Immigration: The Effects on Low-Skilled and High-Skilled Native-Born Workers

Abstract

[Effects] The large influx of immigrants in recent decades has led to an equally long debate over their effect on the labor market outcomes of native-born workers. Economic theory posits that an increase in the supply of labor, such as from immigration, will reduce the wage employers are willing to pay all workers (native-born and foreign-born) in a given labor market. As a result, some of the workers who had been earning a higher wage before the increase in labor supply will be unwilling to accept a lower wage and they will leave that labor market. The economic model assumes, however, that labor is homogenous. But, workers enter the United States possessing different skill levels and they therefore will compete with (i.e., put downward wage pressure on) native-born workers possessing very similar skill levels. Economists have conducted empirical studies to measure the labor market effects of immigration that take into account the skill composition of foreign-born vis-à-vis native-born workers. They have employed two different approaches to do so. The concentration of foreign-born workers in certain cities and skill groups led some economists to posit that immigration’s greatest impact would be felt by similarly skilled native-born workers living in those areas. Studies thus have compared differences in labor market outcomes between native-born workers who live in high- versus low-immigrant areas and who most often compete for jobs with foreign-born workers; given the composition of the recent immigrant flow, these would be low-skilled U.S. workers. Most inter-area analyses have found scant evidence that foreign-born labor adversely affects the labor market prospects of U.S. workers in general. A few cross-city studies have estimated a slight negative impact on low-skilled natives. Other economists have argued that the cross-city approach underestimates immigration’s consequences because it assumes that labor, capital, and goods do not rapidly adjust to the immigration-induced increase in the supply of labor. If, for example, native-born competitors quickly leave labor markets in high-immigrant areas, their movements would spread any wage effects due to immigration across the nation, and thereby make it difficult for spatially based research to detect any impact. Some analysts, therefore, have concluded that immigration’s labor market effects can best be identified by examining data at the national level. For many years, national studies estimated that immigration in the short-run substantially reduced the wages of native-born workers in each skill (education-experience) group. Native-born workers who lacked a high school diploma were determined to be the most severely affected. More recent national studies have estimated the adverse wage effect of immigration in the short run to be much smaller, even among the least skilled. The different results in part stem from the finding that workers with at most a high school degree are close substitutes for workers without a degree, which dampens the competitive effect of immigration on the least skilled workers. A 2009 study that utilized cross-city data similarly estimated that the two groups do not compete with one another; as a result, any adverse effect of low-skilled immigrants is not concentrated on the relatively few native-born workers who are high school dropouts.