Does immigration reduce wages?

• Author: de Brauw, Alan
• Position: Essay

One of the most prominent issues in the 2016 presidential election was immigration. All of President Donald Trump's policy proposals--building the border wall, increasing enforcement along the Mexican border, mandating E-Verify for new hires, modifying the structure of the H-1B visa program, and others--are designed to reduce the number of immigrants working in the United States in order to help increase the wages of native workers.

The Immigration and Wage Debate

A decrease in the supply of immigrants can only increase native wages if immigrants and natives are substitutes for one another; in other words, if they compete for the same jobs. According to the types of his policies, President Trump appears to believe that natives and immigrants compete for both low-skilled and high-skilled jobs. Low-skilled native workers would be helped by the wall as they would face less competition from illegal immigrants. High-skilled workers would face less competition from immigrants who arrive on H-1B visas and who work in high technology jobs.

An alternative view supported by much of the academic literature is that natives and immigrants largely take different types of jobs, potentially because they have different comparative advantages, even among less educated workers. If so, then the native wage response to a reduced supply of immigrant workers would not be large if it existed at all. It is not difficult to find examples of occupations that native workers do not enter, such as seasonal farm labor (Clemens 2013). However, those occupations could simply be isolated examples or potentially anecdotal.

Economists typically measure the responsiveness of wages to immigrants using the wage elasticity of immigration--the percentage change in wages one can expect for a given percentage change in the quantity of immigrants. Literature on the U.S. labor market suggests the wage elasticity of immigration is about -0.2, meaning that if the number of migrants were to increase by 10 percent, then wages would fall by 2 percent, on average. However, this average masks substantial disagreements among economists who study immigration. Some economists have found that wages do not change at all with an increased supply of immigrants (Card 1990, Card and Peri 2016). Others, such as Harvard University economist George Borjas, find a greater wage elasticity of immigration that is between -0.3 and -0.4 (Boqas 2003, Borjas and Katz 2007).

One reason for the substantial disagreement about the effects of immigration on wages is that there are several different empirical methods that economists use to study the wage relationship even though there is a relatively uniform theory (Altonji and Card 1991). Each empirical method uses a different way of measuring variation in the quantity of immigrants to generate wage estimates. Dustmann, Schonberg, and Stuhler (2016) summarize the three major methods as (1) the national skill-cell approach, (2) the pure spatial approach, and (3) a mixed approach. The national skill-cell approach uses variation in the entry of immigrants to different education-experience groups within the national population. The pure spatial approach uses variation in the immigrant flow across cities or regions. The mixed approach uses variation in immigration inflows across both education groups and regions.

Different methodologies produce...