Economic and Domestic Policy

The mega payoff of increased immigration is lost on the pols

View of the Nuevo Laredo port of entry, one of several where US Border Patrol, ICE and Customs and Border Protection agents check cars traveling between the U.S. and Mexico in Laredo, Tex.
View of the Nuevo Laredo port of entry, one of several where US Border Patrol, ICE and Customs and Border Protection agents check cars traveling between the U.S. and Mexico in Laredo, Tex. (Linda Davidson - The Washington Post)
By Ezra Klein
Sunday, September 26, 2010

I have a plan that will raise wages, lower prices, increase the nation's stock of scientists and engineers, and maybe even create the next Google. Better yet, this plan won't cost the government a dime. In fact, it'll save money. A lot of money. But few politicians are going to want to touch it.

Here's the plan: More immigration. A pathway to legal status for undocumented immigrants. And a recognition that immigration policy is economic policy and needs to be thought of as such.

See what I meant about politicians not liking it?

Economists will tell you that immigrants raise wages for native-born Americans. They'll tell you that they make things cheaper for us to buy here, and that if we didn't have immigrants for some of these jobs, the jobs would move to other countries. They'll tell you that we should allow for much more immigration of highly skilled people, because that's about as close to a free lunch as you're likely to find. They'll tell you that the people who should most want a path to legal status for undocumented immigrants are the low-income workers who are most opposed to such plans. And about all this, the economists are right.

They'll also admit there are other considerations. Integrating cultures and nationalities is difficult. Undocumented immigrants raise issues of law and fairness. Border security is tough. Those questions are important. They're just not the subject of this column.

The mistake we make when thinking about the effect immigrants have on our wages, says Giovanni Peri, an economist at the University of California at Davis who has studied the issue extensively, is that we imagine an economy where the number of jobs is fixed. Then, if one immigrant comes in, he takes one of those jobs or forces a worker to accept a lower wage. But that's not how our economy works.

With more labor - particularly more labor of different kinds - the economy grows larger. It produces more stuff. There are more workers buying things, creating demand. That increases the total number of jobs. We understand perfectly well that Europe is in trouble because its low birth rates mean fewer workers - and that means less economic growth. We ourselves worry that we're not graduating enough scientists and engineers. But the economy doesn't care if it gets workers through birth rates or green cards.

In fact, there's a sense in which green cards are superior. Economists separate new workers into two categories: Those who "substitute" for existing labor - we're both construction workers, and the boss can easily swap you out for me - and those who "complement" existing labor - you're a construction engineer, and I'm a construction worker. Immigrants, more so than U.S.-born workers, tend to be in the second category, as the jobs you want to give to someone who doesn't speak English very well and doesn't have many skills are different from the jobs you give to people who are fluent and have more skills.

That means firms can expand more rapidly because they have more labor of different types and that native workers can do jobs where they're more productive. If you have lots of immigrant laborers willing to build roads, a firm can build more roads and has more need for native workers who can supervise the crews or do the technical work. The effect of all this - which has been demonstrated in multiple studies - is that immigrants raise wages for the average American.

But that's only half of their benefit. "Living standards are a function of two things," says Michael Greenstone, director of the Hamilton Project, which is hosting a conference in Washington on the economics of immigration next week. "They're a function of our wages and the prices of the goods we purchase." And immigrants reduce the prices of those goods. Patricia Cortes, an economist at the University of Chicago's Booth School of Business, found that immigrants lowered the prices in "immigrant-intensive industries" such as housekeeping and gardening by about 10 percent. So our wages go up, and the prices of the things we want to buy go down.

We should remember, though, that the average worker isn't every worker. A study by Harvard economists George Borjas and Lawrence Katzj found that although immigrants raised native wages overall, they slightly hurt the 8 percent of workers without a high school education. A subsequent study by Peri found that even unskilled workers saw a benefit from immigrants - but it was much smaller than that of highly skilled workers.

And unskilled workers face even tougher competition from undocumented immigrants who, because their status is so tenuous, will accept pay beneath the minimum wage. And they are unlikely to complain about safety regulations or work conditions. That takes unskilled immigrants from being a bit cheaper than unskilled natives and makes them a lot cheaper - which makes employers likelier to hire them for jobs that native workers could do better.

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