More Immigration Will Not Slow Inflation

What it would do is damage the economic prospects of working-class Americans.

By Steven A. Camarota on May 9, 2022

National Review, May 9, 2022

Advocates for expanding immigration have long insisted that it would have no effect on wages. But as inflation has soared, they have changed their tune. The National Immigration Forum’s 2022 position, contrary to its 2016 one, is that wages are too high because of a lack of immigration. The CEO of the U.S. Chamber of Commerce, which used to take the no-wage-impact position, said in January that doubling immigration “might be the fastest thing to do to impact inflation.”

These groups want more foreign workers to fill jobs typically performed by the less educated, such as food service, health-care support, hospitality, and trucking. In reality, such workers account for only a small share of GDP, so reducing their wages cannot have a large impact on inflation. What it can do, however, is damage the economic prospects of working-class Americans who have seen little to no wage growth for decades.

The government collects detailed data on what different types of workers earn, so it is relatively easy to estimate the impact that lowering wages might have on consumer prices. The Center for Immigration Studies’ new analysis of worker compensation by education level, assuming labor’s share of the economy is 60 percent of the economy, shows the following: Workers with less than a high-school degree account for 2 percent of GDP, those with only a high-school education for 10 percent, and those with some college for 13 percent. Together, all workers without a bachelor’s degree account for only about 25 percent of the economy. Workers with at least a bachelor’s degree, plus the share of GDP from capital investment, constitute the other 75 percent.

Consequently, if we admitted enough immigrant workers to make wages, say, 10 percent lower than they would otherwise be for those without a bachelor’s, it could only reduce prices by something like 2.5 percent. Of course, this assumes that businesses would pass on the saving to consumers rather than retain it as higher profits.

If we look at specific sectors of the economy where less-educated people tend to be employed, the effect on prices would be even smaller. The CEO of the U.S. Chamber of Commerce specifically mentioned trucking as one area where immigration is needed to hold wages in check. Still, the 11.2 million workers in the large and relatively well-paying occupational category of transportation and material moving account for only 2.9 percent of GDP, so a 10 percent decline in compensation in this entire sector could reduce overall consumer prices a mere 0.29 percent.

Keep in mind that reducing wages by 10 percent would require a lot of immigration. The National Academies of Sciences, Engineering, and Medicine’s voluminous 2017 report (Table 5-1) on immigration includes “simulated wage impacts,” showing that a 1 percent increase in the supply of workers reduces wages by 0.3 percent. Under that assumption, reducing wages by 10 percent requires increasing the number of workers by a thoroughly impractical one-third (i.e., 10 percent divided by 0.3 percent). The non-college-educated workforce is 95 million. Just increasing the transportation and material-moving job category by one-third would require something like 4 million new immigrants in a short period of time. (Remember, we average about 1 million new permanent residents each year.)

Putting aside the impracticality and ineffectiveness of using immigration to reduce wages, most workers without a bachelor’s degree already earn modest wages, so it is fair to ask why we would want to reduce their wages. With the exception of the last few years, the wages of such workers have grown little or not at all in the last two decades, while the wages of those with a bachelor’s or graduate degree have seen consistent wage gains. Meanwhile, capital has taken an ever larger share of GDP.

Reducing pay in lower-wage occupations that typically employ the less educated would certainly undermine our anti-poverty efforts.

Two-thirds of all children living below the poverty line are dependent on a worker without a bachelor’s degree, and half of children in poverty are supported by a worker with no education beyond high school. At least one in five workers employed in job categories such as building maintenance and cleaning, health-care support, and food preparation are eligible for the earned-income tax credit or the refundable portion of the child tax credit — the nation’s two largest cash-assistance programs for low-income workers. Deliberately lowering their wages runs counter to our efforts to uplift lower-wage workers.

Some advocates will argue that allowing in more immigrant workers would not affect U.S.-born workers because the two groups do very different types of jobs. The idea is that new immigrants compete only with earlier immigrants. But this is not true. The majority of workers in almost every single occupation are U.S.-born.

However, if one really thinks the impact of immigration falls only on earlier immigrants, then the effect of adding immigrant workers on overall consumer prices must be trivial because immigrant workers without a bachelor’s account for only about 4 percent of GDP. Equally important, three-fourths of all immigrants here are either naturalized citizens or legal residents. Why would we want to reduce wages for these low-income Americans, even if it might very slightly lower consumer prices?

If more workers really are needed, it would make far more sense to let compensation rise and draw the workers from the unemployed and from the 43 million (Table A-6) people who are non-disabled, of working age (16–64), and currently entirely out of the labor force. The less educated make up the overwhelming majority of these individuals who are neither working nor looking for work. In fact, there has been a long-term decline in labor-force participation that is associated with a host of social problems from crime to substance abuse, especially for men. Addressing this decline should be a national priority. Letting in more immigrants to cut wages cannot help but make this problem more difficult to deal with.

The current rapid increase in consumer prices has many causes, including government spending and artificially low interest rates. Curbing inflation will likely require difficult choices, such as spending cuts and interest-rate hikes. But trying to reduce prices by driving down the pay of the less educated is neither practical, nor wise, nor fair. Instead, we should allow the pressures of a tight labor market to raise the earning power of the working class, who are most certainly in need of a raise.