The Economic Consequences of U.S. Immigration: Part 1

Period of Adjustment Short-term: prices adjust Long-term: quantities adjust Short-term: immigrants do not learn new skills or language Long-term: immigrants invest in new skills, language, and education and immigrants have native-born children who compete in the labor market with those of the native-born residents

The question that has driven the debate Do immigrants cause a reduction of the wage rates of native workers and previous immigrants and/or displace them from jobs? Research on the economic consequences of U.S. immigration has generally found: 1. Little or no wage effect on native workers; 2. A modest wage effect on other immigrants in areas of high immigrant concentration; 3. Little or no employment effect on native workers; 4. A slightly negative employment effect on other recent immigrants; and 5. Case studies show some negative effects for specific types of workers or in specific regions, but positive effects in other instsnces.

This finding of little or no effect of immigrants on natives importantly underlies the new immigration law passed in 1990 and effective October 1, 1991, that greatly increased quota ceilings and revamped numerically restricted immigration in other ways (that we have previously discussed).

Three possible reasons for the difficulty in measuring significant impacts of immigrants on native workers Immigration makes a relatively small contribution to national labor force growth. 2.In an economy with efficient markets, the effects of immigration are quickly arbitraged across the nation or are spread across the nation due to migration out of affected areas and interregional/international trade. 3.Immigration involves offsetting shifts of labor demand and labor supply relationships.

1. Immigration makes a relatively small contribution to national labor-force growth. Problem The contribution that immigration makes to labor force growth varies widely across the country, which should in itself provide an ideal opportunity for investigators to uncover the effects of immigration.

2. In an economy with efficient markets, the effects of immigration are quickly spread across the nation due to migration out of affected areas and interregional/international trade Problems a.Immigration is continuing and typically not episodic and it continues to focus on the same areas (e.g., California). Are markets so efficient as to dissipate the effects more or less immediately? b.Many regional studies show that exogenous shocks sometimes require years to work themselves out. Why does even episodic immigration (e.g., the Mariel boatlift of Cuban refugees in Miami in the early 1980s) not seem to have any measureable effects?

3. Immigration involves offsetting shifts of labor demand and labor supply relationships. Most of us recognize that immigration exerts its influences on the native population through many diverse and interrelated channels. Although many of these channels have been studied in the context of other nations or other times, little or no attention has been given them in the context of contemporary U.S. immigration.

Factors contributing to a migration-induced shift of the local labor demand schedule: The migrants may possess better The migrants may possess better skills, more inventiveness, and greater innovative talents than the population of the receiving area. 1. The migrants may possess better skills, more inventiveness, and greater innovative talents than the population of the receiving area. In short, the average migrant may embody more human capital than the average indigenous resident in the form of education, accumulated skills, or entrepreneurial talent. Since we have some evidence that the better-educated are more highly represented in migration streams, we have some evidence to support this possibility. VMP=MPP x P r

2. Apart from their human capital, migrants may own physical and financial capital that they bring with them. This would cause the marginal product of the marginal worker to increase (due to the increased stock of capital and perhaps due to the increased investment resulting from an increase in supply of loanable funds). 3. Migrants may possess sources of income other than their labor services. Today over 1/3 of U.S. personal income is from sources other than wage and salary income.

4. Borts and Stein have stressed the idea that migrants caused increased investment in receiving localities. This investment could be in the form of housing and social infrastructure, for example. This is an issue where some good work is empirically implementable and would be valuable. 5. Migrants may influence the price of locally provided goods and services due to the changed demands they may cause for such goods and services. Certain migrants, such as retired persons, may even affect the demand for locally produced goods and services without affecting the supply of labor.