Why Immigration Hasn’t Hurt Native Wages In California

The Economist’s Wil Wilkinson reports on new research from California (the state with the most immigrants).

If it were impossible to tell immigrants and native workers apart — had they no differences that matter to the job market — an increase in the supply of immigrant workers would likely ding natives’ wages and make work harder to find. That’s just supply and demand. But native and immigrant workers in California are different in important ways. They are not what economists call “perfect substitutes.”

Rather, they can be “complementary,” which is to say, better together.

Peri notes that most less-skilled immigrant workers don’t speak English as well as natives do, and that matters. It means that primarily Spanish-speaking workers flock to manual work, which pushes native Californians toward jobs for which speaking English gives them a clear competitive advantage. These jobs tend to pay more than manual labor, which has helped keep native wages from falling. But most importantly, the division of labor between immigrants and natives promotes specialization, which in turn boosts overall productivity: Each group comes to perform its respective tasks more efficiently than it otherwise would. Increased productivity makes specialized immigrant-native teams of workers worth more to employers than less-specialized native-only teams, and that helps keep wages and demand for workers up.

This explains what Peri calls “the counterintuitive fact that there is a zero correlation between immigration and wage and employment outcomes of natives,” and exposes the error in Kaus’ anti-inequality proposal. Sealing the border won’t boost native wages — not even in America’s most immigrant-thronged state. In fact it would increase inequality and needlessly perpetuate want.

It can feel a little counter-intuitive to learn that more workers can mean more jobs and higher wages — but it’s hardly an impossible idea to grasp. The idea that specialization increases productivity, and leads to a larger economic pie that can potentially leave everyone better off, is basic free market economics, and a principle that conservatives generally embrace — except when it comes to immigration.

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10 Responses to Why Immigration Hasn’t Hurt Native Wages In California

  1. 1
    maruja de lujo says:

    The first problem with this argument is the assumption that manual labour is unskilled. Try using office managers or stockbrokers to pick your strawberry crop or shear your sheep and those skills will be noticeable by their absence. Employers get away with calling manual labour and domestic work unskilled even as they reject workers who aren’t experienced and efficient at it.
    Though we don’t like to say so, an employee’s ignorance of the country’s language can be attractive to an employer because it’s harder for the employee to complain about illegal practices or poor wages and conditions. It’s also harder for the employee to look for work elsewhere, to inform herself about her rights or to enter into negotiations with her employer. The US Americans who label such employees “unskilled” may be be monolingual themselves, but they don’t get the same label.
    Skilled, experienced agricultural workers, building workers and domestic workers benefit a country’s economy not because of some synergy between their so-called unskilled labour and that of the locals but because they work more cheaply and accept poorer conditions. They do that because they have less negotiating power. Wil Wilkinson’s argument looks to me like an elaborate attempt to tiptoe around those facts.

  2. 2
    gin-and-whiskey says:

    maruja de lujo says:
    March 6, 2012 at 2:25 am

    The first problem with this argument is the assumption that manual labour is unskilled.

    Where are you getting that? From my reading, the article seems to be saying that all levels (from manual to white collar) benefit from efficiency and specialization, which implies that all levels contain skill.

    It’s true that from a semantic perspective “unskilled” gets misused: we use it both to refer to people who are actually unskilled, and also as a synonym for “not possessing detailed and/or expensive training.” Those are not the same thing at all.

  3. 3
    RonF says:

    Peri notes that most less-skilled immigrant workers don’t speak English as well as natives do, and that matters. It means that primarily Spanish-speaking workers flock to manual work, which pushes native Californians toward jobs for which speaking English gives them a clear competitive advantage. These jobs tend to pay more than manual labor, which has helped keep native wages from falling.

    What pushes people towards better paying jobs is the better pay. Native Californians who are pushed out of low paying jobs because of competition with people willing to accept worse working conditions and lower pay are pushed into the unemployment line, not better paying jobs. If they could successfully compete for those better paying jobs they already would have.

    It’s telling that the article contains no quotes from nor any link to the research. Thus, there’s no way to tell if the conclusions that the writer of the article drew from their discussion with the researcher (or the conclusions the researcher drew from the data gathered) are truly valid and stand up to analysis.

  4. 4
    Ampersand says:

    The first problem with this argument is the assumption that manual labour is unskilled.

    Giovanni Peri, in his research, describes manual labor as skilled. (E.g., “occupations that require manual and physical labor skills”). I don’t see where either Peri or Wilkinson calls manual labor unskilled, but if they did, they were wrong.

    I agree with you that not speaking English like a native makes immigrant workers more vulnerable to exploitation by unscrupulous employers. But I don’t see how that fact contradicts the economic argument at all.

