The surge in US immigration in recent decades has seen debate about the economic effects of immigrants on US natives, particularly on their wages, gain momentum. Tomorrow sees a noteworthy paper on the topic delivered at the NBER's International Trade and Investment Workshop. - part of week 4 of the NBER Summer Institute.
Università di Bologna's Gianmarco Ottaviano and Giovanni Peri from UC Davis have a topical new paper entitled Rethinking the Effects of Immigration on Wages (PDF). Unlike some of the other recent studies, they find a positive effect on wages of US-born workers. Here is the abstract:
This paper revisits the following important question: what is the effect of immigration on average and individual wages of U.S.-born workers? In particular we analyze the impact of surging immigration, on average real wages and on the increased wage dispersion during the period 1990-2004. Building on Borjas (2003) we emphasize the need for a general equilibrium approach to analyze this problem.
The impact of immigrants on wages of US born workers can be evaluated only by accounting carefully for labor market and capital market interactions in production. This requires to assume a production function, a mechanisms of physical capital accumulation and to derive labor demands for different types of workers (by education and experience). The usual ”reduced form” approach estimates the effect of immigrants on wages of US-born workers within the same skill group. Such method only provides estimates of a partial effect, usually negative and uninformative of the total effect of immigration on wages.
Using our general equilibrium approach we estimate that physical capital adjust promptly and fully to immigration (already within one year) and that immigrants are imperfect substitutes for US-born workers within the same education and experience group (because they choose different occupations and have different skills).
These two facts, overlooked by the previous literature, imply a positive and significant efect of immigration on the average wage of U.S.-born workers, already in the short run. They also imply a small negative effect of immigration on wages of uneducated US born workers and a positive wage effect on all other US-born workers. Hence only a very small fraction of the increase in College/High School Dropout wage gap during the 1990-2004 period can be attributed to immigration.