Immigration: The Effects on Low-Skilled and High-Skilled Native-Born Workers
Released: 2010-04-13T00:00:00

Summary:
The large influx of immigrants in recent decades has led to an equally long debate over their effect on the labor market outcomes of native-born workers. Economic theory posits that an increase in the supply of labor, such as from immigration, will reduce the wage employers are willing to pay all workers (native-born and foreign-born) in a given labor market. As a result, some of the workers who had been earning a higher wage before the increase in labor supply will be unwilling to accept a lower wage and they will leave that labor market. The economic model assumes, however, that labor is homogenous. But, workers enter the United States possessing different skill levels and they therefore will compete with (i.e., put downward wage pressure on) native-born workers possessing very similar skill levels.
Economists have conducted empirical studies to measure the labor market effects of immigration that take into account the skill composition of foreign-born vis-à-vis native-born workers. They have employed two different approaches to do so.
The concentration of foreign-born workers in certain cities and skill groups led some economists to posit that immigration's greatest impact would be felt by similarly skilled native-born workers living in those areas. Studies thus have compared differences in labor market outcomes between native-born workers who live in high- versus low-immigrant areas and who most often compete for jobs with foreign-born workers; given the composition of the recent immigrant flow, these would be low-skilled U.S. workers. Most inter-area analyses have found scant evidence that foreign-born labor adversely affects the labor market prospects of U.S. workers in general. A few cross-city studies have estimated a slight negative impact on low-skilled natives.
Other economists have argued that the cross-city approach underestimates immigration's consequences because it assumes that labor, capital, and goods do not rapidly adjust to the immigration-induced increase in the supply of labor. If, for example, native-born competitors quickly leave labor markets in high-immigrant areas, their movements would spread any wage effects due to immigration across the nation, and thereby make it difficult for spatially based research to detect any impact. Some analysts, therefore, have concluded that immigration's labor market effects can best be identified by examining data at the national level.
For many years, national studies estimated that immigration in the short-run substantially reduced the wages of native-born workers in each skill (education-experience) group. Native-born workers who lacked a high school diploma were determined to be the most severely affected. More recent national studies have estimated the adverse wage effect of immigration in the short-run to be much smaller, even among the least skilled. The different results in part stem from the finding that workers with at most a high school degree are close substitutes for workers without a degree, which dampens the competitive effect of immigration on the least skilled workers. A 2009 study that utilized cross-city data similarly estimated that the two groups do not compete with one another; as a result, any adverse effect of low-skilled immigrants is not concentrated on the relatively few native-born workers who are high school dropouts.

subsections: section_title: Introduction
paragraphs: Immigration has been a contentious issue since the nation's inception. During periods of substantial immigration, it has not been unusual for the native-born population to raise objections on many grounds—cultural, religious, ethnic, and economic. The focus of the latest national debate over high levels of immigration is largely on its economic effects, that is, whether immigration provides net economic benefits to society.
The current debate has been concerned with the impact of immigration on the public budget and the private economy. In terms of budgetary effects, the question is whether immigrants receive more in public services than they pay in taxes. Immigrants also affect the private economy in their capacity as workers: if the admission of foreign-born workers lowers wages, which, in turn, results in more goods being produced at lower prices, then U.S. consumers would benefit; however, if immigration results in lower wages, U.S. workers would be harmed. The debate over immigration policy has been devoted more to the well-being of U.S. workers than to consumer welfare.
The report opens with a discussion of how to analyze the impact of immigrants on the pay and job opportunities of native-born workers. It then uses this framework to examine and interpret the empirical literature on the subject. The report concludes with a discussion of policy implications.
section_title: Immigration and the Labor Market
paragraphs: Before the entrance of foreign-born workers to the U.S. labor market, the amount of labor that workers are willing to supply to employers is represented by the curve labeled S 1 in Figure 1 . The supply curve is upward sloping because workers are willing to offer more labor (e.g., work more hours) in response to higher real wages. Employers' demand for labor is represented by the curve labeled D, which slopes downward because each worker that is hired contributes less to the firm's revenues than the prior worker. A firm stops hiring workers when the last employee added to the payroll contributes as much to revenues as the wage the employee is willing to accept. This is represented by point A, with total pre-immigration employment equal to E 1 and natives' real wage equal to W 1 .
