The debate as to whether or not immigrants lower the wages of native-born workers in the United States has been going on for quite sometime. Credible cases can be made for both sides of this issue and so it is difficult to come up with a decisive answer. An idea that supports the belief that immigrants do hold down native workers wages is the replacement hypothesis. This hypothesis states that there are only a fixed amount of jobs in any economy and immigrants lower employment opportunities for natives and cut down wages for existing jobs. A theory that goes against this hypothesis is that immigrant and native workers can be complements in the workforce resulting in a higher lever of production. By focusing on the different possible theories on this issue we should be able to find that immigration’s biggest influence on employment and wage rates is in the low-skilled jobs of operations, laborers, and services. Yet we should also be able to realize that the reason for higher unemployment and lower wages for native workers is not just from immigrant workers but is also related to the general low skill level of minorities.
The original belief that immigrants replace native workers by taking lower salaries is echoed in the “lump of labor fallacy”. This is the incorrect belief discussed in the first paragraph that only a fixed number of jobs exist in any economy and as immigrants enter the labor market, natives are displaced on a one-to-one basis. The reason why this theory is a misconception is because it does not take into account the technical advances and capital increases which lead to an expansion in the economy. Also it is incorrect to assume that immigrant workers are perfect substitutes for native workers in that they posses the same necessary skills. Furthermore, who is to say that all immigrants will be willing to accept lower wages then the native workers. Therefore there may be a short-term slow down where a few people lose their jobs, but in the long as the economy expands more and more jobs will be created. (Lewis, 169-170)
The alternative hypothesis to the “lump of labor fallacy” is the segmentation hypothesis. The segmentation hypothesis argues that the inflow of foreign workers to the labor market does not necessarily lead to significant displacement since immigrants “take a distinct set of jobs, jobs that the native labor force refuses to accept” (Piore, 1979). Many agree with this theory that there are two types of jobs people can take, primary and secondary. The primary tier consists of higher paying jobs that offer stability and tenure in which workers are given the opportunity to advance their position in their firm. The lower tier of jobs are those that are unstable, low paying, and in sub-standard working conditions. For the most part, the native labor force occupies the higher paying jobs in the primary sector, resulting in the immigrants being forced to work in the secondary sector undertaking the lower paying jobs. Because of this theory that native and immigrant workers do not compete for the same type of jobs, it can be assumed that an increase in the supply of secondary sector workers will lead to an equal increase in the demand for primary sector workers, or vice versa. Yet because there is no increase in the short run supply of native workers there will be an increase in native wages in the short run and an increase in native employment in the long run. (Lewis, 171-175)
The best way to determine which of these theories holds up the best is to conduct aggregate studies. The reason for this is because aggregate studies are the best suited to account for effects outside the “immediate locus” of immigrant employment. On the national level, one study performed by Borjas (1985) found that black men were certainly not the group most negatively affected by the entry of immigrants into the labor market. Another study performed at the national level by Matta and Popp (1985) found that before 1965 immigrants tended to be complements with young natives while immigrants that arrived after 1965 were found to be substitutes for native youth. However both studies turn out to be inconclusive because of either the time period in which they were constructed or because their studies included the entire United States, even in areas were immigrants do not live.
Therefore Lewis decided to examine studies that were based on the major regional areas in the United States that are inhabited by immigrants. One hot bed for immigrants is New York; and from 1980 to 1985 New York added 229,000 new jobs and immigration made up more than three-quarters of the increase. It was also found in New York that while the labor force participation rates dropped in the 1970s and early 1980s immigrants were staying in the labor force longer than natives. This could be possible evidence supporting the replacement hypothesis because the immigrants were willing to take a pay cut while natives were not. In the Los Angeles Basin it was found that immigration did not appear to have an adverse effect on the employment opportunities of native whites and blacks during the 1970s. It was also found that in the L.A. area Hispanic immigrants were complementary workers. In Chicago, which has the third largest illegal immigrant population in the United States, it was shown that illegal immigrants did not affect the employment of native workers since illegals were found working industries that were not competitive to with natives.
