How increased immigration would help fix the economy

By Felix Salmon
August 30, 2010
Giovanni Peri has the latest research on the subject:

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Never mind the stimulus vs austerity debate: here’s something that both sides should be able to get behind. It’s a simple legislative fix which increases tax revenues without raising taxes; which increases the demand for housing; which increases the economy’s productive capacity; and which boosts wages for American workers. It’s about as Pareto-optimal as legislation gets. So let’s open the borders, and encourage much more immigration into the US!

The SF Fed’s Giovanni Peri has the latest research on the subject:

Statistical analysis of state-level data shows that immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

The effects of immigration on US wages are large, positive, and significant:

Over the long run, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.

It’ll be interesting to see how much debate this paper receives. Anti-immigration forces are more likely to ignore it than attack it, I think, if they don’t like what it says. And George Borjas seems to have stopped blogging over a year ago, which is a shame, because he would be the perfect foil for Peri.

Is there any chance of significantly liberalizing America’s immigration regime? I doubt it, not while unemployment is over 9%. No matter how convinced economists are that immigration creates jobs, voters aren’t going to believe them. And so politicians aren’t going to vote for it. Talk about ignoring the low-hanging fruit.

Update: Cardiff Garcia provides background here.

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10 comments so far

didn’t “the economists” tell us that free trade (NAFTA, H1B, etc, etc) would bring us lots of better, high paying jobs? how did that work out?

i’m for more immigration in the long run, but right now it’s just going to put more people out of work and lower the wages for those that do have jobs.

Posted by arrgh | Report as abusive

The US has a demographics problem in the coming decades similar to the other developed economies. However, the history of immigration and the melting pot in the US, Canada, and Australia are likely to be major players in preventing these aging demographics from getting out of control. Many other countries, especially in the “Old World”, do not have the cultural ability to pull in diverse peoples from around the world and integrate them into a whole.

Posted by ErnieD | Report as abusive

Hmm, interesting article. While as an immigrant, I would be happy if this were true, I am not completely convinced. One thing I find surprising is the large impact that is claimed. $5100 per year is quite a lot.

Some of the examples by Garcia ring true, e.g., in high paying jobs, engineering versus law or business or sales. Go to the engineering department in a large company and it is mainly immigrants, but go their sales department and you think you are in Iowa.

But for lower incomes, are jobs that require communication skills really better paid? I thought low communication jobs like construction were better paid than more communication-intensive service jobs that were also more likely to be occupied by women.

I guess one way to square the two sides on this issue is to conjecture that this positive side of immigration is primarily about the next generation of natives being steered into more lucrative professions, while people already established in professions with many immigrants might see a negative effect — and they would be much more directly aware of this than the people benefiting, hence the politics.

Posted by TSTS | Report as abusive

Also, there are various programs to steer more US citizens and residents into careers in science and engineering. if this study is correct, does that mean these efforts are in fact counterproductive? (Fortunately, their impact would be limited since a disproportionate number of associated scholarships go to immigrants that recently acquired citizenship or residence.)

Posted by TSTS | Report as abusive

sell green cards at auction and use the proceeds to fund stimulus…with 19 million vacant houses, we’ve got planty of room…

Posted by rjs0 | Report as abusive

Classic American thinking, and probably true.
Immigration has been a major economic driving force in this country for hundreds of years – no less than Capitalism.

Posted by yr2009 | Report as abusive

I’ve always been a firm believer in the benefits of robust levels of immigration, and in general, I’d like to see quotas increased as part of a deal to reform the badly broken status quo.

But I must admit, as an American living in a pricey metro area who has been priced out of the market — and who has been assiduously working to get my ducks in a row to get on the housing ladder now that prices have eased — the thought of a special visa program designed SOLELY to make it tougher for me to become a home-owner is not something I’d support. Yes, it’s naked economic self-interest speaking here, but please show me a person who DOESN’T vote with his wallet.

Posted by GreenSkyStar | Report as abusive

By the way, I didn’t mean to dump on Salmon’s valid general points here about the desirability of increased immigration flows; rather, I had in mind the house purchase visa idea being touted by Matt Yglesias.

Posted by GreenSkyStar | Report as abusive

Interesting study. I think it would be also worthwhile to explore how more immigration could be helpful in solving the problems that derive from the aging US population, ie, $100T in unfunded liabilities in social security and medicare. Expanding the productive portion of the population via immigration – especially in face of the dramatically dropping birth rates of US natives – seems like a good idea. But yea, seems like a hard sell, politically (though I would argue probably less difficult than cutting senior benefits and/or raising taxes..).

Posted by akristof | Report as abusive

Immigration – at current or at increased levels – does not increase wages of low-wage (esp minimum wage) workers and harms them by driving up the rents they must pay in an environment where there is already a severe shortage of affordable rental housing for low-wage workers.

Immigration IS good for homeowners but bad for renters and especially for low-income renters who pay too much for housing.

Posted by newunderclass | Report as abusive
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