Economic Performance
Jobs ... Employment

Why we’re wrong to blame immigrants for our sputtering economies

Burgess COMMENTARY
The issue of jobs and employment is an important subject, but this article really does not do the subject justice. Facts may be facts, but how do facts get translated into data, how do facts get used for analysis, and whose perspective is used to understand facts? In modern times, we now live with a very complex socio-enviro-economic system, yet we try to make decisions based on a very simplistic set of metrics.

The most important decision set relates to the making of profit for companies and earning returns for investors. These decisions are more important than anything else. In the past 50 years there have been huge technology driven productivity increases, and this has enabled massive increases in profitability. But productivity is defined as making more product with less labor / people, and in the end it is corporate decision making that is the single biggest source of job destruction and disappearing jobs.

I don't see the media, the political class or academics talking about this. They do not seem to to give any attention to the role of corporate decision making in job loss. I don't see accountants addressing the matter of metrics that are totally insufficient for adequate management of the complex socio-enviro-economic system that we are living with. Better metrics are essential. Better metrics are possible. The way decisions about allocation of investment resources are being made is insane and unsustainable ... the facts are that profits are increasing and payrolls decreasing, and we are investing only a tiny amount in the infrastructures that we need for an efficient 21st century.

Peter Burgess ... http://truevaluemetrics.org
Peter Burgess

Why we’re wrong to blame immigrants for our sputtering economies

An anti-immigrant mood has been sweeping the West, such as in Finland. Scanpix Sweden/Reuters

Immigrants have become a major scapegoat in recent years for sputtering Western economies.

From the U.K.’s jarring “Brexit” from the European Union to Donald Trump’s infamous wall and more recent proposal to apply “extreme vetting” to those wishing to enter the U.S., many politicians have found success by casting immigrants as a threat to the physical, social and economic welfare of natives.

In short, Americans (and our European brethren) are unhappy, and many are convinced immigration brings harm. A recent poll found that almost two-thirds of Americans think immigration, including the legal kind, “jeopardizes the United States.”

While it has become a popular notion in the West that immigrants jeopardize the job prospects of natives, over 30 years of economic research (including my own) gives strong reason to believe otherwise.

And in fact, the opposite may be more likely: There’s evidence immigrants actually promote more economic growth.

Stopping the flow of immigrants into the U.K. was the reason many voted to leave the EU. Neil Hall/Reuters

Why we blame immigrants for our troubles

Extensive reviews of research on the topic (like this one) show that most studies of how immigration affects native wages and employment found very little effect.

Although economists have yet to arrive at a complete consensus, decades of studies generally do not support the notion that immigration harms the economy, market wages or native employment. So why do so many believe it when research suggests otherwise?

Recent media coverage can be partly to blame, for promoting more negative images of immigrants than positive ones. One example is how there’s been a lot of coverage of fraud in the H-1B visa program but relatively little of testimony by Bill Gates and others about its important benefits. And nationalistic politicians frequently drum up support by claiming immigrants are stealing our jobs.

But a deeper issue is that it is easy to think that the labor market is a zero-sum game. If everyone is competing over a finite number of jobs, more immigrants mean fewer opportunities for natives. However, the reality is much more complex, and the labor market is far from a zero-sum game.

A new migrant interested in the same job as you may diminish your odds a little, but a single immigrant with a good idea might end up creating hundreds or thousands of jobs that wouldn’t have existed had he or she not crossed an ocean or border (the impact of son-of-a-migrant Steve Jobs or South African tech entrepreneur Elon Musk comes to mind).

The labor market is dynamic, and both individual workers and employers constantly readjust to changing conditions. In fact, many economists have found evidence that natives quickly adjust to the labor market forces of immigration and in a way that often yields positive benefits.

Immigrant Elon Musk isn’t taking anyone’s job: he’s created thousands at Tesla and SpaceX. Stephen Lam/Reuters

Adjusting to immigration

Immigration flows into the U.S. do not affect all sectors equally. Immigrants are highly overrepresented in either very low-skilled manual and labor-intensive jobs or very high-skilled science and engineering occupations.

The types of immigrants who arrive and the areas in which they work are crucial for understanding the impact, and this concentration makes it possible to adjust to it.

In a 2010 study, Dartmouth economist Ethan Lewis found that companies in regions that saw inflows of less-skilled immigrants in recent decades adopted capital machinery at a lower rate.

In other words, because businesses substituted capital for less-skilled immigrant workers, they didn’t suffer harmful effects on productivity or value added per worker. This substitution lowers the pressure to reduce wages.

