Challenging the Myths about Immigrant Workers
Source Dave Anderson
Date 10/09/23/23:36
Immigration Economics: An Interview with Professor Giovanni Peri
By Mark Engler

FACTS OR NO facts, many people simply do not want to believe that
undocumented immigrants coming to this country don’t steal jobs and
undermine the American economy. When economic studies come along that
challenge their preconceptions, they don’t take kindly to the
troublesome conclusions.

Recently, economist Giovanni Peri — an associate professor at the
University of California, Davis and visiting scholar at the Federal
Reserve Bank of San Francisco — wrote a paper for the Fed summarizing
recent research in immigration economics. Evaluating the data, Peri
concluded that, “on net, immigrants expand the U.S. economy’s
productive capacity, stimulate investment, and promote specialization
that in the long run boosts productivity. Consistent with previous
research, there is no evidence that these effects take place at the
expense of jobs for workers born in the United States.”

In other words, immigrants aren’t stealing jobs that would otherwise
go to native-born U.S. citizens, and in fact they are stimulating the
economy in a way that results, on average, in higher wages for U.S.

As the paper’s findings disseminated on political blogs, some
commentators reacted negatively and raised criticisms of Peri,
believing that his findings contradicted basic economic laws of supply
and demand. While a portion of naysayers were not interested in
engaging with the economic research — their objections being
politically motivated — other readers raised legitimate questions. And
even Americans who identify as progressives might wonder if
immigration does not threaten unions and undermine standards set by
organized labor.

FPIF senior analyst Mark Engler discussed these topics with Professor
Peri, asking him to clarify his findings and respond to some common

ENGLER: A common objection to your conclusions about immigrants in the
U.S. economy is that the findings seem to violate the law of supply
and demand. If the supply of low-wage workers in the economy is
increasing, why doesn’t that drive down wages?

PERI: People seem to understand the story of supply and demand. What
is a little harder to understand is the idea of “complementarity”
versus substitution, which is just as basic in economics.

If two workers are completely identical, supply and demand takes
effect — just as if you put more corn on the market, the price of corn
will decrease. But if you have workers who do jobs that are not the
same, and if they specialize in types of tasks that are complementary,
this can increase wages and productivity for both.

An extreme example of this would be if you have an engineer and you
add a construction worker. With the engineer by himself you’re not
going to do much. But with an engineer plus a construction worker, you
can build a building. Therefore, the productivity of the engineer goes
up a lot. And the wages for both workers increase.

What I try to address in much of my research is how immigrants are
really taking jobs that complement the skills of a lot of native
workers. And in fact, the inflow of immigrants pushes some of these
native workers to take complementary jobs. That can have positive
effects. In economics, this story of complementarity is, in its
essence, just as simple as the story of demand and supply.

ENGLER: Nevertheless many native-born workers don’t see themselves as
complementary. They see themselves as threatened, as competing for the
same jobs.

PERI: One of the differences between immigrant workers and native-born
workers is that the native worker is likely to have a better
understanding of the language. This by itself differentiates the tasks
that a native worker can do.

Individually, you will have a lot of personal stories of people
feeling threatened. But if you look at the data about what types of
occupations Americans have taken in the last 40 years, in particular
in states where there are lots of immigrants, the trend has been
toward native-born Americans taking on the types of occupations that
are more in the line of “construction supervisor” or “taxi
dispatcher,” rather than “construction worker” or “taxi driver.” This,
on average, has produced gains.

At an individual level, if you were a native-born agricultural worker
in California 30 years ago and you’re still picking strawberries
today, you might have lost out. But you have to really look hard to
find native-born workers still doing these jobs. It’s far more common
to see these workers taking jobs a little further up the scale —
working, for example, as a farm manager.

The aggregate data shows that the average American worker may have
upgraded his or her job because of immigration — that therefore there
has been a reward for the native worker.

ENGLER: I think part of the confusion is that people perceive the
economy as having a set, finite number of jobs. When someone new comes
in to the economy, the idea is that this person takes away a job from
someone else. How would you address this?

PERI: Right. The labor market in the United States is a very dynamic
market. Every month, hundreds of thousands of jobs are destroyed and
hundreds of thousands are created. Of course, in a recession, you have
more of the former. But, in general, when a new worker comes into a
dynamic set-up, the presence of more workers creates more
opportunities for firms and more opportunities for investment. So the
natural effect of more workers in the economy is that more firms are
created, more supply is generated, and more workers receive a salary,
increasing demand. In equilibrium, the economy expands.

