National Journal:
By Tim Fernholz Quartz
August 25, 2015
Republican
presidential front-runner Donald Trump says he wants to stop
immigration into the US in order to increase American wages. The only
problem? Immigration already
raises American wages.
Trump's
decision to seize immigration as the major issue of his campaign has
been a key factor in his rise to prominence; foreign job seekers have
proven to be a suitable
villain for America's economic anxieties overall. It's not a surprise
that many white power groups see Trump as a spokesperson for their
agenda, as the New Yorker reports in a conversation with Matthew
Heinbach, a white nationalist who has met with Greece's
fascist Golden Dawn party:
"Even
if you play the game, even if you do everything right, then the future,
when it comes to your income, when it comes to benefits, when it comes
to everything, we
are going to be the first generation in American history to be living
worse than our parents." He went on, "My own parents tell me, 'Well, you
should just shut up, you should go get a normal job, and get a two-car
garage, and then you'll be happy.' "
On
the economics, Heimbach's narrative is not wrong. During a half-century
of change in the American labor market—the rise of technology and
trade, the decline of manual
labor—nobody has been hit harder than low-skilled, poorly educated men.
…
Actually,
Heimbach's narrative is wrong, as is the New Yorker's assessment of it.
Heimbach is 24. Over the course of his lifetime, real median household
income has actually
risen 3.3%. Comparing young adults in 2013 to young adults in 1989
(pdf), average net worth is slightly lower—thanks to the largest
recession since the Great Depression—but today's young adults are more
likely to own homes, hold stock, and save for retirement,
and less likely to carry a high share of their income in debt versus
predecessor cohorts.
But
more importantly, while the New Yorker notes that wages for unskilled
male workers have fallen by 23% between 1979 and 2013, it doesn't
mention that immigration has
nothing to do with it—and that Heimbach, a college graduate, isn't part
of this demographic to begin with.
The effect of immigration on US native wages
Here
are estimates from two separate studies—one from the Economic Policy
Institute (EPI), and the other by economics professors Gianmarco
Ottaviano and Giovanni Peri,
of the London School of Economics and the University of California,
Davis, respectively, of how immigration to the US has changed native
workers average wages. Both focus on periods spanning the 1990s tech
bubble and the 2000s housing bubble, when many immigrants
came to the US in search of jobs:
You'll
notice they are all positive: Almost everyone has seen wages rise
thanks to immigrants in the economy, even though they are pretty
marginal effects.
Economists
have been arguing about how to measure the impact of immigration on
native workers for a long time now, but consensus seems to be settling
on the idea that
they are complementary to US workers.
How
do more people entering the economy lead to higher wages? They made the
economic pie bigger by helping produce more, they are consumers of
goods and services themselves,
and their new ideas can unlock entire new industries, whether that's
California nail salons or ethnic restaurants.
Some
earlier estimates found major reductions in wages from immigration, but
newer work has identified a flaw in those estimates: They tended to
assume that the amount
of capital in the US was fixed and that immigrants can easily
substitute for native workers.
But
US capital stocks continue to increase, and empirical data suggests
that native workers actually tend to be pretty different from
immigrants. Native workers tend to
have better language and cultural skills, and immigrants tend to bring
knowledge and experience that the US is lacking.
Examining
those assumptions led to the kind of estimates in the table above,
which suggest that native wages increased between 0.4 and 0.6% because
of the last big immigration
boom.
What about unskilled men?
But
when we think about immigrants substituting for native workers, manual
labor is one where they should be able to do so pretty easily. And the
main area where economists
find problems for native US workers is, unsurprisingly, in the
demographic composed of men without much in the way of skills. Here's
one breakdown of that effect:
So
you might think here that, at last, The Donald has a point. But
remember that big statistic—wages for unskilled male workers have fallen
by 23% between 1979 and 2013?
For
14 years of that 34-year time period, we know that immigration barely
contributed to that dramatic change. Even in the unlikely case that the
effect was doubled or
tripled during the other 20 years in the sample, immigration just isn't
what's getting at unskilled male workers wages.
Instead,
it appears that the reason unskilled men have seen their wages fall so
dramatically is trade—specifically because foreign workers abroad have
outbid them for
economic activity. And unlike foreign workers who come to the US, none
of the benefits of their work accrue to the US economy.
The
other culprit eyed is for hurting low-skill wages is automation—that
is, robots—but there appears to be more evidence that it's trade behind
the unskilled US worker's
woes. Stemming low-skilled immigration won't change that.
Where does this leave us?
There are two other groups of people to consider when talking about jobs and immigration.
The
first are other recent immigrants. Economists tend to estimate that
increasing immigration tends to hit them the hardest. The reason: Again,
substitution, as recent
cohorts of immigrants create direct competition for one another when it
comes to wages. In that EPI study from 1994-2007, foreign-born workers
in the US saw their wages decrease by an average of 4.7% because of the
effect of immigration.
The
other group to consider is the one causing the decrease: the newest of
the newcomers. These are the biggest winners in the wage game. By
shifting their labor to a
new milieu, they have massively increased their earnings power, even if
their wages remain low by US standards. The increase in living
standards affects these new immigrants and their home countries; as
migration experts are fond of noting, remittances from
immigrants vastly exceed foreign aid from governments, leading to
theories that increasing immigration is a smart way to increase global
economic development and avoid leaving trillion-dollar bills on the
sidewalk (pdf).
Arguments
for immigration as an anti-poverty program have not yet been able to
surmount the kind of deep-set suspicion that Trump's campaign is
exploiting. But at the
very least, we can establish that however much he or anyone else claims
immigration is hurting US wages, the latest research just doesn't
support the argument.
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