Economics 201

Case of the Day: Immigration and the Domestic Labor Market

The Issue

Immigration, both legal and illegal, is one of the most controversial political issues in the United States. While some people’s opposition to immigration is doubtless based on bigotry, fear, and xenophobia, the most common argument voiced against immigration is protection of jobs for American workers.

But how does immigration really affect the labor-market outcomes of workers already in the United States? This is a difficult question in labor economics that requires careful econometric analysis in order to sort out the potential channels through which workers might be affected.

Examples of the argument that immigration takes away American jobs abound. Several dozen members of Congress belong to the Reclaim American Jobs Caucus, which kicked off with a video featuring the following message:

Rep. Sue Myrick (R - N.C.): We formed the Reclaim American Jobs Caucus because right now, with unemployment hovering around 10 percent, we thought it was time to talk about the direct link between unemployment and illegal immigration.

Rep. Gary Miller (R - Calif.): The numbers are simple. At last estimate there were more than 8 million illegal immigrants in the U.S. labor force, and there are more than 15 million unemployed American citizens and legal immigrants. In my home state of California, there are 2.2 million unemployed, but 1.8 million illegal immigrants in the labor force.

Myrick: In my home state of North Carolina, there are almost half a million unemployed Americans, but 250,000 illegal immigrants in the labor force.

Rep. Lamar Smith (R – Tex.): And in Texas there are 1 million unemployed, but 925,000 illegal immigrants in the labor force.

Miller: And there are similar figures all across America. That’s just not right.

Smith: If we were to just enforce the current immigration laws on the books, we would cut unemployment in half.

An organization called the Coalition for the Future American Worker runs television ads such as this one, which directly claims that lax enforcement of immigration laws leads to higher unemployment among U.S. workers.

Economic Analysis

Although it may seem obvious that jobs taken by immigrants are jobs not available for U.S. workers, this reasoning commits two common fallacies:

  • Assuming that there is a fixed number of jobs available
  • Assuming that all jobs are qualitatively similar

Once one takes account of the possibility that immigration could increase the total number of jobs offered by employers and of the segmentation of the labor market into many individual sub-markets, the connection between immigration and job outcomes is not obvious.

Many economists have analyzed this question using the vast labor-market databases compiled by the federal and state governments. The link below is to a Washington Post article that summarizes the results found by some of the leading authors.

Nell Henderson, Effect of Immigration on Jobs, Wages Is Difficult for Economists to Nail Down, Washington Post, April 15, 2006.

After reading the Washington Post article, read the short summary linked here of recent research by Giovanni Peri of UC-Davis and the Federal Reserve Bank of San Francisco, who looked at state-by-state data to examine the effects of immigration on employment, wages, productivity, and skill-use of American workers.

[The econometric technique that Peri uses to identify the effects of immigration is called instrumental variables. It is designed to deal with situations where the “dependent” variable (job growth or wages in this case) might affect the “independent” variable of interest (immigration). That is clearly a problem here because immigrants are likely to be attracted to states with high job growth and high wages. The method works by finding “instrumental” variables that should be related to immigration (the independent variable) but that do not have a direct effect on job growth or wages (the dependent variable). This study uses proximity to the Mexican border and previous immigration as instruments, so the results are valid if these instruments affect job growth and wages through their effect on current immigration, but not in any other (more direct) way.]

Questions for analysis

1. Although economists find the net effect to be positive, there are almost surely gainers and losers from immigration among those who are already here. Explain the logic of the following statement: “Whether you gain or lose from immigration depends on whether the labor and capital resources you own are substitutes or complements for immigrant labor.”

2. Based on their economic interests, what position would you expect each of the following groups to take on immigration?

  • Businesses
  • Labor unions
  • Consumers

Based on economic interests, is it surprising that the leaders of the Reclaim American Jobs Caucus come from the traditionally pro-business Republican Party?

3. Do you find the state-level analysis presented by Peri to be convincing? What are its strengths and weaknesses? Based on both the Peri study and the studies described in the Washington Post article, do you think that economists have succeeded in figuring out how immigration affects American workers?

4. There is a clear disagreement about facts between the viewpoint of the Coalition for Future the American Worker and the conclusion of most economic analysis. Based on whatever information you have or gather, how do you think public opinion divides between these two positions? Why?