Elise S. Brezis and Paul R. Krugman’s, (1996), “Immigration, investment, and real wages,” and James P. Smith and Barry Edmonsten (1997) editing of “Immigration’s Effect on Jobs and Wages: First Principles (Growth and Immigration) argue that increasing the population will not have a substantial negative or positive effect on a nation’s economy. In the short run, Brezis and Krugman first examined the long-run outcome of immigration and concluded that it will initially reduce real wages and capital per worker. Continually, in the long run, Smith and Edmonsten (1997) would agree with Brezis and Krugman (1996) that the effect of immigration is not absolute. Brezis and Krugman’s (1996) data lead them to the conclusion that in the long run immigration can improve the wage rate and capital per worker. Conversely, Smith and Edmonsten (1997) argue that immigration does not affect a nation’s economy. Though Brezis and Krugman (1996) argue in favor of the effects of immigration, they come to a similar conclusion of Smith and Edmonsten (1997), in that certain undefined factors have to be present. Unfortunately, these factors such as government policy are not known and could vary in different societies. Despite the possible increase in the growth of a country, economists have concluded that immigration has not proven to have a substantial effect on the well being of an economy.
Before analyzing the long run effects of immigration, it is important to understand their initial effects. In the short run, immigration has a negative effect on a nation’s labor force, because it reduces real wages and places pressure on un-employment. If capital is fixed, in the short run, an increase in the labor force will lower capital per worker. With lower capital per worker, output per worker will fall, which will eventually lead to employers lowering the wages of workers. Additionally, the lower output will lead to diminishing returns to scale and also an increase in unemployment. Though immigration proves to lower wages and output in the short run, some economists predict the long run effects of immigration will improve a country’s economic state.
To examine the effects of immigration in the long run, Brezis and Krugman’s (1996) created a model with capital and labor as the inputs and measured their affects on wages. The model was used to test both exogenous and endogenous immigration groups. Exogenous immigrants flee solely for the reason to seek political and social refuge. Endogenous immigrants want to leave a country, because there are better economic opportunities in a different country. Statistically, it has been proven that exogenous and endogenous immigration has led to a slight increase in wages and output. Unfortunately, the means to attain a better economic state is not defined, which makes some economists question whether to promote immigration.
Exogenous immigration has proven to increase output and wage rate, in the long run. Specifically, the combination of an increase in the labor market and increasing returns to scale raise capital. Due to the increase in inputs, output per worker will grow. As output per worker increases, a country will invest more in capital to its ratio to labor. Consequently, as capital per worker increases, laborers will be more productive and management will increase wages, because workers are valued higher. According to this model, an increase in exogenous immigration will lead to increase in output and wages per worker, which is beneficial to society.
Additionally, using the same model, endogenous immigration has also proven to increase wages and output. Endogenous immigrants choose to immigrate to a country, for potential economic opportunities. For example, immigrants must have an incentive like higher wages to leave their native land. A country could possibly stimulate growth, by having a wage rate high enough to entice foreigners to come. If a certain amount of capital is accumulated, wages will rise and immigrants will have a greater incentive to seek better economic opportunities. As the amount of laborers increase, the ratio of labor to capital will raise, and present a greater incentive to invest in more capital. Continually, more immigrants will enter the country, until an exhaustion point, at which the wage rate and output of the country will not grow any higher.
Despite the apparent benefits of population growth, the transition to attain higher wages and greater output is not a predetermined path. Economists are skeptical of the ability of immigration policies to attain their desired goals. To begin with, immigrants must be enticed to migrate to a country. To do this, some countries implement strategies like raising wages to hopefully entice immigrants. Unfortunately, some government plans have failed, because investing in capital has not led to increased immigration. Brezis and Krugman state, “It also suggests the possibility that the outcome of waves of immigration is not predetermined: the question of whether the immigrants are successfully absorbed may depend crucially on both policy and expectations.”[1] It is important to note that the endogenous and exogenous immigration has led to higher wages and output. Though large-scale immigration has increased output and wages, the transition to this point is not always smooth and the means to reach this outcome are not predetermined.
