I know I’ve had you riveted with the literature review in the last few posts about the effect of immigrants on native employment outcomes (i.e. wages and employment levels). I thought it was important, though, to point out that academic economists don’t really contest the existence of this zero correlation. That said, we have learned a lot by trying to poke holes in the landmark “experimental” studies summarized here, here and here.
While those famous papers dealt with important measurement issues, we’ve also learned that experimental studies are inadequate to deal with at least two other factors, indicated by economic theory, that may be biasing the simple correlation one way or another.
First, and this is the measurement issue dealt with by the experimental studies, we want to be sure that there is not something that makes a particular area or job a more attractive place to work causing both foreigners and natives to migrate to that area or job. If such a third factor existed, it would hide the effect of immigrants on natives. Suppose, for example, there was a technological advance making a particular job more lucrative (e.g. an acceleration in computational power makes the wages of computer programmers go up) or suppose there was a surge in demand for a job (e.g. nurses are in more demand as the population ages). Because immigrants and natives would be attracted to these jobs, the increase in immigration would be positively correlated with the increase in wages and the increase in native employment in these jobs. These omitted variables, to use economic jargon, might mask the potentially negative effect of immigration on wages.
Second, natives relocating to other areas as a result of immigration can spread out any potential negative consequences of immigration among a wider population of natives, making those bad effects hard to detect. For example, when immigrants move to California, natives may move to other states. These spillover effects would cause the labor supply in those other states to increase putting pressure on wages there, too.
Third, we need to take into account the total effect of immigration. Immigrants with a particular set of skills will compete with natives with those same skills and decrease their wages, but they will make natives with complimentary skills more productive, increasing those natives’ wages. An immigrant that puts up drywall on a construction site, for example, competes with native drywall installers, but they compliment the native foreman who may be able to spend more time managing the construction site rather than helping put drywall up. Furthermore, when we properly account for all these indirect effects immigrants have on natives, we will want to pay special attention to the possibility that natives and immigrants, even those with the same skills, do not perfectly compete with each other. To return to the example: among drywall installers, natives may specialize in particular tasks like reading blueprints or leading work teams while immigrants specialize in hauling materials or the actual installation. To use the economic jargon again, we need to check to see if natives and immigrants are perfect substitutes or not.
In the last few years, researchers have shown that when all of these factors are taken into account, the surprising result is that immigrants don’t seem to have a negative effect on native wages or employment levels. In fact, its likely that immigrants have even been a net positive for natives, a result that this paper has replicated.
So there is not much debate about this non-correlation. Academic economists have moved on to try to explain why no correlation exists.