Do Surges in Less-Skilled Immigration Have Important Wage Effects?
Published on: Mar 08, 2007

David R. Howell is professor of economics at the Milano the New School for Management and Urban Policy (The New School). He is a faculty research fellow at the Schwartz Center for Economic Policy Analysis (The New School) and a research associate at the Political Economy Research Institute (University of Massachusetts-Amherst). He is the author of Fighting Unemployment: The Limits of Free Market Orthodoxy (Oxford University Press).

Over the last three decades the U.S. has experienced a second great surge in immigration, comparable in many respects to the massive increase in foreign born workers in the Age of Mass Migration – the decades around the start of the last century. Between 1970 and 2005 the foreign-born share of the U.S. labor force increased from 5.3% to 14.7% (Ottaviano and Peri, 2006, p. 1). In the last five years alone (2000-05) some 4.1 million new immigrants entered the American labor market and an estimated 1.4 to 2.7 million of these newcomers were undocumented. According to a recent study, new immigrants accounted for 86 percent of the net increase in total U.S. employment (Sum et al., 2006, p. 1).

Until recently, this dramatic demographic transformation of the labor force was largely embraced and, indeed, facilitated by public policy, since it has been widely accepted that among the winners were employers, consumers, many native-born workers (whose jobs are complementary) and the new immigrants themselves. In 2000, the New York Times ran a front page article with the title “I.N.S. Is Looking the Other Way As Illegal Immigrants Fill Jobs.” As the agency’s Associate Commissioner for Policy and Planning explained, “It is just the market at work, drawing people to jobs, and the I.N.S has chosen to concentrate its actions on aliens who are a danger to the community.”  The following year, the Times ran another story under the heading “Meatpackers’ Profits Hinge on Pool of Immigrant Labor,” which noted that “cracking down on illegal workers could disrupt an industry.”

In the meantime, the labor market has performed terribly for the bottom half of the skill distribution. For male workers, between 1979 and 2004 the median weekly wage for those with less than a high school degree fell from $517 to $402 (adjusted for inflation); the median real wage also declined for high school graduates, from $637 to $592; and even workers with some college saw hardly any improvement, rising from $658 to just $672 (Blank, 2006, table 1).   

In particular, it is poor labor market outcomes for native-born workers that can be expected to focus public attention on possible downward wage and employment effects of immigrants. Between 1990 and 2004, real annual wages of U.S. natives with less than a high school education fell by 11.5%; high school graduates saw gains of just 6.5% over these 15 years; and those with some college gained only slightly more, 8.5% (Ottaviano and Peri, 2006, figure 4). On the employment side, 1.7 million fewer young (16-34) native-born men were employed in 2005 than five years earlier, compared to 1.9 million more male immigrant workers (Sum et al., 2006, p. 1).

So it should not be surprising that anti-immigrant sentiment has been rising in recent years. While there are many other sources of anger and resentment (fiscal costs, violation of national immigration and local zoning laws, racism, etc.), low wages and worsening employment conditions have certainly played a central role. It is widely accepted that the recent surge in low-skill immigration has produced a growing pool of workers, even outside the major gateway cities, with very low reservation wages (the wage at which workers will agree to offer their services) and no bargaining power. While offering a windfall for employers and consumers, many believe that the newcomers reduce the wages and job opportunities of both native-born workers and earlier cohorts of immigrants.

Policy makers have responded in the last couple of years with a dramatic increase in enforcement efforts against undocumented workers. Over 1,000 Immigration agents participated in raids on six Swift & Co. plants in December 2006, arresting almost 1300 of Swift’s 15,000 workers.  If the evidence from earlier raids is any indication, in the short run both wages and the share of native-born workers employed in the plants will rise substantially. The Wall Street Journal reports that raids a few months earlier on Crider Inc., a poultry processing company in Stillmore Georgia, resulted in the loss of “75% of its mostly Hispanic 900-member work force… for local African-Americans, the dramatic appearance of federal agents presented an unexpected opportunity. Crider suddenly raised pay at the plant… For the first time in years, local officials say, Crider aggressively sought workers from the area’s state-funded employment office.” Indeed, it turns out that prior to the late 1990s’s most of Crider’s workforce was black: “With the arrival of so many immigrants willing to toil for rock-bottom wages on brutal round-the-clock shifts, the number of black workers at Crider declined steadily to 14% in early 2006 from as high as 70% a decade ago, the company says. Wages stagnated at about $6 an hour…”.   

Are news reports of large local labor market impacts of these recent dramatic law enforcement operations consistent with the findings of research on the effects of surges in low-skilled immigration? Does the statistical evidence support public concerns that the wages and employment opportunities of many native-born workers are harmed by labor market competition with immigrants from impoverished foreign countries? Or are these new foreign-born workers just filling job slots that would otherwise have migrated abroad anyway, with the result that there are little or no clear negative impacts on wages and employment?  

This paper surveys recent research that addresses these questions. The literature on the incorporation and effects of immigrants in U.S. labor markets is enormous, so in addition to focusing on recent studies I narrow the focus to those that explore the employment and earnings impacts of less-skilled immigrants in the United States primarily with statistical analysis (econometric studies). Even for this seemingly narrow scope, the coverage of studies is far from comprehensive. The aim is to provide a reasonably balanced picture of what the recent statistical research has produced. This essay specifically does not cover the huge qualitative case study literature (though it may be at least as informative).