Immigration to America is down. Wages are up

IN BOTH 2018 and 2019 nominal wages rose by more than 3%, the fastest growth since before the recession a decade ago. Americans at the bottom of the labour market are doing especially well. In the past year the wages of those without a high-school diploma have risen by nearly 10%. Intriguingly, this has come as America has turned considerably less friendly to immigrants, who are assumed by many to steal jobs from natives and lower the wages of less-educated folk. The two phenomena may be connected—but only for a while.

For the first time in half a century America’s immigrant population appears to be in sustained decline, both in absolute terms and as a share of the total. Net migration to America (ie, the difference between people arriving and people leaving the country) fell to 595,000 in 2019, the lowest in over a decade. This is a profound shift in a country which has often prided itself on its openness to outsiders.

The number of highly qualified immigrants continues to rise. San Francisco airport remains just as crammed with Allbirds-and-gilet-wearing tech investors from all over the world. It appears instead that the overall decline in the foreign-born population is a result of falling numbers of low-skilled migrants. Those numbers slumped a decade ago because of the recession that began in 2007, changing demographics in Mexico and tougher border policing. More recently the number of low-skilled migrants appears to be in decline again. That is probably a consequence of policies implemented by President Donald Trump, as well as the off-putting effects of his rhetoric on foreigners.

Many factors lie behind America’s growing wages. Labour demand is exceptionally high, with unemployment at 3.6%, giving some workers more bargaining power. Ambitious increases in state-level minimum wages in recent years have boosted the wages of the lowest earners. Nominal wages are rising not just in America but across rich countries—even though the foreign-born population in many of them continues to grow rapidly.

There are nonetheless scraps of evidence that some workers are benefiting from America’s growing antipathy to immigrants. Gordon Hanson of Harvard University suggests that if the impact of reduced low-skill migration is showing up anywhere, it will be in three particular occupations: housekeepers, building-and-grounds maintenance workers, and drywall installers. These occupations rely heavily on immigrant labour and the services they provide cannot be traded internationally. Average wages in those occupations are rising considerably faster than wages in other low-paid jobs, according to calculations by The Economist.

Intriguing evidence also shows up geographically. According to research by William Frey of the Brookings Institution, a think-tank, five big metro areas saw absolute declines in their foreign-born populations in 2010-18. Wages in those areas are now rising by 5% a year, according to our calculations. Cleveland, which is in one such area, has pockets of severe poverty but seems to be doing better than before. Many of the city centre’s astonishingly grand buildings are being converted into luxury lofts for millennials.

The apparent short-term boost to wages may encourage politicians to go further. Inspired by the president, some Republican senators are pushing to cut immigration by half in order, they say, to boost workers’ wages. But several recently published academic papers, looking at other occasions when America has clamped down on immigration, suggest that these episodes ultimately offer little benefit to native workers—and may even harm them.

Restrictions on Chinese labourers were some of America’s earliest anti-immigration measures. Mary Coolidge, who wrote one of the world’s first studies of the effect of immigration on pay, could see no benefit to the expulsion. The perceived decline in wages in California which had motivated the reform, she argued in 1909, was “due to a number of causes with which Chinese competition had nothing to do.” Expulsion did little to raise earnings. A few decades later America enacted its first big immigration reform, shutting out immigrants from Europe for the first time. A paper released in December, by Ran Abramitzky of Stanford University and colleagues, finds that after the border closure of the 1920s the occupation based earnings of native-born workers actually declined.

Giovanni Peri of the University of California, Davis, and his colleagues find that during the Depression state and local governments sent up to 500,000 residents of Mexican descent to Mexico, a move intended to boost American wages. Cities subject to a larger number of repatriations saw little change or even declines in native employment and wages. Another paper, by Michael Clemens of the Centre for Global Development and two colleagues, looks at the expulsion of 500,000 Mexican seasonal workers in the 1960s, concluding that the exclusion “did not increase the employment or wages of native workers”.

The lesson from all these papers is that, over time, the economy adjusts to a fall in the number of immigrants. In the short term, native workers may well see a wage boost as labour supply falls. But businesses then reorient production towards less labour-intensive products; natives take jobs previously occupied by foreign-born folk, which may be worse paid; and bosses invest in labour-saving machinery, which can reduce the pay of remaining workers.

Even the apparent short-term benefits to wages are a poor economic argument for tough immigration restrictions. Migrants have economic effects far beyond the labour market. They spur innovation and entrepreneurship and they help create trade links between America and their home countries. Both low- and high-skilled migration are linked with higher productivity.

As America ages, it will need a lot more people willing to work in health care. Study after study finds a positive association between immigration and long-run economic growth—and therefore, ultimately, the living standards of all Americans. The Trump administration’s immigration restrictionism may achieve a temporary boost in wages of the low-paid now, but at a cost to the country’s future prosperity.■

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