The increase in the supply of labor due to the addition of foreign-born workers is represented by S 2 . At any given wage rate, more workers now are willing to offer their services to employers. Because the contribution of the last worker hired (E 1 ) to the firm's revenues is greater than his asking wage (W * , which is lower than the pre-immigration wage, W 1 ), the firm is willing to expand employment beyond E 1 . The firm once again continues to add workers to the payroll until the contribution of the last employee hired is just equal to the wage the employee is willing to accept. This is represented by point B, with total post-immigration employment equal to E 2 and the wage rate of native- and foreign-born workers equal to W 2 .
In summary, supply-and-demand theory predicts that the real wage rate for all workers will fall from W 1 to W 2 after the entrance of immigrants to the U.S. labor market. In the process, total U.S. employment expands from E 1 to E 2 , native-born employment contracts from E 1 to E 3 , and foreign-born employment increases from zero to E 2 minus E 3 .
subsections: section_title: Distributional Issues
paragraphs: In this manner, immigration is expected to redistribute national employment. Because the lower post-immigration wage (W 2 ) makes work less rewarding, some native-born workers will find other activities more attractive. As a consequence, they leave the labor force and employment among the native-born population, as noted above, declines (from E 1 to E 3 ). The initial employment of foreign-born workers (E 2 minus E 1 ) expands as they assume a portion of the jobs formerly held by native-born workers (E 1 minus E 3 ). The latter has been referred to as the "displacement effect." The actual size of the displacement as well as the wage effect will depend upon how sensitive labor demand and domestic labor supply are to a change in the wage rate.
In addition to reallocating national employment, immigration also is expected to redistribute national income by reducing the amount that accrues to native-born workers and increasing the amount that accrues to owners of capital and foreign-born workers. The difference between the pre- and post-immigration wages of native-born workers is not lost to the economy but is instead reallocated: part of the wages that previously went to native-born workers (W 1 ACW 2 ) now goes to capital holders and part (E 3 FCE 1 ) to foreign-born workers.
In addition to its distributional effects, immigration is expected to expand national output and income. The increase in total employment (from E 1 to E 2 ), which results from the entrance of immigrants to the U.S. labor market, adds to national income (by E 1 ABE 2 ). Part of the increase (E 1 CBE 2 ) goes to foreign-born workers in the form of wages. The remainder of the increase in national income (the "immigration surplus," ABC) goes to nonlabor factors of production, such as owners of capital. The total benefits that capital owners derive from increased immigration is equal to the immigration surplus (ABC) and part of the wages transferred from native-born workers (W 1 ACW 2 ).
section_title: The Model's Assumptions
paragraphs: The simple neoclassical model just presented makes a variety of assumptions, including that labor is homogenous and that immigrants are perfectly interchangeable with (i.e., substitutes for) all native-born workers. Depending upon the socioeconomic characteristics of foreign-born workers, however, their effect on different groups of native-born workers could vary. If immigrants are close substitutes for a subset of native-born workers—the less skilled, for example—then only this group's wages or employment prospects might be depressed in the manner shown in Figure 1 . Alternatively, the demand for and returns to those production factors that complement immigrants' skills might rise as a result of the increase in immigrant employment (e.g., capital and skilled native-born labor). Thus, the skill composition of foreign-born vis-a-vis native-born workers is expected to influence which native-born workers' labor market outcomes might benefit from or be harmed by immigrant inflows.
