The labor market effects of immigrants.
Peri, Giovanni
Introduction
International migration is firmly restricted by national policies
and national laws. While capital, technology, and goods move globally
with few restrictions, governments heavily regulate the movement of
labor, restricting the number of foreign nationals who reside and work
in their countries. In spite of this, immigration into the rich
countries of Europe, North America, and Oceania increased dramatically
during the last decade. As of 2009, around 10 percent of the working age
population in the OECD countries and about 14 percent of that population
in the United States was born abroad. That was up from around 6 percent
in the OECD and 11 percent in the United States, in 2000.
From a world perspective, international migration is a formidable
way to increase individual productivity: immigrants moving from poor to
rich countries nearly quintuple their income (on average) after the
move. (1) Therefore, less restrictive immigration policies could
generate huge gains, accruing in large part to migrants. What would be
the effects on the economies of the receiving countries, though? Would
immigrants take the jobs of natives or stimulate firms' growth? Who
would suffer losses? Who would benefit? Would native workers be better
or worse off with more immigrants?
My research agenda, developed with a number of co-authors during
the last several years, has analyzed the economic impact of immigrants,
helping to identify some crucial aspects that need to be considered in
describing the labor market effect of immigration on natives. First, for
example, we have emphasized that differences in the skill distribution
(schooling and age) between natives and immigrants, and in the
interactions of these skills in production, are crucial to assessing the
skill-specific effect of immigrants on wages and employment. Second, we
have identified an important mechanism of specialization, which allows
local economies to absorb less educated immigrants with little or no
adverse effects on native wages and potentially positive effects on
productivity. Third, we have looked across countries to see how
economies outside the United States have absorbed recent immigrant flows
and what the role of labor market institutions has been in determining
the wage and employment effects of immigrants. I describe these
contributions below.
Immigrants and Natives: Competition and Complementarity
From a labor market perspective, immigration is an inflow of
workers distributed across education and experience cells (skills). This
was emphasized first in an influential paper by George Borjas. (2)
Because workers with different skills tend to perform different jobs,
immigrants in a skill group tend to compete more intensely with natives
in the same group than with natives in other groups. They may even
"complement" workers in other skill groups. This means, for
instance, that a young, less educated construction laborer competes with
(hence reduces the demand for) native construction workers but he/she
also complements (and increases the demand for) native
construction-supervisors and engineers. Similarly, an immigrant engineer
competes with native engineers but he/she complements native
construction supervisors and construction workers. One needs to account
for both this direct and indirect competition and the complementary
effects in order to characterize the impact of immigrants on the demand
for native workers. Gianmarco Ottaviano and I (3) use this multiple
skill-group approach to estimate the parameters needed to identify the
competitive and the complementary channels, and finally to evaluate the
wage effect of immigrants.
Our findings imply that immigration to the United States in
1990-2006 had a small impact on the wages of native workers with low
levels of education. Our preferred estimates are actually positive and
range between 0.5 percent and 1.5 percent. Similarly, native workers
overall have gained a small 0.6 percent in wages because of the
immigrant flows in 1990-2006.
Three important factors account for these small positive gains and
offset the potential losses from competition in the labor market. First,
firms have responded to the increase in workers by investing. Capital
adjustment, which was reasonably fast in response to a small and
predictable inflow of workers, (4) maintained the capital intensity of
the economy at a roughly constant level over the period. Hence
immigrants did not crowd out existing workers but simply increased the
size of the economy.
Second, while the United States attracts many immigrants with low
education, it also attracts many with very high education. The previous
literature considered four schooling groups as distinct (workers with no
degree; high school graduates; workers with college education; and
workers with a college degree), but we show that in the recent decades
(1960-2006) native workers with no degree and native high school
graduates constitute a group of essentially homogeneous workers.
Similarly, at a high level of education, workers with some college and
college graduates compete for similar jobs. When we consider only two
schooling groups (college educated and non-college-educated) rather than
four, as differentiated by their contribution to production, it turns
out that immigrants and natives are distributed between groups in
similar proportions. (5) Therefore, immigration did not alter the
relative supply and, consequently, the compensation of more educated
relative to less educated workers much.