There is no reason in the long run that one more worker would decrease
wages. Just look at U.S. employment in the last 40 years. The number
of people working has doubled. And wages have also increased 30 or 40

The question is: How long does it take for an extra worker to generate
the needed investment of the firm and to ultimately create demand, so
that one extra worker becomes an expansion of the economy and not one
less job for a native worker? My analysis indicates that these
mechanisms are relatively fast. So even within one or two years, you
don’t observe much job loss, but instead, states with more immigration
simply expand their economies a little faster. And over four to 10
years, you also observe the extra investment needed so that capital
per worker doesn’t change that much and you have a productivity

ENGLER: But real wages for non-managerial workers in the United States
haven’t increased much in the last 30 or 40 years. They’ve been almost

PERI: Here you have to distinguish median wage from average wage. The
wages of highly educated workers have actually increased quite a bit
in the last 30 years. What have done badly are wages for workers at
lower levels of education. Economists are trying to understand the
reasons why. Two big candidates are the impacts of technology and the
impacts of trade and off-shoring.

Some people are also looking at immigration as a possible reason —
including me, David Card of Berkeley, Christian Dustmann of University
College London, and others. Yet the studies don’t seem to find much of
a negative impact of immigration on wages. In fact, some find no
impact on employment and a little bit of a positive impact on wages.
And the aggregate data shows no impact in terms of displacement.

ENGLER: Can you comment on the work of George Borjas, a Harvard
economist who has argued that immigration does create downward
pressure on wages for lower-wage workers. He’s contended that it
resulted in a wage decrease of as much as 7.4 percent for the poorest
tenth of the workforce between 1980 and 2000?

PERI: Borjas wrote a paper in 2003 that spurred a lot of academic
debate. [The statistics have since been contested, but] people in the
media often quote the old numbers. The more recent numbers that even
Borjas would support suggest that there might be a negative 3 percent
wage effect on the least educated workers. But even his work shows a
positive effect on intermediate and more highly educated workers. So
even his version is relative; it shows some negative effects and some
positive effects.

I have taken issue with some of Borjas’ estimates, saying that he has
not adequately taken into account the mechanism of complementarity. He
has assumed that native and immigrant workers are perfectly
substitutable at lower levels of education. My studies over the past
three to four years show that, in fact, native and immigrant workers
do take different jobs, do have some different skills, and do
specialize in different productive tasks. And this reduces direct
competition. If you account for that, you get a very small impact — or
no impact — for those at the lowest levels of education.

In my most recent paper, I do an analysis based on an overall average
[of wages throughout the workforce]. I don’t decompose the data to
assess the impact of immigration on people of different skill levels.
In other studies, I did decompose this and looked at distribution.
When I did that, my study showed that the biggest benefits of
immigration go to intermediate and highly educated workers; however,
for the less-educated, it’s essentially a wash, or zero impact.

I’m not alone in my position. David Card and other economists working
on this also say that it’s hard to find the negative effect that
George Borjas claims. All in all, I don’t dispute his idea that
there’s a bigger benefit for the highly educated than for the
less-educated. But I would say that immigration does not really create
a loss even for the less-educated. It’s more of a wash.

ENGLER: How would you respond to those who argue that new immigrants
undermine unions and job standards created by organized labor?

PERI: I would say that if what your union is defending is a specific
job classification, in construction for example, immigration will
create some difficulties for you. If you instead focus on protecting
the worker, you allow native workers to move into higher-skilled
construction jobs that might require more language and communications
skills. If your sole focus is on keeping immigrants out, you’re not
going to be able to capitalize on the gains on immigration.

ENGLER: It sounds like one of the points you are making is not so much
that new immigrants hurt native workers, but that new immigrants
themselves are the ones who end up with lower wages—that they are the
ones who end up carrying that burden.

PERI: In some ways, immigrant workers are competing with themselves.
Newer waves of workers, to some extent, are making things more
difficult for the immigrants who came just before them. But for
immigrant workers, the benefit is the big jump in wages they get over
what they might have earned in their home countries, even if low by
U.S. standards.

ENGLER: What do you think is the political relevance of your research?

PERI: I know that the issue of immigration stirs strong sentiments. I
try to keep my analysis strictly to the economics. I try to look at
the data and see what it shows.

ENGLER: But clearly, given that anti-immigration folks often base
their arguments on the idea that immigrants are driving down wages for
U.S. citizens, stealing jobs, and harming the economy, your work has
implications for the political debate.

PERI: Absolutely. What I see is that when you dispel the argument that
immigrants harm the economy, people [who are opposed to greater
immigration] move quickly to other arguments. These people say, okay,
maybe that’s not true [that new immigrants hurt the economy], but
immigrants still increase the risk of terrorism and create a cultural
clash. At that point, I emphasize that I am only doing research on one
aspect of this issue.

But to the extent that it’s part of the rhetoric of anti-immigrant
groups to say, “We know immigrants steal jobs and have a negative
economic impact,” I always say that our research shows the contrary.
If you poll serious economists who work on this, including George
Borjas, they will agree that there is no evidence of big displacement
or negative impact on wages. Some will tell you that there is a small
negative effect on the bottom 10 percent of American workers, and
others will argue that there is no evidence of that. But the consensus
is that for the economy as a whole there is a positive effect on
productivity, employment, and wages.

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