Does immigration tend to lower wages (in rich countries)?

Great Debates
41

There is something else that needs to be considered here. The problem isn’t “immigration” it’s “American style immigration.”

Both illegal and H1-B/TN* visas in the US create indentured servitude, and that drives down wages. H1-B/TN visas are tied directly to the specific job and the specific company, without the freedom to change jobs or companies. Dismissal from the job/company means deportation. So you have an environment where immigrants aren’t as free to negotiate or more (either up or lateral).

Illegal immigration has many of the same issues, where workers are trapped in a system that keeps them down, along with their wages.

As a personal anecdote, my wife was kept on the low end of the pay scale while she was on an H1-B, in part because she was making more than what she’d make in Canada, and in part because she wasn’t free to leave for a competitor the way her friends could (and did). During the first few years on TN/H1-B visas, we watched our wages remain stagnant while citizens say wage gains by moving laterally to other companies (or even other divisions within the company). After my wife got her greencard, her company was forced to sit up and take notice. They knew she was looking to leave, they knew she was getting calls from recruiters, they knew her friends had already left for better paying positions. Now they had to up her salary/compensation to retain her.

Other countries do better and worse at immigration, so if you’re going to have a discussion about it at least be honest.

*Show of hands who knows what a TN visa is?

42

I have two thoughts on this subject that, while not definitive, at least make me believe that immigration tends to lead to higher wages in the long term:

  1. The US is a land of immigrants and we have grown from being a back-water to one of the richest countries in the world. Immigration doesn’t seem to hurt.

  2. Population growth leads to economic growth. If an influx of immigrants led to lower wages then we’d see a general trend of lower wages as the population grows.

43

in an economy as big and diverse as the US’ there will always be a market for cheap unskilled labor somewhere. it gives employers options not there before. it gives moneyed idividuals chances to lighten personal chores as long as they have the money for it.

but yes, you have a problem of sustainability. those hourlies can barely support themselves and with more people coming in, offered wages will just keep going down, open to anyone willing to take it.

44

Immigration and population growth from native birth rates have a depressing effect on incomes. Even when the population and the median income adjusted for inflation rise at the same time, the median income adjusted for inflation would rise higher and faster if the population was not growing.

If a high population lead to a high standard of living India and China would be the most affluent countries in the world.

Right now the U.S. population is growing, largely as a result of immigration, and wages are declining.

45

This overlooks the different impact that different groups have. As I’ve noted above, low skill immigration from Mexico does in fact hurt because subsequent generations do not perform as well as other groups academically and having a less educated population reduces economic performance. The classic example is California.

46

Prove it.

47

What about the children of immigrants that out perform native born children? Do they get counted?

48

That’s not entirely true. H1-B holders are allowed to change jobs; however, their prospective employers must be willing to sponsor them before they leave their current employers. Also, if they lose their jobs, they typically have some nebulous period of several weeks (the exact length being unspecified) before they must find new sponsorship. Even if they can’t, it’s unlikely that they’ll be deported. They would be asked to leave, but that’s not the same thing as deportation, and it’s unlikely that they will ever reach that stage.

You are correct, however, in saying that H1-B workers have more limited options and are tied strongly to their employers.

49

Of course. That doesn’t obscure the overall trends.

50

I realize this question has been approached from a number of angles, but in a pure theoretical sense immigration has the following effects:

Lowers the price of competing services
No impact on imperfect substitute services
Raises the price of complementary factors

So for example, in looking at the impact of Mexican immigration to the U.S. we’d expect the following:

Lower wages to unskilled labor (or higher unemployment if low-end wages are constrained by minimum wage laws)
Relatively small impact on skilled labor (only because 80%+ of Mexican immigrants lack a high-school degree)
Increase in capital returns (more abundant labor makes capital relatively scarce)

51

What overall trend do you think there is?

“The top scores come from Shanghai, China (556). But in second place are American students of Asian ancestry (541) who even out-perform students in Korea, Singapore, Japan and Hong Kong. In 7th place are US whites whose test scores exceed those in every European nation except Finland! Far down the ranking list are Hispanics (466) and near the bottom are US blacks (441).”

“First and second generation blacks from the Caribbean and Africa are one conspicuous example. Like so many ambitious immigrants before them, they take full advantage of our educational opportunities. While these immigrants comprise only 13% of all blacks in the US, they comprise 27% of those African Americans at elite colleges (see here).”

If “immigration” just means “unskilled people from Mexico” than the answers are easy to find. But if you want to take a more academic look at the issue you’ll find there is a lot more to immigration than just people sneaking in from Mexico.