Finally, the small wage effects are attributable to imperfect substitutability between immigrants and natives in the same skill group.
In particular, immigrants have different abilities, choose different
occupations, and perform different jobs than natives in the same skill
group. These differences further reduce the competition between natives
and immigrants in a skill group and add to their overall
complementarity. These effects combined to attenuate the labor market
competition of immigrants and natives, particularly those with low
schooling. Immigration turns out to have had a small (and positive)
effect on the demand for less educated native workers.
The Area Approach
The approach adopted above uses a structured analysis of labor
markets by skills, and considers the United States as one labor market.
However, many previous studies (6) have used local labor market effects
(in U.S. states or cities) to assess the wage and the employment
consequences of immigrants. This is often described as "the area
approach. But if workers are mobile in the long run, then local
differences in wages will be arbitraged away. This criticism recently
was applied to the area approach by Borjas (2003, 2006). (7)
I re-consider the area approach in a recent paper, (8) adopting the
skill group structure (used in the national approach) at the local
level, but allowing workers of a certain skill group to move nationally
in response to immigration, in order to arbitrage wage differentials. I
apply this structure to the case of California, which received a massive
net inflow of immigrants (8 percent of its population in each decade) in
the 1970s, 1980s, and 1990s. In this context, immigration to California
in a skill-group should not affect the wage but may affect the
employment of that group, as natives move in response to immigration. I
found that by looking at how the employment of natives in a skill group
responds to immigration, it is possible to derive an alternative
estimate of their substitutability with natives. That substitutability
is high if the employment effect of immigrants on natives is negative,
but it is small if the employment effect is zero or positive.
The empirical estimates for California over the period 1960-2005
show essentially no employment (or wage) effect of immigrants on natives
in the same skill group. In my framework, this implies imperfect
substitution between immigrants and natives, with an elasticity of
similar magnitude (9) as found using wage data at the national level in
Ottaviano and Peri (2008).
Manual and Communication Tasks
What exactly makes immigrants and natives imperfectly substitutable? Chad Sparber and I (10) tackle this question by analyzing
the productive specialization of natives and immigrants. The explanation
resides in the relative productivity of natives and immigrants in
"manual-intensive" and "communication-intensive"
production tasks. Because immigrants are less proficient in the local
language, they have a tendency to specialize in manual-intensive jobs.
In response, natives specialize in communication-intensive jobs where
they are relatively more productive. As the share of immigrants grows
and their supply of manual tasks increases, natives further specialize
in communication tasks, the return on which increases as they complement
manual tasks. This process is particularly strong for workers with low
levels of education. This mechanism is qualitatively and quantitatively
strong enough to generate the observed degree of imperfect substitution
between native and immigrants.
Examples of this phenomenon are numerous. Natives who begin their
career as waiters may become cook/kitchen-managers as immigrants take
the jobs of waiting and preparing food. Others begin as construction
workers and become construction supervisors as immigrants take the
manual jobs of building, and so on. The evolution along one's
lifetime from more manual to more "communication-intensive"
jobs takes place naturally for most workers. We find that this process
was accelerated in states with a high degree of immigration.
In a related paper (11) I show that such reorganization of tasks
along specialization of immigrants and natives is associated with a
reorganization of production and adoption of techniques that also may
have increased overall productivity, especially for less educated
workers, in U.S. states.
International Comparisons
Are these effects of immigration on labor markets and the described
mechanism of absorption of immigrants specific to the United States?
European countries have experienced inflow of immigrants that were
larger than those of the United States, relative to their population,
during the 1990s (Germany) or the 2000s (Spain and Italy).
In our analysis of how European labor markets absorbed immigrants,
we find several commonalities and some interesting differences with the
United States. First in a paper on Germany, Ottaviano, Francesco
D'Amuri, and I 12 find that immigrants and natives are imperfect
substitutes. However, the insiders' protection which is typical of
more regulated European markets has produced more competition among
immigrants who tend to crowd out employment opportunities of earlier
immigrants. The employment rate among immigrants was lower than among
natives in Germany (unlike the United States, where the opposite is
true). In the presence of unemployment benefits, this may generate a
transfer to immigrants and lower benefit for natives.