The model also assumes that, in the short run, immigration affects labor supply but not labor demand. However, by doing such things as investing financial capital they might have brought with them, using their human capital (e.g., entrepreneurial or innovative abilities), or purchasing U.S.-produced goods and services, immigrants may well expand aggregate output and increase labor demand beyond their own employment. If immigration were to raise the demand for labor in the U.S. economy, which would be represented by a rightward shift of the demand curve in Figure 1 , it would mitigate its potentially adverse consequences for native-born workers.
In addition, the model does not take into account long-run adjustments that native-born workers might make in response to immigration. It assumes that the quantity and quality of native-born workers do not change after an inflow of immigrants. If some native-born workers perceive that their labor market prospects have changed for the worse, however, they might invest in their own human capital (i.e., undertake education and training). This could raise their productivity in their current jobs or it could cause them to change occupations. The wage prospects of native-born workers who increased their human capital investment would thus tend to rise—thereby offsetting any initial adverse effects of immigration—and to equalize the net gain for all native-born labor force participants.
Native-born workers also can make long-run adjustments to immigration by moving across local economies. Factors of production—both labor and capital—are geographically mobile and they, like goods, can flow between areas thereby linking seemingly unconnected local markets. If, for example, some native-born workers who are close substitutes for immigrants saw their wage or job prospects being eroded, they might migrate to areas with fewer competitors and better opportunities. Native-born substitutes who are residing elsewhere might avoid high-immigrant communities, as well. Similarly, firms that rely heavily on less-skilled workers might have an incentive to open plants in high-immigrant communities if their labor costs would be lower and their profits higher than expanding in their current locations, thereby suppressing job opportunities in the communities where the existing plants are located. Over some period, then, these movements of labor, capital, and goods could spread immigration's labor market impacts from high-immigrant areas to the rest of the country.
section_title: What Does the Empirical Literature Have to Say?
paragraphs: Does the theory sketched in Figure 1 translate into fact? The model suggests that some native-born workers may be made worse off through lower wages or diminished job prospects because immigration increases the supply of labor available to the nation's employers. But, theory also suggests that immigration would make consumers (including the above-mentioned native-born workers) better off because it holds down wages and thereby holds down prices of goods and services. The empirical issue is how best to measure the existence and magnitude of the potential wage and employment effects of immigration that the model describes.
subsections: section_title: Overview of the Literature
paragraphs: Despite the greatly increased presence of foreign-born workers since the 1970s, the foreign-born make up less than one-fifth of U.S. labor force participants. Therefore, immigration is unlikely to have substantially affected the wage or job prospects of the average native-born worker. But, if immigrants are concentrated in particular geographic areas, then native-born workers who live in those communities and possess characteristics similar to those of foreign-born workers might be affected.
Such an impact might be detected by comparing the wage and employment opportunities of selected groups of native-born workers in areas with high versus low concentrations of immigrants. Consequently, the first group of analyses reviewed below utilize data for a sample of cities or states disaggregated by immigrant share to estimate the relationship between an increase in their immigrant population and the labor market outcomes of U.S. workers thought to compete with foreign-born workers. Most of the inter-area studies have found little if any statistically significant and economically meaningful difference between the wage and employment experiences of native-born workers—overall, or disaggregated by race, gender, or skill level—in areas with high versus low concentrations of immigrants. A few spatially based studies have estimated a slight negative impact on a small share of the U.S. labor force—low-skilled natives , defined as persons who did not graduate from high school.
It has been suggested that inter-area research does not provide a complete picture of immigration's effects, however:
The spatially based studies correctly tell us that immigrants have no measurable effect on particular labor markets , but they are not informative about the economy-wide effects of immigrants." (Emphasis added.)
As noted in the section of this report concerning the model's assumptions, mobility of production factors and goods could disperse the local effects of immigration across the nation. Differences between areas in the supply of labor by skill category would be minimized if, for example, many low-skilled U.S. workers in high-immigrant cities whose wages had been depressed quickly overcame the monetary, psychological, and information costs of moving, and relocated to cities with better opportunities (i.e., low-immigrant communities). The mobility of labor, capital, and goods between areas thus could make it difficult for cross-city studies to detect the labor market consequences of immigration. This alleged deficiency of the inter-area approach has prompted research into immigration's effect on the aggregate (i.e., national) labor market.
