Immigration and Labor Markets: The Facts

Immigration built America. The economic virtues of immigration, from the perspective of both the immigrant and the U.S., are summarized beautifully by the words of this 19th century Irish poster:

In the United States, labor is there the first condition of life, and industry is the lot of all men. Wealth is not idolized, but there is no degradation connected with labor; on the contrary, it is honorable, and held in general estimation. In the remote parts of America, an industrious youth may follow any occupation without being looked down upon or sustain loss of character, and he may rationally expect to raise himself in the world by his labor.

In America, a man’s success must altogether rest with himself. It will depend on his industry, sobriety, diligence and virtue; and if he do not succeed, in nine cases out of ten, the cause of the failure is to be found in the deficiencies of his own character.

The contribution of immigrants to the dynamic U.S. economy contributed to economic growth and would continue to do so in the future. For this reason, pro-growth conservatives have been solidly in favor of reform of the legal immigration system to enhance upward mobility and the standard of living.

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“In the United States, labor is there the first condition of life, and industry is the lot of all men.”

Suddenly, however, some conservatives led by Senator Jeff Sessions are not only opposed to legislation that would provide a path to legal status for undocumented immigrations, but also supporting his call to choke back legal immigration. One would assume that such an apparent apostasy would be supported by a mass of new facts on the immigrant experience. Sessions argues:

  • “In the 1960s, Congress lifted immigration caps and ushered in a ’second great wave.’ The foreign-born population more than quadrupled, to more than 40 million today. This ongoing wave coincides with a period of middle-class contraction.” 
  • This happens because “… millions of low-wage foreign workers are legally made available to substitute for higher-paid Americans.”
  • And the future is worse due to the fact that “The percentage of the country that is foreign-born is on track to rapidly eclipse any previous historical peak and to continue rising.”

Taken at face value, these points probably lead many sensible Americans to reconsider the pace of legal immigration. Unfortunately, this view represents a selective reading of the macro effects displayed by the broad sweep of U.S. economic history. And it is especially inconsistent with new research on the impact of immigration on the ground.

Consider first the broad economic impacts. The chart below shows decade-by-decade changes in the fraction of the population that is foreign-born (the blue line, left scale) and changes in real (inflation-adjusted to 2009 dollars) Gross Domestic Product (GDP) per capita (the red line, right scale). It reveals several points. Most important, the standard of living never falls (the changes in GDP per capita are always positive no matter what is the magnitude of changes in the foreign-born). Second, there is no real correlation (formally, it is 0.28) between the two series; sometimes they go in the opposite direction (the Senator’s contention) but often they move in the same direction.

The narrow focus on the 40’s and 50’s versus the 60’s and later plays right into the analytic error of omitted effects. In the earlier period, the U.S. had an effective global monopoly as the rest of the industrialized world recovered from the ravages of World War II. In the latter period there was immigration, true, but there was also the explosion of the baby-boom generation, the entry of millions of women into the labor force, and vast internal migration that accompanied the civil rights movement. Those effects likely dominated any labor market impacts of immigration.

DHE_Immigration

The conceptual framework is out of step with the reality now and in the future. For traded goods, U.S. workers are already competing with the foreign-born workers. Competition is global; it does not matter whether it lives across the street, across the state, or across an ocean. Wages are set globally and respond to skills; they do not respond by changing the home address of those skills. For non-traded goods and services there is not only an impact on the supply of labor, there is an impact on the demand for goods and services. The latter impact raises wages for natives and the foreign-born alike. For this reason, most studies find no link between immigration and wages; a few find that it raises the wages of the native-born.

In particular, a recent study by scholars Gihoon Hong and John McLaren looked at the experience of over 9 million workers in 219 metropolitan labor markets between 1980 and 2000. They find that each immigrant creates 1.2 jobs for local workers. Most of these go to native workers and over 60 percent are in non-traded goods and services. As they conclude “Overall, it appears that local workers benefit from the arrival of more immigrants.”

That is good news and the reason that no one should fear the Census Bureau projection that the foreign-born fraction of the population will exceed its historic high of 14.6 percent in the decades to come. The U.S. economics appear beneficial. And Canada and Australia are countries with dramatically larger immigration flows (as a fraction of their populations) and they are wealthy and cohesive democracies.  

America has a proud legacy as a free and welcoming society that embraces the benefits of immigration. It should stick to its principles in the years to come.

Douglas Holtz-Eakin is President of the American Action Forum. You can follow him on Twitter @djheakin.