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What immigration actually does to jobs, wages and more

Sabri Ben-Achour and Alex Schroeder Dec 12, 2023
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The economic research tells us that immigration does not cause serious wage losses, for example. Bryan R. Smith/AFP via Getty Images

What immigration actually does to jobs, wages and more

Sabri Ben-Achour and Alex Schroeder Dec 12, 2023
Heard on:
The economic research tells us that immigration does not cause serious wage losses, for example. Bryan R. Smith/AFP via Getty Images
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COPY

Republican lawmakers are conditioning any aid to Ukraine and Israel — something the Biden administration has been asking for — on changes to the U.S. immigration system. President Joe Biden has agreed to linking these two issues in a legislative package. Congress, however, only has days to act before leaving for recess, and so far they’ve been unable to make a deal.

Congressional Republicans want, for example, to restrict the asylum process and the Biden administration’s parole program that lets migrants live and work in the U.S. temporarily. This is an opportunity to consult the research and data that show us what immigration actually does to an economy.

Zeke Hernandez is a professor at the University of Pennsylvania’s Wharton School. He has a forthcoming book on this subject that will be published in June, called “The Truth About Immigration: Why Successful Societies Welcome Newcomers.” Hernandez spoke with “Marketplace Morning Report” host Sabri Ben-Achour, and the following is an edited transcript of their conversation.

Sabri Ben-Achour: When it comes to the economics of immigration, there is the big one: immigration and its effect on wages and jobs. So let’s start there. Does immigration reduce wages?

Zeke Hernandez: The short answer is no. I understand that that’s a big question, but we have enough evidence to know that the answer is no. Immigration doesn’t cause job losses, either, for native workers.

Ben-Achour: I have a feeling many people are asking, “Why not?” How does it not?

Hernandez: Yeah, and that’s exactly the right question. Because it seems surprising. Let’s start with the big picture: What goes into job creation? Or you could even think economic growth more broadly, right? And that’s going to be a function of, yes, the number of workers in the economy, but also a lot of other things, like the amount of investment in the economy, the number and the quality of new ideas that people have, the number of new businesses that people start because of the ideas, the new technologies that are introduced into the economy, the amount of demand, the variety of goods and services that are demanded. So all of those are the ingredients that go into creating jobs and growing an economy. And the short of it is that the evidence tells us that immigrants contribute positively to all of those ingredients. That is, immigrants, when they settle in a community, that community receives a lot more investment. When immigrants arrive, there are not just more workers that are competing with native workers, but there are more people who demand housing, entertainment, food, education. And so you need to hire more people to satisfy that bigger demand. Immigrants disproportionately start businesses and those businesses create jobs.

The remaining question for someone who’s listening to me might be, “But wait a minute: If there are more immigrants in my neighborhood, or my state, or my country, doesn’t that mean more immigrants competing for the same jobs, which will either take my jobs or lower my wages?” And surprisingly, the evidence shows us that that’s not the case. And we have evidence from lots of different studies on that. And some of them show what happens when there’s these big, unexpected influxes of, say, refugees, or a lot of workers that show up in a place. And some of them look at more regular migration. And they all agree that immigration, that doesn’t take away jobs from natives. And it tends not to lower wages. There are sometimes some exceptional drops in wages for a little bit, but those recover very fast. So why would that be the case? One is, like I said, when you have these newcomers, they’re also growing the economy. So it’s not just the supply of workers that increases, but the demand for other things also increases, which means the economic pie is bigger, which is why there’s not zero-sum competition.

The other reason is that someone who’s worried about immigrants taking jobs or lowering wages is often assuming that an immigrant worker is identical to a native worker. But they’re not. For example, we know that immigrants take and want different jobs — for example, in farms, in factories and construction that natives simply won’t do. The other thing is that even for cases where an immigrant and a native might be working in the same sector, say like construction, immigrants bring different skills and natives have different skills. And so the immigrant might allocate into, say, the manual part of the construction job that doesn’t require language skills, because maybe the immigrant doesn’t speak English well. And that means that the native will kind of allocate into, say, becoming the foreman, where he can use his language skills. And so then you don’t get that direct competition for those two reasons.

