Each Immigrant Creates 1.2 Local Jobs
May 26, 2015
Immigration not only has an effect of adding supply of labor but also an effect on local labor demand because immigrants increase the consumer demand for local services. This effect can attenuate downward pressure from immigrants on non-immigrants' wages and benefit non-immigrants by increasing the variety of local services available. For this reason, immigrants can raise native workers' real wages and each immigrant could create more than one job.
The study of a stylized model of a local labor market shows how the arrival of immigrants increases local aggregate income and thus the labor demand by the non-traded services sector. This effect (labelled as 'shot-in-the-arm' effect) dampens the down ward pressure the extra labor supply places on local wages and increases the variety of non-traded services available, which confers a benefit on all local consumers, native-born and immigrant.
Even in a model in which immigration always lowers local wages in terms of tradeables, it raises real wages in terms of non-tradables, and depending on how strong the shot-in-the-arm effect is, it may raise real wages in terms of the overall consumer price index, raising utility for all local workers.
Considerable evidence for these effects include:
- Each immigrant creates 1.2 local jobs for local workers, most of them going to native workers.
- More than 60 percent of the jobs created by immigrants are in non-traded services.
- Immigrants appear to raise local non-tradables sector wages.
- Immigrants attract native-born workers from elsewhere in the country.
Source: Gihoon Hong and John McLaren, "Are Immigrants a Shot In the Arm For the Local Economy?" National Bureau of Economic Research, April 2015.
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