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Friday Smorgasbord:  Immigration, Wages, and Jobs
February 21, 2013 | Contribution by GLADYS LOPEZ-ACEVEDO

By Gladys Lopez-Acevedo, Senior Economist, Poverty Reduction and Equity Department, the World Bank

Over the past few decades, there has been a global resurgence of large-scale immigration. In 2010, according to the United Nations, the number of immigrants worldwide reached a high of about 214 million people — which is about 3.1 percent of the world's population. The biggest flows have been from developing to developed countries, where immigrants now make up about 10.3 percent of the total population.


The USA/Mexico Border in San Diego,CA @ Paul Erickson


Not surprisingly, one of the hottest topics these days is about which types of immigration policies make sense for a government as a whole even if some specific groups lose out in the process. Harvard Professor George Borjas, a leading expert on immigration and labor issues, argues that economists can't offer a universal solution. What needs to happen, he recently told a World Bank audience, is for each country to determine what it wants to accomplish from immigration policy and whose well-being it wants to maximize.

<iframe width="500" height="281" src="http://www.youtube.com/embed/vCvdXFUtCMs" frameborder="0" allowfullscreen></iframe>


Wages influence who chooses to move

Borjas contends that there is a self-selection in immigration because only a subset of a source country population chooses to move — for example, 10 percent of Mexicans move (meaning that 90 percent don't), and only 30 percent of Puerto Ricans have moved since World War II, despite an absence of U.S. legal restrictions. What potential immigrants weigh is the return to skills in their home countries. Those originating in countries with low rates of returns to skills will choose to move, while those originating in countries with high rates of return to skills won't.

Do immigrants alter the employment opportunities of native workers? This is a controversial issue that economists have been debating since the early 1980s. Some don't see much impact, while others do, with some of the differences possibly stemming from different methodologies. For Borjas, the answer is yes, as illustrated in this figure, which shows a negative relation between U.S. wages and immigration by skill group. The downward sloping trend line indicates that for every 10 percent increase in the number of immigrants, wages fall by 3.7 percent. He notes that other authors have found a similar negative correlation between immigration and wages for countries like Canada, Germany, and Norway.

As U.S. immigration rises, wages fall within a given skill group
(Scatter diagram relating wages and immigration by skill group, 1960-2010)

Source: Borjas


Winners and losers

So who wins and who loses? In the U.S. case, Borjas estimates that native-born workers lose about 2.8 percent of GDP, or $400 billion, while employers gain about 3.0 percent of GDP, or $430 billion. The net gain of about $30 billion annually (roughly $110 per native–born person), underscores the huge redistribution of wealth that's taking place. Plus there’s an extra fiscal impact for taxpayers if immigrants receive more social assistance than natives.

Not surprisingly, it's this distributive conflict that's at the core of immigration debates. Borjas notes that each government will need to decide how many — and which — immigrants it wants to admit. But it can only do that after it addresses the two key questions: What does it want to accomplish from immigration policy? And whose well-being does it want to maximize? For example, if it wants to make native-born people better off, it should admit higher-skilled workers who will pay taxes and improve productivity. But if it wants to reduce global poverty, then it should admit low-skilled workers. ​

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