Dec 09 2007

Immigration and American labor markets – opposing views

Published by at 9:07 pm under Immigration,Labor Market,Politics

Irrational choices | Free exchange | Economist.com

The debate over the impact of immigration on American wages is a hot one. As seen in the video below of immigration opponent Lou Dobbs, many in America view the free-market, open boarders ideas of certain economists with outright disdain and hatred. Among these “anti-immigration hawks” is economist George Borjas:

“(Anti-) immigration hawks like George Borjas have estimated that wage competition from immigrant labour may reduce native, unskilled worker earnings by something like 7 percent.”

Among economists, however, such views are rare:

“Other researchers dispute such figures, arguing that immigrant impact on native, unskilled workers wages is minimal and is strongly positive for skilled labour. In either case, it’s clear that the gains enjoyed by the migrants themselves significantly exceed domestic worker losses.”

One argument often made by open-border advocates is that granting migrants legal status benefits not only the immigrants themselves, but the nation as a whole. Legal workers can be taxed and thus become contributing members of society, whereas illegal workers run the risk of being exploited, payed below legal wages, and in addition are unable to be regulated and taxed by the government. As explained in the article above:

This suggests that by regularising the status of incoming labourers and taxing off a portion of the surplus they earn from migrating we could compensate domestic workers for any harm they experience. To that tax revenue, we could also add the massive amounts of money currently spent fighting immigration–billions of dollars per year, and growing. It’s almost certain that under such a regularisation and redistribution approach all parties involved would be better off than they currently are.

The argument above is compelling, to say the least. It acknowledges that immigration may indeed have a negative effect on American workers, as hawks like Lou Dobbs so virulently argue. Unlike Dobbs’ xenophobic, racist views, however, the concept above actually attempts to mitigate the negative impact on American workers of immigrants entering the work force. By granting immigrants legal status and collecting taxes on their wages, the government earns valueable tax revenue that can be used to give a helping hand to those workers whose jobs were lost or whose wages were reduced due to immigration. In addition to taxes on immigrants’ wages, the government can put the billions it’s currently spending on “border security”, trying to keep immigrants out, towards such programs for affected workers as well.

What could the government do for workers harmed by immigration? It can help displaced workers by subsidizing professional training or continued education, in order to give them the skills they need to find employment in a job where they will earn higher wages. Even a simple check in the mail may be enough to satisfy a worker who lost his job to an immigrant, giving him much needed help to get him back on his feet. From the American worker’s perspective, such a payout may or may not be viewed as an adequate trade-off for losing a job; but surely it would soften the harmful impacts of more open borders.

Clearly there is a demand for more low-skilled workers in America than in Mexico and other Latin American countries. The relative wage rates between the US and these countries send a clear market signal from firms (the demanders of labor) to households (the suppliers of labor). In a truly free labor market, immigration simply represents the efficient allocation of resources, as labor shifts from a market where it’s in low demand to one where it’s in high demand. Maybe it’s time for America to stop talking about ways to keep foreign workers out of the country, rather, start figuring out ways to make their transition into the American workforce easier and faster, so that they can become contributing, legal members of America’s economy, who pay taxes and pitch in just like the rest of the country’s workers.

Maybe “anti-immigration hawks” like Lou Dobbs just forget sometimes that almost everyone in America today is an immigrant in a sense. No one kept us out then. When the hope and promise of a better life beckoned, our forefathers arrived in America by the millions. The arrival of immigrant workers today is not that different, and the economics of immigration seem pretty much indisputable: it benefits everyone (firms get cheaper labor, households enjoy lower prices and more jobs for high-skilled workers, the government gets more tax revenue) and harms very few.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

3 responses so far

3 Responses to “Immigration and American labor markets – opposing views”

  1. Christinaon 03 Jan 2008 at 2:17 am

    I wholeheartedly agree. Immigration is vital to the survival of America's economy- and the country as a whole. The United States is a nation built on immigration. Strict anti-immigration laws will decrease available unskilled labor, which in turn will decrease the number of skilled workers, as more American citizens will be needed to replace the immigrant workers. Many ranch owners, small businesses, etc will be hard-pressed to find cheap labor, and may have to shut down. Restricting immigration will shift the labor supply curve to the left, which will decrease overall productivity.

  2. Alex Goldmanon 05 Jan 2008 at 5:50 pm

    I feel that immigration is beneficial to the US economy for two reasons. First, as mentioned in the blog, it is the natural economic movement of workers from a market with a low demand for labor to a market with a high demand for labor. Secondly, immigrant workers will push the general work force towards greater efficiency. If unskilled domestic workers are being replaced by immigrant workers then the solution is simple – get skilled. It's like economic darwinism, the best workers will get the jobs and as a greater effect push the economy towards greater productivity and efficiency.

  3. Theresa Mehlon 03 Mar 2009 at 6:01 pm

    I have to disagree with Alex!

    If uneducated and unskilled workers will be replaced by foreign more skilled workers the economy will be harmed. If these unskilled workers will be set on the street the poverty rate will rise and the unemployment rate since it is very hard for unskilled workers to receive a job. As a conlusion the crime rate might go up, since jobs in illegal businesses will be taken.

    On the other side the insentive for education could be raised! Further education will be used more if there are fewer jobs available!

    Still, I have to agree to Alex that more human resources will definentally benefit the economy. More skilled workers will definentally profit the economy!!!