Ben-Achour: Some people will say, “It’s not that natives won’t do jobs. It’s just that, you know, we have to pay them more to get them to do those jobs. So we don’t actually need immigrants to do them.”

Hernandez: Yeah, I understand. Again, we have no evidence to support that. And in many sectors, we do have very clear evidence that natives simply will not do the jobs. I’ll give you an a pretty extreme example that makes the point. So Michael Clemens has a study looking at North Carolina farm jobs in 2011. In that year, because of the aftermath of the financial crisis that North Carolina was still suffering, there were half a million unemployed North Carolinians. And there were 6,000 job openings in North Carolina farms. Out of those 6,000 jobs, there were 268 applications from native workers. Of those, all were hired, 163 of them showed up to work and only seven finished the harvest. So that’s pretty stark, right? I mean, that’s not a matter of, like, you know, payment or competition. That’s just a matter of, like, there’s a job that nobody wants.

I’ve also spent a lot of time talking with factory managers in the Midwest, in Milwaukee and in other states around there. And consistently, the story they tell me is they actually would prefer to hire native workers who speak English, they tell me it’s much easier. But they can’t. They just can’t get them to work. If they work, they can’t get them to stay in the job. And so they end up resorting to the immigrant labor market. And so, part of the assumption is that, again, a worker is the same whether they’re a native or not, but even employers would prefer native workers because it’s less hassle, but they just can’t find them.

Ben-Achour: Last year, Jerome Powell, head of the Federal Reserve, he said that some of the abnormally high growth in wages could be due to a temporary drop in immigration that we saw for a time. Doesn’t that imply that he thinks there’s some effect? Connection?

Hernandez: Well, there is a connection between labor shortages and inflation. But I think that it doesn’t mean that the influx of immigrants therefore would lower the wages of native workers. Jerome Powell was talking about the drop in immigration from the COVID-19 pandemic, which was kind of made stronger because of Trump’s sort of restrictions on immigration during that time. By most estimates, the U.S. lost over 1 million immigrants as a result of those policies during the COVID years.

What Powell was referring to is not that immigrant workers were competing with native workers. But what he is talking about is just that, overall, because there was a shortage of workers, businesses just had to restrict output. They couldn’t produce as many goods and services. And they couldn’t find enough people to work. And so they had to raise wages for everyone. But I want to emphasize everyone — not just native workers. And so I think the link Powell was making is a little more complex. It’s about supply shortages, and the fact that, without workers, companies can’t produce as much, which then ends up leading to inflation, both in wages and in the prices of the goods and services companies produce.

Ben-Achour: You mentioned there are some jobs that native workers just will not do. That raises the question: Is there an economic need for immigrants? Or, more specifically, where is there an economic need for immigrants?

Hernandez: Yeah, and I think in some ways, that’s the right question. So here are some facts: Immigrants are 18% of the labor force, OK? But they are 45% of workers and household services; 36% in clothing manufacturing; 33%, in agriculture; 32% in hospitality; 29% in food production; 27% in electronics manufacturing; and just about a quarter in construction, laundry services and other kinds of manufacturing. So the point there is that, where you see sectors that immigrants are disproportionately represented in the workforce, those are the kinds of jobs where we really need immigrants.

But there are also, on the high-skill side — so notice that the jobs I just listed tend to be jobs that require what’s often called “unskilled work” or workers without college degrees. But, for example, on the highly skilled, educated workforce, immigrants are, again, just about 16% to 18% of the workforce, but they account for 36% of all patents produced in the U.S. Immigrants are 14% of the population, but they are founders of 25% of all startups, and over half of all high-tech, high-growth startups that achieve a valuation of a billion dollars or more. And so, whether you look at the unskilled or the highly skilled sector, the economy needs these immigrants — and not just needs them, but benefits from them in a disproportionate sense.

Ben-Achour: What is the connection between immigration and investment?

