IMMIGRATION’S EFFECT ON WAGES: THE RAISE ACT WON’T RAISE ANYTHING IN LONG RUN

DISCLAIMER: This piece was written in late 2017, but never published. So it is a bit outdated. However, with the 2020 presidential election around the corner, I believe this piece to be relevant today. (If you’ve forgotten what the political tone was in late 2017 consider the introduction to be a light refresher.) I would also like to state my personal bias — I am pro-immigration. This is clearly evident in the introduction. That being said, after considering the economic literature referenced, I believe an objective examination will confirm my conclusion with regard to the proposed policy (the RAISE Act).

INTRODUCTION

With the election of Donald Trump as president, it seems we are headed toward an extremely xenophobic time in foreign policy. Within the few months of being in office, he has already attempted to pass policy that is clearly illogical. The most obvious example was his attempted ban on travel from seven predominantly Muslim countries — Iran, Iraq, Libya, Somalia, Syria, Sudan, and Yemen. He argued that the ban would, “protect the American people from terrorist attacks by foreign nationals admitted to the United States” (Nowrasteh, 2017). This is an extremely irrational action after considering migrants from the seven banned countries have killed a whopping number of zero people on U.S. soil (Nowrasteh, 2017). There is a thin line between sound national security and over-cautious border control, but policies such as this one cross the glaring bold line that is discrimination and prejudice. The United States should not jump to premature conclusions and blame others for our problems, simply because they are different. The United States should not let irrational speculation dictate our foreign policies.

THE PROPOSED POLICY

Bill S. 354: The RAISE Act (Reforming American Immigration for Strong Employment) recently introduced by Senators Tom Cotton (R-AR) and David Perdue (R-GA), essentially proposes to cut our legal immigration in half (by about 500,000 per year) over the next ten years. The aim of the bill is to “promote higher wages on which all working Americans can build a future”. At first glance this may sound like a positive change, and you may even be thinking “Trump’s bringing back jobs!” But after considering the long term effects and economic literature on cutting immigration as is proposed in the RAISE Act, it will be clear that the costs of this policy greatly outweigh the benefits.

According to the National Academy of Sciences’ recent literature summary of immigration’s economic impact, “…To the extent that negative impacts occur [on the wages of native-born workers], they are most likely to be found for prior immigrants or native-born workers who have not completed high school — who are often the closest substitutes for immigrant workers with low skills.” Assuming the latter is the only relevant information to our current stagnant wages (ignoring several other economic indicators, theories, and literature), anybody who has taken an introductory economics class at the university level is capable of using simple demand and supply theory economics to come to the same conclusion as was used when drafting this bill. However, issues of this magnitude very rarely have such simple solutions.

The RAISE Act attempts to use this academic literature to back up it’s assumption that if an increase in the supply of labor (workers) results in a small decrease in wages, then a decrease in the labor supply will cause a small increase in wages. This is of course an extremely flawed (at best) approach to our current stagnant wage crisis. It would indeed hold true if every other factor were held constant, that is ‘if an increase in the supply of labor (workers) results in a small decrease in wages, then a decrease in the labor supply will cause a small increase in wages, all else equal’ would be the correct statement. The theory is sound, but it’s application, imprecise. Without taking into consideration all of the other factors that go into the wage rate (for example, the increase in consumer demand when immigrants join a new economy), the desired result of a higher native wage rate of low-skilled and lower-middle class workers will only exist in theory and the thoughts of those who support policy like the RAISE Act, but will never manifest itself to reality.

BRACERO STUDY

In the past we’ve seen attempts to raise the domestic wages by limiting (and/or shrinking) the labor supply, even more specifically, by limiting immigration. A recent study by Clemens, Lewis, and Posel (2017), examines the success of immigration policy “designed to raise domestic wages and employment by reducing the total size of the workforce”, by analyzing the United States’ termination of the Bracero program for Mexican farm workers in 1964. The study showed that, contrary to Cotton and Purdue’s expectations, ending the migration of low-skilled workers has very little measurable effect on the relevant labor market. How might this be the result? Instead of the producers (or firms) in the relevant market adjusting to the reduction in labor supply by raising wages, they responded by the “…adoption of less labor-intensive technologies and shifts in crop mix.” The similarities between the termination of the Bracero program and the proposed RAISE Act are clearly evident, it is almost as if this study was handcrafted to reveal what would happen if the RAISE Act were to go into effect. For example, Bracero workers were classified as lower-skilled workers and, according to Senators Cotton and Perdue, the majority of the immigrants that would be cut by the RAISE Act are also considered low-skilled workers. Also, the Bracero program’s elimination cut immigration by half a million people, and the RAISE Act also aims to cut immigration by about half a million people.

