Immigration, labor markets, and productivity.

• Author: Peri, Giovanni

According to a survey in 2008, about 50 percent of Americans perceived immigration as a problem rather than as an opportunity (Transatlantic Trends 2008). Similar surveys conducted in the pre-recession years of 2007 and before also showed that Americans were much less supportive of more open immigration policies than they were of other aspects of globalization such as free trade or free capital movements (Pew Research Center 2007). Since the onset of the recession of 2008-2009 and during the jobless recovery of 2010-11, public opinion about immigration further deteriorated. The idea that immigrants take American jobs, depress national wages, and threaten the U.S. economy has become even more rooted, as often happens during economic recessions. The political discourse accompanying the economic and labor market impact of immigrants is very intense and pervasive in the media but often generates "more heat than light" (Goldin, Cameron, and Balaarajan 2011: 163).

Americans are not alone in fearing immigrants. Europeans have grown extremely concerned, too. Immigration flows have surged dramatically during the last 10 years in some EU countries. From 1999 to 2009, the share of foreign-born in the population in Spain rose from 3 to 13.5 percent, and in Italy from 2 to 7 percent. Other countries with a longer history of immigration and smaller flows during the last decade are still dealing with issues of integrating previous immigrants (e.g., the United Kingdom and Germany). The tone and quality of the debate is, if possible, even more acrimonious in Europe and politicians have sometimes catered to these anti-immigration sentiments. In the UK all the main parties in the 2010 elections advocated lower levels of immigration. In Spain the Socialist government has promoted during the last two years a "pay to go" initiative offering cash-payments for immigrants to leave the country.

Within the current climate of perception of immigration as a cost to the host country, what do economists have to offer? Can we help to increase the "ratio of clarity to volume" that is usually minimized in the public discourse on immigration? By offering the simplified (but also somewhat enlightening) perspective of considering migrants mainly as workers and analyzing the gains and costs that they generate for themselves and for the host country, we can make progress in clarifying misconceptions. In this article, I take a strictly economic perspective on migration and consider migrants as workers. While not all international migrants move with the immediate prospect of a job, many of them do. Those who do not, such as refugees and students, still consider the improvement of their future economic opportunities as one of the main reasons for the move and eventually look for a job.

I begin with a global perspective, which is the best way to understand the significant opportunities migrants generate for the world and for themselves. I then describe today's immigrants in terms of their skills and productive characteristics, and focus on the effects immigrants have on their host-country labor markets--notably on wages and employment. I specifically discuss the recent evidence, and some theory, relative to the U.S. labor market. Throughout the analysis I distinguish between two types of migrants: those with high and those with low levels of education. That distinction is important for analyzing the role migrants play in the labor market and in the productive structure of the receiving economy. I briefly summarize the evidence on immigration and the labor markets in some other rich countries (mainly European) and discuss what we can learn from such comparative perspective. I conclude with some guiding principles for thinking about immigration policies.

Migrations: The World Perspective

In contrast with the popular perceptions described in the introduction, if one looks at several recent reports and studies on international migrations by economists and research institutions, their main emphasis is on the large size of global gains obtainable by increasing, even by a small measure, the mobility of people. A study by the World Bank (2005) estimated that an increase in international migration equal to 3 percent of the labor force of developed countries would produce gains (to be shared globally) of $356 billion. Pritchett (2006) argues that the gains from increasing international mobility, even by a little, are much larger than those that can be obtained by fully liberalizing international trade, estimated in 2005 to be $104 billion. In the more extreme case of a full opening of more wealthy, Organization for International Cooperation and Development (OECD) countries to workers from the rest of the world, Klein and Ventura (2007) calculate a potential massive increase in the world GDP on the order of 150 percent over 50 years. For economists, in short, international migration has the formidable ability of increasing total world income and productivity, generating huge global economic opportunities. The reason is very simple. By allowing people to move to countries where they can produce four to five times more value per hour of work on average than in their country of origin, migrations allow the deployment of world human resources in a massively more efficient way (Clemens, Montenegro, and Pritchett 2009). Migrants receive a large share of these productive gains in the form of increased personal income, and bear most of the costs of migrations. The relevant questions that we need to tackle, however, are these: What is in this exchange for the host country? Are the huge gains of immigrants taking place at the expenses of native workers' jobs and wages? Or can they gain too from this efficient world allocation of workers?

Let me use a story to illustrate what it would take, in terms of technology, to achieve the same productive results that are achieved for the United States by immigration. Let's think of a spectacular new company, called INTER-MIG U.S.A., that opens for business in the United States and in some less developed countries. This company rents out wonderful machines, computer-robots we may call them. They come in two types: One can perform tasks that are hard and tedious, that may need to be done nonstop night and day or are simply time consuming and require very good manual skills. Examples of those tasks are picking fruit, working in the sun pouring concrete, building walls, mowing lawns, cleaning homes, taking care of young children, assisting old people day and night, or driving vehicles. The rental cost of these machines is reasonable: much less than the wage of an average American worker. Those machines are also very reliable: they are long-lasting and rarely sustain damage or break down. American families, firms and offices would be immensely excited at the new opportunities that those machines open to them. More educated women could finally look for a job, leaving part of the care of the house, children, and parents to these computer-robots. Firms could finally move their workers out of manual tasks and move them to supervise and coordinate the work of these machines. They can better use the skills of their American workers to create new products and services, meet production orders, expand output and cut the costs, thanks to the machines.

The second type of computer-robot performs completely different tasks. These machines work in laboratories and research centers, on engineering projects, and can help scientists to come up with new ideas, new methods, and innovative solutions. Each American engineer or doctor or professor may envision a team of computer-robots increasing the ability of her own laboratory, institute, or research center to produce innovative output. The machines are often better than the American scientists themselves. American law firms, companies, hospitals, and schools can rent the machines, improve their services, and specialize their workers in a way that makes the best use of these prodigious machines. This creates fantastic new opportunities for businesses in the United States.

INER-MIG U.S.A. operates also in developing countries. What it does there, say in Mexico, China, or India, is to associate each machine (of the first or second type) to a worker. Every time that the machine is rented in file United States, the company pays a salary to a worker in that country that is five to six times the local average, and has the worker...