As noted, some economists have concluded that immigration can benefit a society; however, transition patterns are not defined. Others claim that an increase in immigration will have no effect on a country’s economy. These economists have established a model with the inputs: physical capital, skilled labor, and unskilled labor. They analyzed the effect of these inputs on growth rates, per capita income, and wealth in the long run. In the model, there are constant returns to scale, so the amount reinvested in inputs depend on the ratio of the three inputs. Over time, capital and skilled labors depreciate and there is minimal population growth, partially due to immigration. Additionally, there will be just enough investment to replace the depreciated capital. In the simple state, capital, skilled and unskilled laborers are constantly growing at the same rate, which means there is no change in the rate of growth and wages.
When there is large-scale immigration typically, immigrants will have a different proportion of skilled labors, unskilled labors, and capital then the natives of the country they are emigrating to. However, in the simple case, if the immigrants have the same proportion of inputs as the native population, there will be no long-term effect on wages or growth. The addition of new immigrants with the same skills as native will have no change on the current ratio of inputs, which is necessary to change outputs. This case’s overall affect on the economy is an increase in the level of GDP, but the level of wages per worker and GDP per capita will remain unchanged. To affect the output and wages per worker, immigrants must have a different proportion of skilled labors, unskilled labors, and capital.
To have an affect on the economy of a country, immigrants must have a greater proportion of at least one of its inputs. If an input is a substitute or a compliment to another, then an increase in the amount of one input will affect the distribution of income to each input. For example, if capital and unskilled workers are substitute for one another and immigrants have disproportionate amount of unskilled workers compared to the native population; an increase in immigration will bring down capital per a worker and the wages of unskilled laborers, but it will increase the skilled workers wages. However, the effect of this change will not be very large. Empirical evidence proves that the proportional difference of immigrant workers will affect the redistribution of income. Although, immigration will increase the wages of skilled laborers, the increase in wages is proportionally smaller then the increase in the number of unskilled workers. This evidence verifies that an influx of immigrants can increase the redistribution of income, but the affect on output will not be as great.
As stated, immigration must have a different proportion of capital, skilled laborers, and unskilled laborers to have an effect. In order to maintain growth in the long run, the differences in inputs between immigrates and natives must remain. Specifically, for countries to maintain growth from immigration, they depend upon the fertility rates and generational assimilation of the immigrants into the native population. Initially, if immigrants have a disproportionate amount of unskilled laborers and their fertility rates are higher than the native population, then the increase of unskilled laborers will improve the economy. However, research has proven that immigrants do not maintain their high fertility rates, and typically, the rate falls to the native level.[2] Consequently, high-fertility rates of immigrants will not have the desired affect on the economy of a nation.
Additionally, the assimilation of immigrants into the native population also determines the effectiveness of immigration on the growth of a country. In order for immigrants to have a beneficial affect on the economy in the long run, they cannot assimilate into the native population.[3] Unfortunately, historical evidence has proven that immigrants will become assimilated into their new society within three generations after their arrival. Over time, immigrants will display the same characteristics as natives. Subsequently, their impact will be negligible, because their characteristics would be identical to the native population. If immigrants are to have a substantial affect on the growth of a country, their assimilation into their new home must be minimal in the long run.
While immigrants are used as a scapegoat for lower wages and higher unemployment, an in depth examination into their affect on the economy proves to be minimal. In the long run, economists have noted that an increase of immigrants can increase the capital per worker and the wages of skilled laborers. However, the long run affect of immigration on output is less then the change in input. Continually, the transition period to attain these relatively small gains is unpredictable and there is no predetermined policy that will always achieve a country’s goals. In the long run, immigrant has no effect on the economy, except for a change in the population size and the scale of the economy.
Brezis, Elise S and Krugman, Paul. “Immigration, Investment, and Real Wages.” Journal of Population Economics. Vol. 9, 1996.
“Immigration’s Effect on Jobs and Wages : First Principles (Growth and Immigration)”. The New Americans: Economic, Demographic and Fiscal Effects of Immigration. Edited by Edmonsten, Barry and Smith, James P. National Academy Press, Washington D.C., 1997 chapter 4.
[2] National Research Council, “Immigration’s Effect on Jobs and Wages:” First Principles (Growth and Immigration)”. The New Americans: Economic, Demographic and Fiscal Effects of Immigration, edited by James P. Smith and Barry Edmonsten, National Academy Press, Washington D.C., 1997, chapter 4. P 158.
[3] Ibid. P 158.