INITIAL SHOCK

The United States has seen results from restrictive immigration policy that is contradictory to the simple supply and demand theory behind the RAISE Act. Conversely, the nation has also seen large increases in immigration with virtually no significant decrease in wages. The often cited work of David Card on the Mariel Boatlift studied an influx of 125,000 Cuban migrants joining the workforce in the greater Miami, Florida area. This influx increased the entire workforce by about 8% and the supply of non-high school graduates by 20%, while we see virtually no effect on the unemployment rate or wages of low-skilled workers. Card attributed this rapid absorption of migrants in the relative labor market to three main factors; industry structure with many unskilled jobs, high concentration of (Non-English speaking) Hispanics, and the lack of domestic migration towards the Miami area (after the initial Cuban immigrant influx).

A 2010 paper, Peri (2010), built off of the work and turned Card’s finding into an economic model that could tell us a story about what happened; Wages did indeed fall for the jobs the new workers took, the wage decline for these jobs incentivized native-born workers to make skillset improvements towards better paying jobs. So, while the wage for some jobs may drop initially, the incomes of the native-born workers who used to hold those jobs rose. In other words, a large influx of less-educated immigrant workers may initially decrease wages among the comparably-educated native workers, but due to different skill sets (and cultural advantage of natives) native workers shift (whether by more education or specialization, etc.) their skills elsewhere in search of higher wages, thus the downward wage pressure on the less-educated job market is significantly diminished.

IMMIGRANT EDUCATION LEVELS

The RAISE Act claims “1 out of every 15 immigrants arrives in the United States on a skills-based visa, the majority of the remaining immigrants are either low-skilled or unskilled”. This is an incredibly misleading claim which infers the xenophobic belief that the immigrants coming into the United States aren’t well educated relative to the native population. A 2015 publication, Fry (2015), found that today’s immigration consists of the most highly educated immigrants coming into the United States, ever.

Fry’s work found that in 1970, 20% of all immigrants had earned at least a bachelor’s degree, compared to only 11% of all natives, a 9 percentage-point gap favoring immigrants. By 2013, the percentage-point gap rose to 11, still favoring immigrants, with immigrant and native levels reaching 41% and 30%, respectively. Interestingly enough, over the same time period we see an even larger increase in the percentage-point gap between immigrant and natives of post-graduate degree education. In 1970, 11% of all immigrants had earned a post-graduate degree, compared to only 7% of all natives, a 4 percentage-point gap favoring immigrants. In 2013, the percentage-point gap had rose to 7, still favoring immigrants, with immigrant and native levels reaching 18% and 11%, respectively.

This finding agrees with the 2014 publication, Peri (2014), suggesting firms are equipped to absorb the well-educated immigration population. Peri wrote, “In most countries the share of graduate workers is higher for immigrants than native workers, firms have made necessary adjustments to immigrant workers by adding more production and appropriate technologies and moving more native workers to communication-intensive jobs.”

It should be noted that in 1970, only 50% of all immigrants had at least a high school diploma (or something equivalent, such as a GED in today’s society), compared to 53% of all natives, a 3 percentage-point gap favoring natives (Fry, 2015). This percentage-point gap increased to a whopping 13% by 2013 favoring natives, with immigrant and native levels rising to 77% and 90%, respectively. This is an interesting observation, as the percentage-point gap of education levels beyond a high school diploma increasingly favors immigrants, the percentage-point gap of education levels below a high school diploma increasingly favors natives. This study does not address whether this can be attributed to our increasing high school graduation rates or the relatively slow growth of high school graduation rates of other countries. However, results from a 2012 study, Hunt (2012), suggests that increased immigration itself may have played a role on the increased graduation rate.

According to Hunt (2012), contrary to the theory that immigrant children compete for schooling resources with native children, lowering the return to native education and discouraging native high school completion, immigrant children have had a positive effect for the high school completion rate of natives. This suggests instead of native students being disadvantaged by limited resources and more competition, the native children might be encouraged to complete high school in order to avoid competing with immigrant high school dropouts in the labor market.

OVERALL ECONOMY

The United States economy reaps many great benefits from its immigration, especially in the long term. One of the ways the United States benefits the most is the increased productivity of workers at all levels. Interestingly, in a 2011 publication, West (2011), found that about 50% of all natives polled thought that immigrants take jobs from natives, however 85% of all natives surveyed believed that immigrants are hard workers. Peri (2014) found that in the long term immigration may boost productivity as well as wages, crediting this increase to innovation and skill mix. Peri’s research also suggests the long term effects of immigration on productivity, complementarity and dynamic-response may have very positive impacts.

