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. 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 . 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 ). 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. 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. 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.