The second group of studies discussed below utilize national data to assess the impact of immigration on native-born workers by skill level. Various explanations have been offered for the increase since the 1970s in wage inequality (i.e., workers increased concentration at the lower end of the wage distribution). Although skill-biased technological change is considered the leading contributor, others include international trade, the level of the federal minimum wage, changes in wage-setting institutions, and immigration. Na tional analyses typically have estimated that, by immigration ' s changing the nation ' s skill composition toward relatively more inexperienced workers who lack a high school degree than otherwise would have been the case , immigrants have harmed the labor market prospects of low-skilled native-born workers . However, the extent of the adverse wage effect appears sensitive to the definition of low-skilled workers according to other national and cross-city studies .
The economy-wide studies that have examined the relationship between immigration and changes in the relative proportions of labor by skill category are not without their own drawbacks. Early studies that utilized the "factor-proportions" methodology were faulted because they did not directly estimate the responsiveness of natives' wages to the immigration-induced increase in the relative supply of low-skilled workers, and for this reason, might overstate immigrants' wage effect on U.S. workers. The more recent work of researchers who take a national approach has responded to this, among other, criticisms. Economy-wide analyses also might overstate the impact of immigration in the long run if, for example, they do not take into account natives adjustment to the increased presence of immigrants by completing more years of schooling or choosing different fields of study which takes them out of competition with immigrants for jobs in which foreign-born workers have made substantial inroads.
The assumption by proponents of the national approach—that native-born "substitutes" for and "complements" of foreign-born workers quickly diffuse the effect of immigration across the country—is suspect, as well, because other economic shocks typically have been followed by longer adjustment periods. In addition, the precise relationship between immigration and internal labor migration remains unresolved: studies find a negative, a positive, or no connection between the in- or out-migration of native-born workers and an area's immigrant concentration; and they do not establish causality (i.e., that the observed migration patterns of natives are due to immigration's impact on the labor market).
Based on its review of the inconsistent results provided by inter-area and national studies through the mid-1990s, the National Research Council concluded that
[I]mmigration has only a small adverse impact on the wage and employment opportunities of competing native-born groups. This effect appears not to be concentrated in the local areas where immigrants live; much of it is probably dispersed across the United States as competing native workers migrate out of the areas to which immigrants move. The migration of native labor and native capital across cities (to take advantage of whatever differential economic opportunities initially arise from immigration), as well as the beneficial effect that immigrant groups have on other native groups, suggest the unlikelihood of detecting any sizable negative effect on native workers.
section_title: The Findings of Studies Using a Spatial Approach
paragraphs: Bean, Lowell and Taylor estimated the effect of authorized and unauthorized Mexican workers on the earnings of native-born workers in metropolitan labor markets in the southwestern United States in 1980. Regardless of the native-born group in question (e.g., black males, non-Hispanic white males, native Mexican males, and women), the numerical impact of Mexican male immigrants on natives' annual earnings was small. Using an alternative estimation procedure, the researchers found that legal Mexican immigrants slightly lowered the earnings of native-born women and native-born non-Hispanic white men while not affecting the earnings of native-born minorities. In contrast, they estimated that unauthorized Mexican immigrants slightly raised the earnings of all groups studied except Mexican-origin men. The authors explained these results by suggesting that unauthorized Mexican immigrants do not compete with native-born workers as legal immigrants appear to—unauthorized Mexican immigrants may take "secondary" jobs, which are low-paying and unattractive to native-born workers, while legal Mexican immigrants may possess characteristics needed to compete with native-born workers for "primary" jobs. Nonetheless, regardless of the estimation procedure used, the impact of authorized and unauthorized Mexican workers on the annual earnings of native-born workers was small.