Economists Giovanni Peri and Chad Sparber found that inflows of immigrants – whether low- or high-skilled – induced native workers to shift to jobs that are more complementary in nature and where they have a comparative advantage. And that limited the impact on wages and employment.

For example, natives working in fields receiving large inflows of low-skilled immigrants – who had a comparative advantage in manual and physical labor – moved toward occupations requiring more communication-intensive tasks. They observed a similar phenomenon when high-skilled immigrants with comparative advantages in fields like science and mathematics enter the U.S. labor force. Rather than being laid off, native skilled workers moved to occupations that required more managerial and communication skills.

Economists George Borjas and Kirk Doran also found convincing evidence of this mobility in very high-skilled academic research positions, where native mathematicians altered their research away from topics dominated by new immigrant academics.

Just as natives move toward occupations in which they possess a comparative advantage relative to immigrants, they can also move across skill groups by acquiring education. Several economic papers, like ones by Jennifer Hunt and Will Olney and Dan Hickman, found that natives tend to acquire more education following the arrival of less-skilled immigrants. Increases in education benefit the long-term prospects of natives, and means they are no longer competing in the less-skilled labor market.

Growing the economic pie

But beyond simply doing no or little harm to natives, there’s evidence immigrants actually benefit the overall economy – which helps everyone.

Recall that immigrants in the U.S. are highly represented in high-skill science and engineering occupations. Economists have long understood that economic growth is generated by innovation, which in turn comes from research and development. A study by Stanford economist Charles Jones found that nearly half of U.S. economic growth since the 1950s is attributable to the increase in the number of scientists and engineers engaged in research and development.

Combine this with the fact that about half of the growth in the number of scientists and engineers in the U.S. since the 1980s was due to immigrants and it is not difficult to understand the connection between skilled immigration and economic prosperity.

In a recent paper, coauthored with Giovanni Peri and Chad Sparber, I formally tested this idea. We examined whether increases in skilled foreign-born scientists and engineers in the U.S. from 1980 to 2010 improved productivity. We found modest gains in real wages for native skilled workers. And no negative impacts on native employment.

Complementing our finding is research by economists William Kerr and William Lincoln, who found that skilled immigrants increase innovation, thereby generating productivity gains for native workers most ready to take advantage of such technological advances.

As long as immigrants continue to innovate and invent, they can continue to boost economic growth.

A man expresses himself back when immigration reform was possible. Those were the days. Immigration protest via www.shutterstock.com Who is actually most hurt by immigration

Although most studies don’t find adverse impacts on natives, that does not mean they have not found adverse impacts at all. In fact, the group that most commonly appears to be negatively affected by new immigrants are other recent immigrants.

Recent immigrants are the most easily substituted with new immigrants, tend to live and work in the same labor markets that new immigrants enter, often do not have the skills to move toward communication-intensive jobs and face restrictive policies that limit access to higher education. As such, their labor market prospects appear to deteriorate when new immigrants arrive.

Research suggests natives' productivity in certain occupations – ones that truly appear to be zero-sum – is also somewhat affected by immigration. For example, economists George Borjas and Kirk Doran found that the publishing rates of American math professors were negatively affected by inflows of Soviet mathematicians in the 1990s after the Soviet Union’s collapse. Since the amount of papers an academic journal can publish is fixed, more quality papers from immigrants will crowd out those written by natives.

Other studies that take a general focus on the labor market and find negative effects have been debated from time to time among academics, however, with little consensus.

A new paper, however, calls into question many of these negative findings, showing researchers have been using measures of immigration that carry an inherent negative bias. Using correct measures eliminates the negative impact.

Facts are facts

All in all, most of the research suggests that the fear that immigration will drastically harm native wages and job prospects is by and large unsubstantiated. In fact, much work has shown the labor market is dynamic, and that native workers and employers take measures to evade any competitive forces from immigration.

While some pundits and presidential candidates will likely continue to claim immigration is harming our economy, that won’t alter the evidence economists have uncovered in study after study. By the same token, claims that immigrants are flooding across our southern border (so we need a giant wall to keep them out) doesn’t change the fact that illegal immigration to the U.S. has actually been falling for the past nine years.

Though it is easy to believe that foreigners will overcrowd a frail, zero-sum labor market, decades of research has shown the only thing that sums to zero are the estimated effects of immigration.

Author Kevin Shih Assistant Professor of Economics, Rensselaer Polytechnic Institute

Disclosure statement Kevin Shih has received funding from the National Bureau of Economics Research.

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