2003 June 26 Thursday
Immigration Lowers The Price Of Labor

George J. Borjas of the Kennedy School of Government at Harvard University has been working on the problem of labor market effects of immigration for 20 years. He is coming out with an important new paper in the Quarterly Journal of Economics on the subject entitled "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market (PDF format).

This paper introduces a new approach for estimating the labor market impact of immigration. The analysis builds on the assumption that similarly educated workers who have different levels of experience are not perfect substitutes. Defining skill groups in terms of educational attainment and work experience introduces a great deal of variation in the data. In some years, the influx of immigrant with a particular level of schooling mainly affects younger workers, in other years it mainly affects older workers. In contrast to the existing literature, the evidence reported in this paper consistently indicates that immigration reduces the wage and labor supply of competing native workers, as suggested by the simplest textbook model of a competitive labor market. Moreover, the evidence indicates that spatial correlations conceal around two-thirds of the national impact of immigration on wages.

My estimates of the own factor price elasticity cluster between -0.3 and -0.4. These estimates, combined with the very large immigrant influx in recent decades, imply that immigration has substantially worsened the labor market opportunities faced by many native workers. Between 1980 and 2000, immigration increased the labor supply of working men by 11.0 percent. Even after accounting for the beneficial cross-effects of low-skill (high-skill) immigration on the earnings of high-skill (low-skill) workers, my analysis implies that this immigrant influx reduced the wage of the average native worker by 3.2 percent. The wage impact differed dramatically across education groups, with the wage falling by 8.9 percent for high school dropouts, 4.9 percent for college graduates, 2.6 percent for high school graduates, and barely changing for workers with some college.

The paper is 55 pages long and the body of it features a great many equations that are only going to be of interest to economists with the requisite training to make sense of them. However, he has a few pages of introduction and a conclusion that are both readily understandable by the layman.

Notice that he italicises the "is" in the title of the paper. A downward sloping demand curve refers to a plot where supply is on the X horizontal axis and price is on the Y vertical axis. As more supply becomes available the price that purchasers are willing to pay drops. Some have argued that increasng the supply of labor does not exert downward pressure on labor pricing. The demand curve, in their view, does not slope down because, presented with more labor, the economy expands and develops greater economies of scale and greater demand for labor. Borjas's result suggests that labor really does follow the pattern of classic supply curves and slopes down to have lower prices when more supply is available.

Borjas acknowledges that his work is far from a complete study of all the effects of immigration. He even explicitly acknowledges that an influx of high skill immigrants may spur technological changes that may bring important benefits. However, one big problem with the current influx of immigrants is that most of them are low skilled (two thirds of Mexican immigrants did not graduate from high school - note that some never attended high school at all) and hence not going to make contributions to advances in science and technology.

Share |      By Randall Parker at 2003 June 26 05:13 PM  Immigration Economics


Comments
Gracián said at June 26, 2003 6:18 PM:

Actually the data says that 2/3 of Mexican immigrants lack a high school education, not that they are dropouts. In other words, a significant number of them never even got as far as high school. There are lots with 5th grade educations and so on, many being illiterate even in Spanish.(Some of them don't even speak Spanish, but Mayan and suchlike).http://www.cis.org/articles/2001/mexico/labor.html

Jake said at June 28, 2003 8:04 AM:

As predicted, we are experiencing a demographic native labor shortage that started in the early nineties and will continue until 2007. Then demographics shift and we will then have a native labor surplus for some years.

Immigration helped us get over the shortage period but now further immigration is going to lead to real social problems.

At a minimum we should get illegal immigration under control.

Bob said at June 28, 2003 3:15 PM:

Jake,

I don't think 'shortage' and 'surplus' have any economic meaning. There is only a minimum and a maximum price at which at least one commercial transaction will take place and some quantity of transactions that will take place at each price in between.

Massive immigration drives down wages, burdens social welfare programs of all kinds, overburdens law enforcement, and deprives source countries of important income streams. These are all reasons to get immigration under control that have nothing to do with surpluses or shortages.

While it once made sense to populate vast stretches of unimproved lands by importing hordes of subsistence farmers, it does not make sense to increase the burden on dense urban areas by importing hordes of subsistence laborers.

Joseph Hertzlinger said at June 28, 2003 9:47 PM:

Outsourcing to India might possibly lower white-collar wages without lowering the how much white-collar workers have to pay to get something fixed. Inviting in more blue-collar immigrants should restore the balance.

Randall Parker said at June 29, 2003 12:06 AM:

Joseph, the problem with the low wage and low skill workers is that they pay less in taxes and yet cost more in social spending. For instance, the Hispanic rate of lacking medical insurance at over 37 percent is about 2 and a half times the white rate. What is the result of this? They ask for increases in Medicaid spending (the Hispanic reps in the California legislature vote for more state medical spending and the spending is rising very rapidly) and show up at emergency wards to get free care - at least free to them.

The low wage workers cost less to those who hire them but then cost additional money to the rest of us.

BTW, if white collar wages decline this will be an argument against letting in more unskilled workers because the higher skilled workers will have lower incomes with which to pay taxes and the government less able to pay the additional costs of low skill immigrants.

Gamal said at April 5, 2008 3:28 AM:

Dear Sir,
I want to immigrate to USA with my family, I'm a business man , have a travel agency in Cairo - Egypt, I want to buy a house in & start business in VA
I'm 48 years old , married my wife 47 years old, she work in the university & I have one son he is a pilot 21 years old, can you help me.

Regarsd,
Jimmy

eol@eoltours.com

mariam zoumana said at February 5, 2009 8:34 AM:

please lowers i want you to help me with the immigration steff because my hansband is there and i don't know what i have to do to get out there please sent me a messeg if you got my email thank you.


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