LaLonde and Topel found no evidence that immigrants reduce the annual earnings of young native-born black and Hispanic males (i.e., the relationship is statistically insignificant). Because the results were about the same with either weekly or annual earnings as the outcome variable, they surmised that immigrants also have an inconsequential impact on the amount of time worked (i.e., number of weeks worked) by the two native-born groups.
A study by Altonji and Card focused on the implications of increased immigration for less-skilled native-born workers (i.e., those with 12 or less years of schooling). When the researchers accounted for the location decisions of immigrants and compared differences over time in inter-area wage growth, they found that immigration significantly reduced the earnings of the less-skilled group. Altonji and Card analyzed immigration's impact on the employment outcomes of less-skilled natives as well. They concluded that, on balance, inflows of foreign-born labor had neither a large nor systematically positive or negative impact on the job opportunities of less-skilled native-born workers. They did find some evidence of displacement among native-born workers in high-immigrant cities in those industries that employed relatively large and increasing numbers of immigrants between 1970 and 1980, including low-wage manufacturing industries (e.g., apparel), service industries (e.g., private households), and agriculture. Because the employment outcomes of less-skilled natives across all industries were unaffected, however, the authors suspected that the job losers were able to get new positions in other industries or in other metropolitan areas.
Utilizing data from the 1990 census, Card subsequently analyzed the employment effects of recent immigrants on native-born workers and on earlier immigrants employed in the same occupation-based skill groups. He estimated that immigrants admitted to the United States between 1985 and 1990 who were employed in laborer and low-skilled service occupations slightly reduced the employment rates of natives and older immigrants in this lowest paid, least educated group. Only in the few cities in which the inflow of foreign-born low-skilled competitors during the 1985-1990 period "expanded their unskilled labor forces by as much or more than the Mariel boatlift affected the Miami labor market" did immigration substantially lower the employment rates of young, less-educated natives. Card similarly found that, based upon data from the 2000 census, an increase in the relative supply of male immigrants who failed to complete high school had only a small adverse effect on the relative employment of male native-born dropouts. In contrast, he estimated no relationship between a city's increased supply of low-skilled male immigrants and the wages of their native-born competitors. Card's research led him to suggest that those industries in high-immigrant areas which rely heavily on low-skilled labor (e.g., agriculture; textiles, apparel, and footwear; and low-skilled service industries) have been able to absorb the increase in immigrant supply without harming similar native-born workers.
Schoeni addressed some of the shortcomings of the spatial approach by examining a period of time (the 1970s and 1980s) rather than one year, as is true of most of the other cross-sectional studies discussed above. He also adjusted for cost-of-living differences between cities with varying immigrant concentrations and for the influence of immigrants' location decisions, both of which could bias the results. Schoeni found evidence that immigration has the largest adverse effect on the earnings and employment outcomes of natives with less than a high school degree. To a lesser degree, the labor market experiences of high school graduates appear depressed as well. For example, increased immigration during the 1970s might have caused a 2.2% decline over the decade in the real (inflation-adjusted) wage of low-skilled white men, and increased immigration during the 1980s might have led to a 1.18 percentage point rise in unemployment over that period among low-skilled black men. Similarly, heightened immigration during the 1970s might have prompted a 7.5% decrease in the real weekly wage of low-skilled black women, and heightened immigration during the 1980s might have produced a 0.55 percentage point increase in unemployment among low-skilled white women. Thus, the form of the labor market effect may have changed over time: in the 1970s, the wage of native-born workers bore the brunt of immigration's impact; in the 1980s, the impact shifted to native-born workers' employment according to Schoeni's analysis. While his results support the notion that immigration imposes considerable costs on native-born workers with 12 or less years of schooling, Schoeni concluded that its economy-wide effects are small, because in 1990 unaffected workers (i.e., those with more than a high school diploma) made up more than half of all workers.
