Evidence shows immigration reduces wages significantly

By Steven A. Camarota on May 16, 2023

Washington Examiner, May 16, 2023

Due to the border crisis and a rebound in legal immigration, the foreign-born population has increased by 3.4 million since President Joe Biden took office. With many of those arriving entering the labor force, economic theory predicts they will put downward pressure on wages for workers who compete with them for jobs. For years, immigration activists countered that any negative wage impact due to immigration was inconsequential — until now. A number of prominent economists and advocacy groups, many of which previously argued that immigration has little or no wage impact, are now calling for more immigration to reduce wages to lower inflation.

Former Walmart CEO Bill Simon has complained that the company now has to pay $14 an hour. He has also called for more immigration to reduce wages and lower inflation. There are a number of problems with the increase-immigration-to-reduce-inflation argument. But what is perhaps most striking is that advocates now openly admit that immigration reduces wages for the working class, an idea they used to dismiss.

The latest immigration advocate to call for more immigration to lower wages is George Mason professor Justin Gest. Drawing on research he did for the immigration advocacy group Fwd.us, he recently wrote in the Wall Street Journal that the country needs more immigration to reduce wages and stem inflation in high-growth cities, particularly in sectors such as hospitality and construction. But Fwd.us explicitly states on its website that it is a “myth” that immigration “drives down wages.”

Gest and Fwd.us are not alone in having a change of heart when it comes to the impact of immigration. The National Immigration Forum, another leading advocacy group, now argues wages are too high and that we need more immigration to bring them down, contradicting its prior position that any concerns that immigration reduces wages “are largely overblown.” The U.S. Chamber of Commerce, which used to argue that “data do not support” the idea that immigration has a sizable impact on wages, now says that doubling immigration “might be the fastest thing to do to impact inflation” by keeping wages down.

In an article for Foreign Affairs, prominent economists Gordon Hanson and Matthew Slaughter called for significantly increasing immigration to “limit wage and price growth” and help “defeat inflation.” Strangely, later in the same article, they state that immigration has only “a modest effect on the wages of native-born workers.” In an interview for NPR, University of California,

Davis, economist Giovanni Peri argued that more immigration would keep wages down and alleviate inflation. This is in stark contrast to his prior position that immigration’s impact on wages was “small and, on average, essentially zero.”

Apparently, what was once a negligible impact on wages is now a large and desirable one. In truth, there has always been ample evidence that immigration reduces wages. A comprehensive 2016 report by the National Academies of Science cites over a dozen studies showing a negative impact of immigration on wages for competing workers, particularly those with low levels of education. Subsequent research has come to the same conclusion. The only difference now is that inflation is a hot political topic, and immigration advocates are happy to offer their cause as a solution — even if it contradicts their prior talking points.

Inconsistency aside, there is a more basic problem with the argument that expanding immigration can lower inflation — it is grossly impractical. The nation’s roughly 160 million workers account for about 60% of the economy, while the rest is capital investment. In its analysis, the National Academies assumed that each 1% increase in the supply of immigrant workers reduces wages by 0.3%. So even a sudden 10% increase in the supply of workers — about 16 million new people, or a decade’s worth of immigration — could reduce prices by only 1.8% (60% times 3%). And this assumes businesses passes all the saving onto consumers.

Of course, the negative wage impact of immigration could be much larger in particular sectors, especially at the bottom end of the labor market. But if the impact is limited to a narrow part of the economy, then the resulting effect on overall consumer prices would be correspondingly smaller.

Even if it were practical to lower overall prices in this manner, it would hardly be desirable. Wages for noncollege-educated workers, who make up the vast majority of the employees in lower-paid jobs, either stagnated or declined in the decades prior to COVID. And in the last year, wages for service workers and other less-skilled occupations have generally not kept pace with inflation. Using immigration to reduce wages further for such workers is as regressive a policy as one can imagine.

In reality, immigration advocates always call for more immigration. Reducing inflation is simply the latest justification. Revealingly, this time around, they have shifted their arguments and acknowledged immigration does negatively affect the wages of American workers.