The Impact of Immigration on the American Workforce

Five Reasons Immigration Can Impact Wages

Immigrants Might Work for Less. For the most part, the research generally indicates that a few years after arrival, immigrant wages are very similar to those of natives in the same occupation with the same demographic characteristics. This may not be true in all places and at all times, but in general it seems that only newly arrived immigrants undercut native wages. This is probably true of illegal aliens as well. While immigrants as a group and illegals in particular do earn less than native-born workers, this is generally due to their much lower levels of education. In other words, immigrants are poorer than natives, but they generally earn wages commensurate with their skills, which as a group tend to be much lower than natives.

Immigrants Are Seen as Better Employees. There is certainly a lot of anecdotal evidence and some systematic evidence that immigrants are seen as better workers by some employers, especially in comparison to native-born African Americans. It is certainly not uncommon to find small business men and women who will admit that they prefer Hispanic or Asian immigrants over native-born blacks. This is especially true of Hispanic and Asian employers, who often prefer to hire from within their own communities. We would expect this preference to result in lower wages and higher unemployment for those natives who are seen as less desirable.

A study of the Harlem labor market by Newman and Lennon (1995) provides some systematic evidence that employers prefer immigrants to native-born blacks. Their study found that although immigrants were only 11 percent of the job candidates in their sample, they represented 26.4 percent of those hired. Moreover, 41 percent of the immigrants in the sample were able to find employment within one year, in contrast to only 14 percent of native-born blacks. The authors concluded that immigrants fare better in the low-wage labor market because employers see immigrants as more desirable employees than native-born African-Americans. I have also found some evidence in my work that in comparison to whites, there is an added negative effect for being black and in competition with immigrants.

The Threat of Further Immigration. While no real research has been done on this question, the threat of further immigration may also exert a significant downward pressure on wages. To see how this might work consider the following example: Workers in a meat packing plant that has seen a sudden rise in the number of immigrant workers will very quickly become aware that their employer now has another pool of labor from which he can draw. Thus, even if immigrants remain a relatively small portion of the plant's total workforce, because of our relatively open immigration policy, the potential of further immigration exists. Therefore, native-born workers curtail their demands for higher wages in response to the threat of more immigration and this in turn holds down wages beyond what might be expected simply by looking at the number of immigrants in an occupation or even the country as a whole.

Immigration Increases the Supply of Labor. By far the most important impact immigration has on the workforce is that it increases the supply of labor. Based on the March 2005 Current Population Survey, there were almost 21 million adult immigrants holding jobs in the United States. However, they are not distributed evenly across occupations. In 2005, 30 percent of immigrants in the labor market had no high school education, and for those who entered in the preceding five years, 34 percent lacked a high school degree. In comparison, only 8 percent of natives in the work force did not have a high school education. Overall, immigrants comprise 15 percent of the total workforce. But they are 40 percent of those without high school diplomas in the work force, while accounting for 12 percent of workers with more than a high school education.

The occupational distribution of immigrants also shows their high concentration in jobs that require relatively few skills. In 2005, immigrants made up 6 percent of persons in legal services occupations (primarily lawyers and support staff), and 9 percent of individuals in managerial jobs. In contrast, they comprised 34 percent of workers doing building clearing and maintenance, and 26 percent of construction laborers. This means immigration has increased the supply of the some kinds of workers much more than others. As a result, any effect on the wages or job opportunities of natives will likely fall on natives employed in less-skilled and low-paying occupations. Given that they face much more job competition, it should not be surprising that less educated workers generally have a less favorable view of immigration. In contrast, more educated and affluent workers who generally have a more favorable view of immigration tend to see immigrants as only "taking jobs Americans don't want."

Workers not in Competition with Immigrants. If immigration reduces wages for less educated workers, these wages do not vanish into thin air. Employers now have more money either to pay higher wages to more educated workers or to retain as higher profits. The National Research Council, in a 1997 study entitled "The New Americans," estimated that immigration reduced the wages of workers with less than a high school degree by about 5 percent. These workers roughly correspond to the poorest 10 percent of the workforce. But this reduction caused gains for the other 90 percent of workers equal to one or two tenths of one percent of their wages. The impact on educated workers is so small because workers at the bottom end of the labor market earn such low wages that even a significant decline in their wages only generates very modest gains for everyone else.

For reasons explained in greater detail in the NRC report, the aggregate size of the wage gains for more educated workers should be larger than the aggregate losses suffered by Americans at the bottom of the labor market, thereby generating a net gain for natives overall. The NRC's findings mean that the wages of workers without a high school degree are $13 billion lower because of immigration, while the wages of other natives are roughly $19 billion higher, for a net gain of $6 billion. Of course, as a share of their income the losses to less-educated natives are much larger than the gains to other workers. And as share of the total economy the gain is very small. The two Harvard economists who did the NRC's labor market analysis argued that the benefit to natives, relative to the nation's $8 trillion economy at that time, is "minuscule." However, it should also be noted that while the effect on natives overall may be minuscule, the immigrants themselves benefit substantially by coming here.

by Steven A. Camarota