“They find that immigrant status itself is not an important predictor of educational achievement. First-generation immigrants arrive in the United States with less education than native-born Americans, but by the second and third generation, the children of immigrants are just as successful in school as native-born students with equivalent social and economic background.”
From Achieving Anew: How New Immigrants Do in American Schools, Jobs, and Neighborhoods

52

  1. The example of blacks from Africa and Carribean is consistent with what I was saying about the importance of skill selection. For instance, Susan Model has explained that the relative success of West Indian immigrants compared to indigenous US African-Americans because of positive selection. Also, those groups are still eligible for affirmative action.

  2. Of course there is more to immigration than just people sneaking into Mexico. My point is that there are significant differences in outcomes depending on the population and skill level of the immigrants in terms of intergenerational progress. That is why I suggest that the US should adopt a far more skill based selection criteria.

  3. It’s not clear from your quote above which immigrants they’re referring to. If you read the link I provided above you would have seen it links to this paper about the intergenerational progress of mexican americans and the results are quite different.

53

This really isn’t that difficult. Whether society is growing or not, it’s simply supply and demand. The reason wages might go up as a population grows is that there is a slight lag in demand being met for products and services, and subsequently, workers. This is what we saw in the '50s. As long as businesses—whether existing or those just opening—are hungry for workers, wages will be on the rise. If you don’t have that, and the rate of new workers exceeds the hunger, wages will fall.

You can create as many new business scenarios as you want—speciality restaurants, whatever—it doesn’t matter. The law of supply and demand still hold true. PLus, introducing a new speciality business skirts the question in the OP as it expands demand for workers with the snap of your fingers. We’re not discussing whether opening new businesses raises wages. It does, but only to the extent that it increases the demand for workers. If you open a business and and get your five employees from outside the U.S., you’ve not increased the supply of jobs not, consequently, the demand for workers.

54

Well, apparently it is that difficult, because you’re trying to apply commodity based supply and demand to a diverse marketplace where individual products (ie employees) are not interchangeable.

Even with 16million unemployed, there may not be someone with 5 years experience working with implantable biomedical materials and knowledge of Japanese regulatory affairs. The US produces lots of great football players but relatively few kickers. Lots of great guitar players but relatively few sitar players.

A business isn’t an homogenous blog of identical employees, it requires specialization. So no matter how good your business/team /band is, without a strong engineer/kicker/sitar player you’ll lose.

For want of a nail, the battle was lost.

The ability to search globally allows employers to find highly specialized talent, and thereby put together a stronger team. As a result, everyone on the team benefits, as does everyone that wants their services.

The same theory is applied to materials. Some times a product needs a specialized metal not found in the US. Some times it’s an ingredient for a recipe. So you can have 90% of the components homegrown, but by importing that final highly specialized 10% the overall product is improved. Sure local cheese makers will bitch that it drives down their prices, but ultimately the guys in Parma/Reggio make kick ass cheese that improves certain dishes.

It is that specialization that represents the modern economy. And by allowing imports of the best from around the world it encourages local production to improve. A university that brings in a highly specialized professor can then train local-born students in something they otherwise wouldn’t have access to. So while some bitch that Mexican-Americans are dropping out of high school, our universities depend on immigrant professors to train the next generation of professionals who now have the potential to earn more.

Being able to have a specialized restaurant is what makes society better, and it’s representative of American industry that produces highly specialized devises and services.

The alternative is for business to wait 10 years for universities to respond to their demand, by setting up a new program, training profs, then training students, then providing students with experience–all without immigration.

The H1-B/TN requires a business to show it couldn’t find talent domestically. Which means that without the specialized worker the business doesn’t grow. The modern American football team doesn’t function without a kicker.

55

To me the better comparison would be to look at China and India over the last 50 years and determine if their wages have gone up or down while their populations have increased.

56

You’re conflating two different things. You’re breaking the market into specializations and then using specialized workers to make an argument against supply and demand as a whole. You are right in that you can’t just look at “workers”, you need to look at specific types of workers, particularly when specialization is called for. But the law of supply and demand still hold true within those specializations. Let’s take your sitar players. There is a supply and a demand for sitar players. Meaning there are throngs of unemployed construction workers, teachers, janitors, computer programmers, editors, etc., that does not affect the market of “sitar players”. So, if I have an idea a for a restaurant where great sitar playing is crucial and I live in a place where there are very few people with that skill, I’ve changed the demand for that skill. Let’s say before I opened the restaurant the demand was X. after I opened it the demand increased; let’s call it X+1. That is true regardless of who opens the restaurant. The increased demand, with all things remaining equal, would raise wages for sitar players. Unless I import a sitar player from India or elsewhere. Then there is no net increase in demand and wages are unaffected.

