IMMIGRATION BOOSTS WAGES
December 7, 2005
The conventional wisdom is that immigration depresses wages by increasing the supply of labor. Giovanni Peri of the University of California Davis and Gianmarco Ottaviano of the University of Bologna argue that immigration actually increases domestic wages in a new study.
The researchers contend that businesses make additional capital investments to take advantage of the expanded supply of workers. For example, companies open new restaurants or stores, add new factory lines or build more houses. As business expands, hiring foreign-born workers to do one job may also require hiring more native-born workers with complementary skills. For instance, hiring an immigrant engineer may create demand for native-born patent lawyers and marketing executives.
Their other argument is that immigrant labor and native labor are not completely interchangeable. They do not always compete for the same work:
- Foreign-born workers represent 54 percent of tailors and 44 percent of plaster-stucco masons, while American-born workers make up more than 99 percent of all crane operators and sewer-pipe cleaners.
- Similarly, foreign-born college graduates make up 44 percent of all medical scientists, but only 4 percent of lawyers.
- The authors calculate that foreign-born workers compete more with themselves than with domestic workers.
Furthermore, the authors argue that the effect of immigration in the 1990s was positive. They calculate:
- Overall the average wage of American-born workers rose by 2.7 percent.
- The wages of native-born high school graduates, college dropouts and college graduates rose by at least 2.5 percent.
- The exception was the uneducated - the wages of American-born high school dropouts fell by 2.4 percent because of immigration.
Source: Gianmarco I.P. Ottaviano and Giovanni Peri, "Rethinking the Gains from Immigration: Theory and Evidence from the U.S.," August 2005.
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