many British politicians cast immigrants as a threat to the physical, social, and economic welfare of natives.

While it has become a popular notion in the West that immigrants jeopardize the job prospects of natives, over 30 years of economic research (including my own) give strong reason to believe otherwise.

And, in fact, the opposite may be more likely: There’s evidence immigrants actually promote economic growth.

Why we blame immigrants for our troubles

Extensive reviews of research on the topic (like this one) show that most studies of how immigration affects native wages and employment found very little effect.

[quote position="left" is_quote="true"]A migrant interested in the same job may diminish your odds, but a single immigrant with a good idea might end up creating thousands of jobs.[/quote]

Although economists have yet to arrive at a complete consensus, decades of studies generally do not support the notion that immigration harms the economy, market wages, or native employment. So why do so many believe it when research suggests otherwise?

A central issue is that it is easy to think that the labor market is a zero-sum game and the number of jobs available is fixed. If everyone were competing over a finite number of jobs, more immigrants would mean fewer opportunities for natives, and vice versa, right? The reality, however, is much more complex, as I will show. Further, it is simply false to think of the number of jobs as fixed in the first place. Employment has been generally rising since 2010, which means more jobs for everyone.

A new migrant interested in the same job as you may diminish your odds a little, but a single immigrant with a good idea might end up creating hundreds or thousands of jobs that wouldn’t have existed had he or she not crossed an ocean or border (the impact of son-of-a-migrant Steve Jobs or South African tech entrepreneur Elon Musk comes to mind).

The labor market is dynamic, and both individual workers and employers constantly readjust to changing conditions. In fact, many economists have found evidence that natives quickly adjust to the labor market forces of immigration and in a way that often yields positive benefits.

Adjusting to immigration

The flow of immigrants into the U.S. does not affect all sectors equally. Immigrants are highly overrepresented in either very low-skilled manual and labor-intensive jobs or very high-skilled science and engineering occupations.

The types of immigrants who arrive and the areas in which they work are crucial for understanding the impact, and this concentration makes it possible to adjust to it.

In a 2010 study, Dartmouth economist Ethan Lewis found that companies in regions that saw inflows of less-skilled immigrants in recent decades adopted capital machinery at a lower rate.

Another study by Lewis and researchers Michael Clemens and Hannah Postel focused on an effort by the U.S. government in the 1960s to improve labor market conditions for native workers and boost their wages by excluding about a half-million seasonal workers from Mexico (braceros). It had precisely the opposite effect: Instead of raising wages or hiring more locals, farm owners reacted by adopting technologies that required less labor. The owners even switched their crops from ones that were less labor-intensive to ones whose production could be more easily mechanized.

In other words, the ability of businesses to substitute between technology and less-skilled immigrant workers means wages won’t necessarily fall when immigration increases. And conversely, this means excluding or limiting immigration won’t necessarily lift wages or benefit natives in other ways.

Economists Giovanni Peri and Chad Sparber found that inflows of immigrants — whether low- or high-skilled — induced native workers to shift to jobs more complementary in nature and where they have a comparative advantage. This type of shifting also limits the impact on native wages and employment.

For example, natives working in fields receiving large inflows of low-skilled immigrants — who had a comparative advantage in manual and physical labor — moved toward occupations requiring more communication-intensive tasks. They observed a similar phenomenon when high-skilled immigrants with comparative advantages in fields like science and mathematics enter the U.S. labor force. Rather than being laid off, native skilled workers moved to occupations that required more managerial and communication skills.

Just as natives move toward occupations in which they possess a comparative advantage relative to immigrants, they can also move across skill groups by acquiring education. Several economic papers, like ones by Jennifer Hunt and Will Olney and Dan Hickman, found that natives tend to acquire more education following the arrival of less-skilled immigrants. Increases in education benefit the long-term prospects of natives, which means they are no longer competing in the less-skilled labor market.

Growing the economic pie

But beyond simply doing no or little harm to natives, there’s evidence that immigrants actually benefit the overall economy — which helps everyone.

Recall that immigrants in the U.S. are highly represented in high-skill science and engineering occupations. Economists have long understood that economic growth is generated by innovation, which in turn comes from research and development. A study by Stanford economist Charles Jones found that nearly half of U.S. economic growth since the 1950s is attributable to the increase in the number of scientists and engineers engaged in research and development.

Combine this with the fact that about half of the growth in the number of scientists and engineers in the U.S. since the 1980s was due to immigrants, and it is not difficult to understand the connection between skilled immigration and economic prosperity.

In a recent paper, co-authored with Giovanni Peri and Chad Sparber, I formally tested this idea. We examined whether increases in skilled foreign-born scientists and engineers in the U.S. from 1980 to 2010 improved productivity. We found modest gains in real wages for native skilled workers. And no negative impacts on native employment.

Complementing our finding is research by economists William Kerr and William Lincoln, who found that skilled immigrants increase innovation, thereby generating productivity gains for native workers most ready to take advantage of such technological advances.

As long as immigrants continue to innovate and invent, they can continue to boost economic growth.

Who is actually most hurt by immigration

Although most studies don’t find adverse impacts on natives, that does not mean they have not found adverse impacts at all. In fact, the group that most commonly appears to be negatively affected by new immigrants are other recent immigrants.

Recent immigrants are most easily substituted with new immigrants, tend to live and work in the same labor markets that new immigrants enter, often do not have the skills to move toward communication-intensive jobs, and face restrictive policies that limit access to higher education. As such, their labor market prospects appear to deteriorate when new immigrants arrive.

Other studies that take a general focus on the labor market and find negative effects have been debated from time to time among academics, however, with little consensus.

A recent paper, however, calls into question many of these negative findings, showing researchers have been using measures of immigration that carry an inherent negative bias. Using correct measures eliminates the negative impact.

[quote position="full" is_quote="true"]Illegal immigration to the U.S. has actually been falling for the past nine years.[/quote]

Facts are facts

All in all, most of the research suggests that the fear that immigration will drastically harm native wages and job prospects is by and large unsubstantiated. In fact, much work has shown the labor market is dynamic, and that native workers and employers take measures to evade any competitive forces from immigration.

While some pundits and presidential candidates will likely continue to claim immigration is harming our economy, that won’t alter the evidence economists have uncovered in study after study. By the same token, claims that immigrants are flooding across our southern border (so we need a giant wall to keep them out) doesn’t change the fact that illegal immigration to the U.S. has actually been falling for the past nine years.

Though it is easy to believe that foreigners will overcrowd a frail, zero-sum labor market, decades of research has shown the only thing that sums to zero are the estimated effects of immigration.

This is an updated version of an article originally published on Aug. 21, 2016.

via David Leavitt / Twitter

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