Now let’s look at it from the other side. I’m opening my restaurant and the three sitar players in town are happy because they know one of them, maybe two will be getting a job. This is the starting point, and we—the market of sitar players and the employers of sitar players—will figure out what a fair wage is for sitar playing. But let’s say, a month before I open word gets out about my restaurant and 10 sitar players from around the state come to my town in hopes of getting a job? Well, that does two things. One it gives me a larger pool to look at as far as pure talent. Two, it gives me a larger pool to choose from to find someone happy to work for less money. With all the sitar players competing for the same number of jobs, the uniqueness/specialness is now less. The power has switched from any individual sitar player to me, the employer.

This is how any free market works. And yes, it is that easy. In a free market, the more qualified workers there are for any job, the less power they have to keep wages high. Period.

You can create any specialized situation you want. But you’re, one, assuming that these new business are necessarily started by newcomers. And two, ignoring that the second the new business is started it is subject to supply and demand. They are. The same way they are subject to gravity.

57

Short term there is some truth in what you say but long term it totally ignores the fact that sitar players create their own demand. 10 sitar players will require more strings than 3 (even unemployed sitar players need to practice), which creates a demand for string manufacturers, who then require more workers to make them. Those workers create a demand for more food which means the restaurant industry opens more doors, which then allows more sitar players to be hired.

If it was as easy as you contend then a growing population would always lead to lower wages. The overall growth of American wealth in the last 100 years seems to be a direct counter to that.

58

But it’s not an argument against supply and demand, specialization is key to the immigration discussion and entirely ignored in favour of those bitching about Mexicans.

Looking at the sitar example, the point is that the restaurant needs a sitar player, that highly specialized individual as part of a larger team. With access to potential sitar players there can be a new restaurant, meaning new jobs for everyone else. If we continue to apply supply and demand, the addition of a restaurant means the wages for all those other non-specialized jobs HAVE to go up. And if there was an available pool of talented sitar players, there wouldn’t be a need for immigration. Remember, the point is that within the pool of 16million unemployed, there are very few if any qualified sitar players. If the restaurant owner can’t find one, he doesn’t open a restaurant. What’s worse for wages, opening a restaurant, or not opening one?

And that’s simply the short term. With this restaurant there is now an emerging market for the sitar industry. Assuming the restaurant is successful (meaning profitable) it will encourage demand for other sitar themed restaurants. This in tern leads to growth in sitar production, but also encourages training in sitar related industries. In 5 years time there will be American born sitar players that can no compete globally.

If there are domestic sitar players you don’t need immigration. On the other hand if there are no sitar players there is no restaurant.

But all of that implies there is no growth. It all goes back to the fix pie theory that people are so fond of.

Wage movement is based on economic growth. When the economic is growing there will be more new restaurants meaning salaries go up.

But if your economy relies on specialized talent it can not grow without immigration. Just as it can not growth without imports.

And all of this discussion completely ignores Americans that get specialized training and leave the US to work in other countries. Why hasn’t that been mentioned yet? America produces an abundance of great guitar players, meaning that if a guy in India is tired of sitars he could hire an American allowing him to start a new guitar based industry in India. Both countries benefit.

So now I have to ask, should we allow Americans to leave the country? Canada suffered brain drain to the US for decades and that’s only now beginning to slow.

No, I am absolutely not assuming that. I am saying that economic growth will require specialization, and immigration is required to supplement that need.

Again, I have in no way made that assumption. The new business represents economic growth, it is not taking from a fixed pie.

59

No, it wouldn’t always lead to lower wages. Not if the demand for products and services were continually on the rise. As you say, look at the last hundred years. The demand for say, skyscrapers, was ahead of the supply of people to build them. So, workers were in a good position, even when we opened the doors on immigration to millions from Europe. The ideal situation for workers is to always be in great demand. As long as new workers enter the workforce at a rate that does not outpace the growth of the economy as a whole, they are in a good position. When supply of workers becomes more scarce, their wages go up. When there is a glut of workers, they’ve lost all bargaining ability. They’ve become commodities.

60

Again, you are conflating things. You’re infatuated with specialization. But even in these specialized fields a “market” exists. That market has a supply and demand. As the need for those with a particular specialization increases, thee bargaining power of the worker (wages) goes down. I don’t anyone is arguing for preventing a highly specialized individual to come here. As you’ve pointed out, we have specific visas for that. But that is a microcosm of the discussion raised in the OP. How many jobs can you point to that workers MUST be imported for? And if they weren’t, what would happen. A demand would sprout and people would begin to get trained in those fields. In the meantime, those with even a degree of skill in a specialized field would be able to demand much greater compensation than they will be once the specialists are imported and competing alongside them.