Immigration Crowds Out Native Workers

A round-up of new evidence

By Jason Richwine on January 10, 2023

Why don’t Americans who live in poorer regions of the country simply move to the richer regions? It’s a fair question. Economic theory predicts that wage differentials between geographic areas should compel workers to relocate. When a boomtown is in need of more workers, the wage will rise there until enough workers from lower-wage areas are enticed to move in, eventually bringing wages back into equilibrium nationwide.

Of course, the real world is not so simple. Moving can be both financially and psychologically costly. Workers may have close ties to their communities and feel reluctant to relocate to a whole new environment. Convincing those workers to move requires the promise of a wage increase that is both substantial and enduring.

That’s where immigration enters the story. New immigrants tend to settle in areas with high demand for labor, reducing the potential rewards for natives who were thinking about moving there. This “crowd-out” effect is observed by the economist Michael Amior in his 2022 working paper, “The Contribution of Immigration to Local Labor Market Adjustment”. He finds that the long-term decline in internal mobility (movement within the U.S.) can be ascribed to migrants from abroad who move directly to where the jobs are, limiting opportunities for Americans who live in economically depressed places.

While immigration discourages natives from moving to high-employment areas, it can actually encourage movement away from places with abrupt increases in the labor supply. For example, a 2021 study in the Journal of Human Capital revisited the famous “Mariel boatlift”, which brought a sudden influx of immigrants to Miami. Wages initially declined in Miami due to the increase in available workers, but the labor market soon returned to equilibrium, leading some analysts to conclude that any wage impact of immigration is short-lived. However, this study found that about half of the adaptation was due to low-skill workers moving away from (or declining to move to) Miami. Similarly, an NBER working paper and a study in the Journal of Economic Geography, both published in 2022, showed that immigration in France encouraged natives to move away from high-immigration areas or leave the labor force entirely.

The papers above analyze the impact on mobility of higher immigration, but equally instructive are studies that show what happens when immigration is heavily restricted. The latest is a hot-off-the-press 2023 paper in the Applied Economics section of the American Economic Journal. It shows that 1920s immigration restrictions benefited rural Americans who migrated to cities to replace lost labor from abroad. If immigration were similarly restricted today, native labor mobility would likely increase.

Immigration restriction in the 1920s is instructive for another reason as well — it came with a sense of permanence. In order to produce substantial mobility-enhancing effects, immigration reductions have to be long-lasting enough to change the behaviors of employers and employees alike. Employers in high-growth regions would need to re-focus their recruitment efforts on workers from within the country. Likewise, American workers who could potentially move to these high-growth regions would need to believe that the rewards for moving will be both large and ongoing — not vulnerable to a sudden influx of foreign labor. The best way to achieve these behavioral changes is to restrict immigration over the long term.

That long-term commitment is missing from temporary reductions in immigration that some economists analyze. For example, a 2022 NBER working paper co-authored by Giovanni Peri shows that native labor mobility changed little during the pandemic, even as immigration was significantly lower. But neither employers nor their potential employees should have expected that the pandemic-era reduction in immigration would be permanent. Immigration was lower because both international travel and economic activity in general were restricted. Reasonable observers expected immigration to pick up again after the pandemic restrictions were relaxed, and it did:

The number of immigrants working in November 2022 was slightly below the pre-Covid trend line, when 2010 is used as the starting point (in millions).

Source: 2010 to 2022 November public-use Current Population Survey.

As the figure above indicates, the number of immigrant workers in the U.S. is now nearly the same as the number predicted by the pre-pandemic trend. While the recent literature is clear that lowering immigration will likely improve native labor mobility, a temporary reduction of this kind will not produce the behavioral adaptations that a long-term commitment to less immigration can achieve.