Hernandez: So the connection is that when there are more immigrants in your community, companies from the immigrants’ home country invest more in your community. So one example would be, there’s a reasonably fast-growing restaurant chain called Pollo Campero in the U.S. It’s it’s a fried chicken chain, kind of like KFC or Chick-fil-A. They’re a company from Guatemala, and they’re very, very popular in Central America. And so they followed this strategy of finding opportunities in the U.S. market by opening restaurants in communities that have a lot of Central American immigrants, and from their growing into serving the rest of the population, including natives born in the United States. And that’s just an illustration that the movement of Central Americans into different communities in the U.S. attracted investment from this company Pollo Campero, which then creates jobs in those communities and contributes in other ways. And so that’s just an anecdote, but a lot of the research I’ve done over the years shows that that applies in general. That is, that where immigrants move, investment from their countries follow, and that investment creates jobs. And that’s really critical, because if you want jobs, you need investment first, and immigration is a precursor of investment. That would be the chain.

Ben-Achour: New York City Mayor Eric Adams recently said New York would have to cut its budget to accommodate the hundreds of millions of dollars spent on housing an influx of migrants. He was exaggerating because the budget was going to be cut anyway. But it raises the question about people seeking asylum on the Southern border, as we’ve seen. Presumably many of these people do end up working, generating economic activity, paying taxes even. But they also use social services like the mayor was complaining about. So what about that situation? How does that net out?

Hernandez: In the long run, it nets out positively for the U.S. economy. But, you know, Mayor Adams and others who are complaining about the short-term costs of welcoming immigrants and helping them get on their feet, they do have a point. They’re not wrong, that in the short run — meaning over months, and in perhaps the first year or so — there are a lot of localities and states that do have to spend disproportionately on public services for immigrants, whether that’s temporary housing or a receiving center, providing education for the children of those immigrants; that is actually correct. There are short-term costs of welcoming immigrants in the same way that there are short-term costs of any new person. Like, a baby that’s born in New York City is going to cost New York City something. And so it’s a very legitimate conversation as to whether the federal government is providing. say, enough help to New York City and other localities. In my opinion, the federal government is not providing enough support, because the federal government, in the long run, will collect the income taxes that those immigrants and their children will pay without incurring the short-term costs of welcoming them. So I think that is a legitimate concern.

But it is important to think about how it nets out in the long run. And so there is evidence showing that every first generation immigrant, on average, cost the state $1,600 [per year] for the state, primarily because immigrants have more children. And so the cost of education is higher for immigrants than for natives. But when you go to the second and third generation — that is, the children and grandchildren of those immigrants — states collect a lot more than that $1,600. They collect $3,000 across the two generations. And that’s, by the way, net-present value terms, meaning holding equal the timing of the inflows.

So, fair point. But the wrong conclusion would be to say, therefore, don’t allow immigrants in — because in the long run, the economies of the states would be worse off.

Ben-Achour: As we can see in Congress right now, views on how much immigration the U.S. should permit and what that looks like — hotly debated. Can economics provide some kind of semi-objective guide of knowing how many workers, how many immigrants, we ought to bring?

Hernandez: I don’t think that anyone can give you an exact number and tell you that it came from any sensible analysis. I think it would be a lie to say that there’s an exact number. I think we can say some things with quite a bit of confidence. For example, we know that the U.S. doesn’t admit enough immigrants through work visas or green cards to meet the needs of the economy. For reference, the last time the U.S. updated its visa system was in 1990. Back then the economy was $9 trillion in size. Today, it’s over $20 trillion. So we’ve more than doubled the size of the economy, but we haven’t budged on the number of workers that we let in — or foreigners of any kind. We’re not even replacing the number of people that die in prime-working age through our immigration system. So we would at least want to do that. But our numbers are already too low given the number of jobs that startups are creating, that firms are creating. So the answer is we can handle a lot more.

The Penn Wharton Budget Model recently estimated that if we double the number of immigrants we let in legally, GDP would continue to grow. And then the last answer I’d give you to that is that there are many periods throughout history and across countries where there have been no restrictions on the number of immigrants. We haven’t found any systematic evidence that there was economic harm to natives or to the economy. But we have found a lot of evidence that there were benefits. And so I don’t have a number for you. But I can say, we can handle a lot more, and not only that, that we need it, given the size of the economy relative to the supply of foreigners that our system allows.

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