Immigration and the Labor Market

Before the entrance of foreign-born workers to the U.S. labor market, the amount of labor that workers are willing to supply to employers is represented by the curve labeled S 1 in Figure 1 . Thus, the skill composition of foreign-born vis-a-vis native-born workers is expected to influence which native-born workers' labor market outcomes might benefit from or be harmed by immigrant inflows. The model also assumes that, in the short run, immigration affects labor supply but not labor demand. But, if immigrants are concentrated in particular geographic areas, then native-born workers who live in those communities and possess characteristics similar to those of foreign-born workers might be affected. Most of the inter-area studies have found little if any statistically significant and economically meaningful difference between the wage and employment experiences of native-born workers—overall, or disaggregated by race, gender, or skill level—in areas with high versus low concentrations of immigrants. A few spatially based studies have estimated a slight negative impact on a small share of the U.S. labor force—low-skilled natives , defined as persons who did not graduate from high school. The mobility of labor, capital, and goods between areas thus could make it difficult for cross-city studies to detect the labor market consequences of immigration. Na tional analyses typically have estimated that, by immigration ' s changing the nation ' s skill composition toward relatively more inexperienced workers who lack a high school degree than otherwise would have been the case , immigrants have harmed the labor market prospects of low-skilled native-born workers . However, the extent of the adverse wage effect appears sensitive to the definition of low-skilled workers according to other national and cross-city studies . Early studies that utilized the "factor-proportions" methodology were faulted because they did not directly estimate the responsiveness of natives' wages to the immigration-induced increase in the relative supply of low-skilled workers, and for this reason, might overstate immigrants' wage effect on U.S. workers. Economy-wide analyses also might overstate the impact of immigration in the long run if, for example, they do not take into account natives adjustment to the increased presence of immigrants by completing more years of schooling or choosing different fields of study which takes them out of competition with immigrants for jobs in which foreign-born workers have made substantial inroads. Enchautegui examined how much of the decline during the 1980s in the level of real (inflation-adjusted) wages among workers without a high school diploma was due to the influx of low-skilled foreign-born labor. He found that an increase in the supply of immigrant labor by skill group (defined by educational attainment and years of work experience) over the 1960-2000 period had a significantly adverse impact on the wages of native-born men with whom they competed: a 10% increase in the number of workers in a given skill group reduced the absolute weekly wage of similar native-born males by some 4%, and their employment (i.e., weeks worked), by some 3%. Even after allowing for the positive earnings impact that low-skilled (high-skilled) immigrants can have on native-born workers in high-skilled (low-skilled) groups, Borjas estimated that immigration over the 1980-2000 period reduced the wage of native-born workers in each skill group. This is in part because they found workers with at most a high school degree were close substitutes for those without one, which diminishes the competitive effect of immigrants on the least skilled native-born workers.
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.