We also gain massive amounts of intellectual capital from immigration, primarily in high-tech development. West (2011), found (between 1995–2005) over a quarter of technology and engineering businesses had a foreign born founder. In California it was over a third and in today’s tech central, Silicon Valley, that statistic was over half. The same report found that almost a quarter of all international patents (from the United States) were also foreign born. This indicates that, despite many of these foreign born founders migrating to the United States as students, with their work ethic and desire for education, they help drive our economic development.

NET CONTRIBUTORS, NOT NET TAKERS

Contrary to popular belief in the non-academic world, most immigrants are net positives towards the United States Government, meaning, most immigrants pay more to the government than the government pays to them. Immigrants usually come to the United States during their prime working age (28) and make enormous contributions to entitlement programs, especially Social Security. Alex Nowrasteh, conservative immigration policy analyst stated, “The overwhelming consensus in the economics academic literature is that immigrants add more to the economy than they take, they create more jobs for Americans, and they are a net benefit to the American economy.” A publication by Ku & Bruen (2013), confirmed what was already rather widely accepted in economic literature, immigrants are net makers, not net takers.

Ku & Bruen (2013), confirmed in almost every category tested, Non-Citizens received less aid or a lower percentage of them were enrolled in the program compared to Natural Born Citizens. They went to conclude, not only do immigrants have lower rates of use, but it was also found that non-citizen immigrants receive less government aid, even when they are at similar levels of economic need for assistance.

In addition, the United States’ immigration system has placed incentives to discourage immigrants coming to the United States in hopes to simply “live off” of federal assistance. Generally, unless you are a Naturalized Citizen, United States-born child, refugee or asylee you are ineligible for public assistance, regardless of your economic status. That is, if you are a temporary or provisional immigrant, generally you are not eligible to access public benefits. Typically, if you are a lawful permanent resident (LPR), that is you have been admitted into the United States for permanent residency and to eventually gain eligibility to become a naturalized citizen, you must wait at least 5 years to gain eligibility to public assistance.

CONCLUSION/POLICY RECOMMENDATION

It has been stated the negative effect less-educated immigrant inflows initially has on wages of less-educated natives are close to, if not exactly, zero and are minimal when they occur. As was stated earlier, The United States economy reaps many great benefits from its immigration, especially in the long term. By implementing the RAISE Act, there may be a very small initial signal of “success” in the form of very minimal wage increases for less-educated natives. However, we will also see significant decreases in the growth of productivity, small business, innovation, technology and the overall economy in the long term. Implementing the policy would essentially be putting a Band-Aid on a bullet wound.

It is clear that if the United States would like to continue this age of economic prosperity, we must continue to welcome immigrants and all of the benefits they bring to our nation. The United States is the melting pot of the world, where cultures and ethnicities of every origin come together. This is what makes America so Great.

BIBLIOGRAPHY

Card, D. (1990). The impact of the Mariel boatlift on the Miami labor market. Industrial and Labor Relations Review, 43(2), 245–257. doi:10.2307/2523702 http://www.jstor.org/stable/2523702?seq=1#page_scan_tab_contents

Clemens, M. A., Lewis, E. G., & Postel, H. M. (2017). Immigration restrictions as active labor market policy: evidence from the Mexican bracero exclusion. IZA Institute of Labor Economics. http://ftp.iza.org/dp10512.pdf

Dadush, U. (2014). The effect of low-skilled labor migration on the host economy. KNOMAD, Working Paper 1. http://www.solutionexchange-un-gen-gym.net/wp-content/uploads/2015/11/Effect-of-Low-Skilled-Labor.pdf

Fitz, M., Wolgin, P. E., & Oakford, P. (2013). Immigrants are makers, not takers. Center for American Progress. https://www.americanprogress.org/issues/immigration/news/2013/02/08/52377/immigrants-are-makers-not-takers/

Fry, R. (2015). Today’s newly arrived immigrants are the best-educated ever. Pew Research Center. http://www.pewresearch.org/fact-tank/2015/10/05/todays-newly-arrived-immigrants-are-the-best-educated-ever/

Hunt, J. (2016). The impact of immigration on the educational attainment of natives. Journal of Human Resources, 0115–6913R1. https://www.econstor.eu/bitstream/10419/67241/1/727549081.pdf

Ku, L., & Bruen, B. (2013). The use of public assistance benefits by citizens and non-citizen immigrants in the United States. (Cato Institute Working Paper №13). Washington, DC: Cato Institute. https://www.cato.org/publications/working-paper/use-public-assistance-benefits-citizens-non-citizen-immigrants-united

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