In a very recent paper, D'Amuri and I (13) analyze the
manual-communication task mechanism in Europe. We find that while
European workers too moved to more communication-intensive and complex
jobs in response to immigration, they did this at a much slower rate
than U.S. workers. Moreover, splitting countries into those with high
and those with low employment protection, we find that the occupational
mobility of natives in response to migration has been particularly slow
in countries with high employment protection. The existence of national
contracts, strong insider entitlements, and the high costs of hiring and
lay-offs have reduced the mobility of workers and thus the operation of
a mechanism that could protect wages and employment in the presence of
immigrant competition. The group most affected by the differences in
employment protection is less educated natives; in Europe they have
responded the least to immigrants, remaining more vulnerable to their
competition.
Further Research
Many interesting questions about the economic effects of
immigration remain to be studied. At the cross-country level, we need to
better understand the overall impact of immigrants on productivity and
growth, especially in conjunction with other globalization phenomena
such as trade and capital movements. At the micro level, we need to
learn more about the interaction between firms, immigrants, and natives
in order to more clearly identify productivity and employment effects.
We also need to consider the impact of emigration (a loss of workers),
especially of highly skilled workers. I hope to explore these themes in
the next few years.
(1) As shown in M. Clemens, C. Montenegro, and L. Pritchett,
"The Place Premium: Wage Differences for Identical Workers across
the U.S. Border" Working Paper # 148, Center for Global
Development, 2009. Available at: http://
www.cgdev.org/content/publications/ detail/16352
(2) G.J. Borjas, "The Labor Demand Curve is Downward Sloping:
Reexamining the Impact of Immigration on the Labor Market"
Quarterly Journal of Economics, 118, pp. 1335-74, (2003).
(3) G.I.P. Ottaviano and G. Peri, "Rethinking the Effects of
Immigration on Wages", NBER Working Paper No. 12497, August 2006,
forthcoming in the Journal of the European Economic Association; and
"Immigration and National Wages: Clarifying the Theory and the
Empirics" NBER Working Paper No. 14188, July 2008.
(4) Net immigration was +0.4 percent of employment per year in the
period 1990-2006.
(5) 63 percent of immigrants had no tertiary education versus 59
percent of natives as of 2009.
(6) For instance, the following influential papers: D. Card,
"Immigrant Inflows, Native Outflows, and the Local Labor Market
Impacts of Higher Immigration" Journal of Labor Economics 19, 2001,
pp. 22-64; "How Immigration Affects U.S. Cities," Discussion
Paper No. 11/07, CreAM, London UK, 2007; and "Immigration and
Inequality", American Economic Review, Papers and Proceedings, 99,
2009, pp. 1-21.
(7) G.J. Borjas, "Native Internal Migration and the Labor
Market Impact of Immigration" Journal of Human Resources, XLI,
2006, pp. 222-58.
(8) G. Peri, "Rethinking the Area Approach: Immigrants and the
Labor Market in California, 1960-2005," NBER Working Paper No.
16217, July 2010, and Journal of International Economics, Vol. 84 (1),
2009, pp. 1-14.
(9) The elasticity of substitution between immigrant and natives of
similar skills is estimated between 10 and 20.
(10) G. Peri G. and C. Sparber, "Task Specialization,
Comparative Advantages, and the Effects of Immigration on Wages,"
NBER Working Paper No. 13389, September 2007, and American Economic
Journal, Applied Economics, 1:3, July 2009.
(11) G. Peri, "The Effect of Immigration on Productivity:
Evidence from U.S. States" NBER Working Paper No. 15507, November
2009, forthcoming in the Review of Economics and Statistics.
(12) F. DAmuri, G.I.P. Ottaviano, and G. Peri, (2010) "The
Labor Market Impact of Immigration in Western Germany in the 1990s"
NBER Working Paper No. 13851, March 2008, and European Economic Review,
Vol. 54, (4), 2010, pp. 550-70.
(13) F. DAmuri and G. Peri, "Immigration, Jobs, and Employment
Protection: Evidence from Europe" NBER Working Paper No. 17139,
June 2011.
Giovanni Peri *
* Peri is a Research Associate in the NBER's Program on
International Trade and Investment and a professor of economics at the
University of California, Davis. His Profile appears later in this
issue.