Johannsson and Weiler similarly covered a span of time (1998-2002) and took the location decisions of low-skilled immigrants into account. They estimated that metropolitan areas experiencing an increase in their low-skilled immigrant population have a significantly lower rate of labor force participation among similar native-born workers. The withdrawal of natives from the local labor force may partly explain the markedly reduced unemployment rate among low-skilled natives in areas with increased immigration. The researchers suggest that "lower-skilled older natives with considerable mobility costs may opt to reduce their participation rather than out-migrate in response to adverse local labor market shocks" such as an immigration-induced increase in the supply of labor.
section_title: The Findings of Studies Using a Nationwide Approach
paragraphs: Topel analyzed the local supply and demand factors that might have affected the wage of low-skilled compared to high-skilled men during the 1980s. Not only did he find that the wage gap between the two groups widened in every region but that this happened at different rates in different regions. In particular, the West recorded the largest decline in low-skilled men's relative wage. Topel estimated that if it were not for the increased presence of immigrants in the West's labor force, the supply of low-skilled compared to high-skilled men would have fallen by more than it actually did, and the relative wage of low-skilled men consequently would not have fallen by as much as it did. He concluded "... that immigration has played ... [a significant] role in affecting the supply and welfare of low-skilled men," especially in the West where it might have reduced their relative wage by some 10%.
Enchautegui examined how much of the decline during the 1980s in the level of real (inflation-adjusted) wages among workers without a high school diploma was due to the influx of low-skilled foreign-born labor. She estimated that, at the national level, the increased presence in the U.S. labor force of low-skilled foreign-born workers explained just 4% of the 13% decline in real annual earnings of workers with less than 12 years of schooling. From a national perspective, then, the increase in the supply of foreign-born workers without a high school degree had little impact on the erosion in low-skilled workers' earnings during the 1980s. But, the explanatory power of the heightened presence of low-skilled foreign-born workers appears to increase with an area's immigrant density:
In areas of low immigration, only 2 percent of the wage change can be attributed to increased immigrant representation in the work force. In areas of medium immigration, 14 percent of the wage drop is due to the larger immigrant share among the low skilled, while in areas of high immigration, the influx of immigrants accounts for 43 percent of the 7-percent decline in wages experienced in these areas.... In Los Angeles [an example of a high-immigrant area], the change in the proportion of natives and immigrants accounted for more than half of the 9-percent decline in real wages of low-skilled workers.
Another study directly examined immigration's labor market impact by relating occupational differences in immigrants' share of employment to the wages of natives. Although it could not address whether foreign-born labor contributed to the decline over time in the wage level of low-skilled workers because the research covered just one period, the cross-occupation analysis was conducted on a nationwide basis so it is not susceptible to the previously discussed drawback of the inter-area approach. Camarota estimated that as the share of foreign-born employment in an occupation rose, the earnings of native-born workers fell significantly. Specifically, for every 1% increase in immigrant composition in an occupation, the weekly wage of the average native-born worker in that occupation declined by 0.5%. The data suggest that the largest negative effects were felt by low-skilled labor: among all natives with 12 or less years of schooling, a 1% increase in the employment share of foreign-born workers reduced weekly wages by 0.66%; among all natives in low-skilled occupations (i.e., jobs typically performed by workers with no more than a high school degree), a 1% increase in immigrant composition lowered weekly wages by 0.8%.
Borjas, Freeman, and Katz found that immigration played a statistically significant part in the declining relative wage of low-skilled workers. But they also concluded that it had little effect on either the growth in wage inequality or in the wage gap between college and high school graduates. The economists estimated that, between 1980 and 1995, immigration expanded the relative supply of workers with less than a high school degree by some 15%. If immigration had not been skewed in this manner, the relative wage of the scarcer low-skilled natives would have increased (assuming unchanged employer demand). By becoming a major supplier of low-skilled workers and thereby changing the nation's skill endowment from what it otherwise would have been, immigration may have accounted for some 44% of the decrease over the 15-year period in the relative wage of workers with less than 12 years of schooling. The economists further estimated that immigration lowered the wage of low-skilled workers by about 5% between 1980 and 1995.