The next step in determining the effect that immigrants have on the workforce is examining their effect on wages. In the New York region it was found that immigrants did not have a very significant impact on the earnings of native groups. It seems to be that the general pattern in the growth and fall of wages in New York City follows that of the city’s economic status rather than the effect of immigrants. In the Los Angeles basin it was discovered that the wages of the natives in the unskilled sector were decreased mainly by Hispanics entering the workforce, this occurred mainly in the manufacturing sector were Mexican immigrants made up nearly 50% of the total production workers in low-wage manufacturing. In Texas it was found that wages for low-skilled jobs in border areas were 12 percent lower than inland area, a result of the immigrant population. (Lewis, 193-199)
Another method in attempting to understand the effect of immigration on native wages is to examine the human capital theory. This theory views earnings as a monetary return on skills that an individual worker brings to the labor market. There are a few major assumptions to this theory and the two most important ones are that the process of acquiring skills is costly but it is up to the individual worker and that the major determinants of earnings are investments in education and experience gained while on the job. Therefore investment in human capital is an investment that is likely to produce higher rewards. (Kposowa)
What this information tells us is that assuming that the most critical factor in determining what a person’s wage is based on investments in schooling and in the workforce then it should not matter whether an individual worker is an immigrant or a native. Instead the most important factor should be the amount of schooling and on-the-job training that the individual worker has in determining the rate of pay for that person. Given this information then it also holds true that if an immigrant has a higher skill level than an American minority, employers are going to most likely hire the higher skilled immigrant. If this occurs on a large scale then we will see a high level of competition between American minorities and immigrants. This increase in the supply of workers will allow employers to lower their wages. It turns out that data collected from 1940-1980 shows that native wages took a substantial hit from immigration. In 1980, on average a one percent increase in the percentage of immigrants led to a decrease in minority earnings of nearly $25.32. (Kposowa, 622)
When examining all the possible implications immigration may have on the native wage rate it appears that it is critical to control for the labor market conditions. Also, as discussed earlier, is that it is important to examine the geographic area that is being considered. The reason for this is that as a research team examined the entire United States they found greater depressant of immigration than when they looked at smaller metropolitan areas. This occurred because “the migration of native workers responds to immigration-induced changes in outcomes, so that the immigrant/native ratio overstates the immigration-induced increase in supply in any locale”[1]. In support of this William Frey (1995) found that native worker migration shows that it is primarily less educated natives whose location decisions respond negatively to immigrants. Moreover, it was found that immigration has been a significant factor in reducing the pay of high school dropouts, while immigration and trade have had a small effect on the continuing decline of high school equivalent workers. (Borjas, 8)
In conclusion, immigration clearly has a negative impact on minorities in the labor force. The group of low skilled minorities leave themselves vulnerable to being replaced by immigrants because they are unable to provide any better service than a cheaper equally skilled immigrant. Therefore the only way to solve the problem of United States minorities seeing their wages decrease and losing their jobs to immigrants is by constructing government funded programs that help to increase the skill level of our minorities.
Staughton Y. Lewis, "Impacts of Immigration on U.S. Natives' Employment and Earnings: A Summary of the Evidence" in Thomas J. Espenshade, (editor), A Stone's Throw From Ellis Island: Economic Implications of Immigration to New Jersey, University Press of America, Lanham, Maryland, 1994, Chapter 4, pp.169-215.
George J. Borjas, Richard B. Freeman and Lawrence F. Katz, "Searching for the Effect of Immigration on the Labor Market". National Bureau of Economic Research Working Paper No. 5454, 1996.
Augustine J. Kposowa, "The Impact of Immigration on Unemployment and Earnings among Racial Minorities in the United States", in Ethnic and Racial Studies, Volume 18, Number 3, July 1995, pp. 605-628.
Frey, William. “Immigration and Internal Migration ‘Flight’ from U.S. Metropolitan Areas: Toward a New Demographic Balkanisation. Urban Studies, 1995, 32(4-5), pp.733-757
Piore, Michael J. 1979. Birds of Passage: Migrant Labor and Industrial Societies. Cambridge: Cambridge University Press.
Matta, Benjamin N. and Popp, Anthony V. 1985. “Immigration and the Earnings of Youth in the U.S.” International Migration Review. 22:104-116.
Borjas, George J. 1985. “The Impact of Immigrants fn the Earnings of the Native Born.” Immigration: Issues and Policies. Salt Lake City: Olympus Publishing Company.