Borjas, in more recent analyses, made refinements to the national approach that address some of the previously mentioned criticisms. He found that an increase in the supply of immigrant labor by skill group (defined by educational attainment and years of work experience) over the 1960-2000 period had a significantly adverse impact on the wages of native-born men with whom they competed: a 10% increase in the number of workers in a given skill group reduced the absolute weekly wage of similar native-born males by some 4%, and their employment (i.e., weeks worked), by some 3%. Even after allowing for the positive earnings impact that low-skilled (high-skilled) immigrants can have on native-born workers in high-skilled (low-skilled) groups, Borjas estimated that immigration over the 1980-2000 period reduced the wage of native-born workers in each skill group. Young (i.e., less experienced) native-born males without a high school degree appear to have experienced the greatest negative wage effect, which seemingly was due to the entrance into the United States between 1980 and 2000 of predominantly low-skilled authorized and unauthorized Mexican workers. The author found that the overall wage impact of increased immigration was more modest over the long run as the capital stock adjusted to the greater labor supply.
Ottaviano and Peri similarly studied the effect of immigration between 1990 and 2006 on native-born workers by taking into account both education and experience, but reached very different conclusions. This is in part because they found workers with at most a high school degree were close substitutes for those without one, which diminishes the competitive effect of immigrants on the least skilled native-born workers. The two researchers estimated that, in the long run, the average real wage of U.S. workers increased slightly (by 0.6%) as a result of immigration over the 1990-2006 period. The short-run wage impact on native-born workers (as of 2007, before capital had fully adjusted to the increase in immigrants) was negative but small (0.4%). Ottaviano and Peri further found a smaller real wage loss (0.7% in the short run) among the least educated U.S. workers than had previously been derived, and a positive but very slight effect (0.3%) in the long run for this group. Ottaviano and Peri further estimated that recent immigrants had the largest negative effect (6%) on previous immigrants.
In January 2009, Card presented a lecture to the American Economic Association in which he found common ground between cross-city studies and Ottanviano and Peri's national study. Based on city-specific labor market measures in 1980, 1990, 2000, and 2005/2006 derived from the 1980-2000 decennial censuses and the 2005 and 2006 American Community Surveys, Card estimated that workers with less than a high school education are perfect substitutes for workers with a high school education and that "high school equivalent" workers are imperfect substitutes for "college equivalent" workers. The findings from these cross-city analyses argue in favor of using two education classes, as was done by Ottaviano and Peri, when estimating the impact of immigration on wages rather than four education classes, as was done by Borjas (who treated dropouts separately from high school graduates). In addition, Card estimated that immigrants and native-born workers in the same education groups are imperfect substitutes, which Ottaviano and Peri assumed in contrast to Borjas assuming they are competitors. Card's results suggest that the inflow of immigrants since 1980 has had a small impact on the relative wages of native-born workers in different skill groups.
"The main explanation for this somewhat surprising conclusion is that under a two-education-group model, what matters for the structure of wages is the relative fractions of immigrants and natives who are high school-equivalent and college-equivalent workers. U.S. immigrants are only slightly under-represented in the college-equivalent group relative to natives (36% versus 41%). Compared to the distribution among natives alone immigrant arrivals have hardly distorted the relative fraction of college-equivalent workers in the economy, and have therefore had little impact on the college-high school wage gap."
Borjas, Grogger, and Hanson examined the relationship between immigration and black men's wages, employment opportunities, and incarceration rates. They estimated from 1960-2000 census data that when immigration led to disproportionate increases in the supply of labor to particular skill groups, the earnings of black and white men in the skill group declined by about the same percentage. But, the employment rate of black men fell and the incarceration rate of black men rose to a greater extent than the changes experienced by white men. The researchers emphasized that although immigration contributed to the large changes in employment and incarceration rates among black men since 1960, there would have been a substantial decrease in black employment and increase in black incarceration rates in the past four decades in the absence of immigration.
section_title: Policy Implications
paragraphs: Some policymakers have proposed further strengthening the U.S. border with Mexico to curtail the entrance of unauthorized aliens and improving enforcement of more stringent sanctions against employers who hire these predominantly low-skilled workers, based in part upon the belief that immigration does, in fact, have substantial adverse consequences for low-skilled native-born workers. It also has been suggested that Congress address the distributional issue some empirical studies have raised by changing the composition of legal immigration. If, for example, individuals permanently admitted to the United States under the employment-based category are largely high-skilled, while those admitted under one or more of the other categories (i.e., family preference, immediate relatives, diversity, or refugees and asylees) are largely low-skilled, then the current numerical limits on the latter might be lowered to mitigate immigration's presumed adverse consequences for less-skilled natives. Indeed, if the skill levels of immigrants do differ by admission category, then an across-the-board cutback in the number of foreign-born persons allowed into the United States would not be an effective remedy for the poor labor market performance of low-skilled natives in recent decades. Only if foreign-born workers who enter under each of the categories has roughly the same skill distribution would an untargeted reduction in the overall level of immigration assist less-skilled U.S. workers.
Yet, changing the composition of immigration may not be the most effective way to improve the plight of low-skilled native-born workers. As noted earlier in this report, several explanations have been offered for the increase in U.S. wage inequality. If other factors (e.g., skill-biased technological change) have played a greater role than the inflow of low-skilled foreign-born workers, then curtailing the immigration of this group may not much affect the wage and employment outcomes of low-skilled U.S. workers.
Moreover, a policy that shifts the composition of foreign-born persons who legally enter the United States—through permanent admissions or temporary worker programs—toward the more skilled might have unintended consequences. An increase in the supply of foreign-born workers to high-skilled occupations might adversely affect the wage and job opportunities of native-born workers in those fields and dissuade students from majoring in them. Despite the considerable debate that preceded amendments to the professional specialty (H-1B visa) guest worker program made by Congress to increase the arguably inadequate supply of native-born workers qualified to fill information technology jobs, little research has been undertaken to assess the effects of the policy changes on native-born workers.
Perhaps not surprisingly, in light of the conflicting results of the previously discussed literature, there is no consensus among the few studies that have looked specifically at the impact on high-skilled native-born workers of an increase in the supply of comparable foreign-born workers. One researcher tentatively concluded that while allowing into the country H-1B workers with information technology (IT) skills may not depress the wages of U.S. workers in computer-related occupations, the program might adversely affect the group's unemployment rate. Another analysis similarly estimated that an increase in temporary and permanent immigrants does not negatively affect the wages of U.S. workers in professional occupations. Although a third study determined that H-1B workers in computer programming occupations typically are paid much less than U.S. workers similarly employed in the same state, perhaps the number of H-1B programmers in a given state is not sufficiently large to lower the wages of native-born programmers in a given state. In contrast, yet another empirical study found that an increase in the supply of labor to a particular doctoral field caused by an influx of foreign students reduced the earnings of competing science and engineering Ph.D. students who graduated at about the same time. The economist attributed "roughly half of the adverse wage impact of immigration on high-skill labor markets ... to the increased use of low-pay postdoctoral appointments [in science and engineering] as a way of adjusting to the increase in [labor] supply."
If the composition of foreign-born workers were shifted toward the high-skilled, it could make it more difficult to utilize one means commonly suggested to mitigate any adverse distributional effects of immigration. Students and low-skilled native-born workers often have been encouraged to become complements of rather than substitutes for foreign-born workers. Expressed differently, they have been urged to obtain a bachelor's degree or undertake retraining at community colleges, for example, to acquire higher order skills expected to remove them from competition with low-skilled immigrants. But with the admission of more high-skilled foreign-born workers, just obtaining higher skill levels may not be sufficient to avoid potential wage suppression and displacement, based upon the results of at least some of the above-described empirical literature.