  5. 5
    Ampersand says:

    Ron, you’re definitely right — Wilkinson should have specified which of Peri’s papers he was talking about. My guess is that he was basing his article primarily on this paper (pdf link), which was published by the National Bureau of Economic Research. The abstract:

    I show that a CES production-function-based approach with skill differentiation and integrated national labor markets has predictions for the employment effect of immigrants at the local level. The model predicts that if I look at the employment (rather than wage) response by skill to immigration in a state, I can estimate the substitutability-complementarity between natives and immigrants. This allows me to infer, other things constant, how immigrants stimulate or depress the demand for native labor. I also use a novel instrument based on demographic characteristics of total Central American migrants or of the Mexican Population to predict immigration by skill level within California. Looking at immigration to California between 1960 and 2005 my estimates support the assumption of a nationally integrated labor market by skill and they support the hypothesis that natives and immigrants in the same education-experience group are not perfectly substitutable. This, in turn, explains the counter-intuitive fact that there is a zero correlation between immigration and wage and employment outcomes of natives.

    These two papers by Peri (also pdf links) also seem relevant: 1 2.

    Finally, Peri himself summarized his research findings (and that of other economists) for a non-academic audience here. (That’s right — I just linked to a CATO institute publication!)

  6. 6
    maruja de lujo says:

    gin-and-whisky, I’m getting that (“that” being the assumption that manual labour is unskilled) from the phrase “less-skilled immigrant workers”, which strikes me as an attempt to say “unskilled” in a nicer-sounding way. You’re right that he didn’t use the word “unskilled”, but he’s awfully close.

    “…the article seems to be saying that all levels (from manual to white collar) benefit from efficiency and specialization which implies that all levels contain skill.”
    Yes, but it implies that being a monolingual speaker of English counts as specialization, which makes a nonsense of the idea of specialization.

    Ampersand, we agree that “not speaking English like a native makes immigrant workers more vulnerable to exploitation by unscrupulous employers.
    “But,” you say, “I don’t see how that fact contradicts the economic argument at all.”
    The authors specifically mention the language differences and present them as a legitimate component of specialization. That strikes me as wildly, desperately dishonest, partly because it’s ridiculous to pretend that speaking your native language in your native country is a specialized skill, and partly because it ignores the reality that language differences are one of the means used to keep foreign workers vulnerable, afraid and underpaid. The existence of such workers affects the negotiating power, and thus the wages and conditions, of anyone who wants to work in the industry.

    I think you’re focussing on the contribution that immigrant workers make to the economy, and that that should please fans of the free market, while I’m more focussed on the dishonesty of using very dubious arguments to claim “…that there is a zero correlation between immigration and wage and employment outcomes of natives.”

  7. 7
    Ampersand says:

    Yes, but it implies that being a monolingual speaker of English counts as specialization, which makes a nonsense of the idea of specialization.

    No, that’s not what it says or implies. The argument says that different language skills tend to push immigrant workers with less education and native workers with less education, into different jobs, leading to specialization.

    It’s not nonsense to think that speaking English “like a native” is a trait that is more important in some jobs than others. Therefore, job segregation occurs along lines of English speaking ability. Job segregation can, in some circumstances, lead to groups having different skills, which is a rough form of specialization.

    So far you haven’t given a single logical argument explaining why that’s “nonsense.”

    while I’m more focussed on the dishonesty of using very dubious arguments to claim “…that there is a zero correlation between immigration and wage and employment outcomes of natives.”

    A long line of empirical studies show that, in fact, there is near-zero correlation between immigration and native wages and employment. It’s not “dishonest” to come up with theories that can explain the facts — and the fact is, immigration appears to have little or no negative effect on native employment even among less-educated natives, and a long-term positive effect for everyone involved. (See this paper by Peri, for example.)

    Finally, I shouldn’t have to say this, but just because someone disagrees with you doesn’t make them “dishonest.” It’s possible that they honestly disagree with you.

  8. 8
    AMM says:

    … a principle that conservatives generally embrace — except when it comes to immigration.

    It’s pretty obvious that their real motivation is racism.

    Where I live (the NYC area), there are substantial numbers of people from Western Europe (especially Ireland) who have come over on tourist visas or other short-term visas and simply never went home. Nobody seems keen to track them down and deport them, nobody _ever_ complains about how their presence is harming “real Americans,” and I have _never_ heard them referred to as “illegal immigrants.”

    The whole “illegal immigrant” thing is just plain old-fashioned nativism, as it was practiced agains the Germans, the Irish, then the Italians and the Jews, etc.

  9. 9
    RonF says:

    AMM, when I go to my local watering hole there are (stereotypically) copies of the Chicago-oriented Irish American News available. Every issue has an article in it about immigration issues and problems that Irish people here illegally have and how the laws need to be changed so that both illegal Irish aliens and resident Irish aliens can get citizenship easier and not fear being tossed out of the U.S.

    So you may not see it, but it’s apparently out there. Maybe the bias is not in the authorities or the politicians but in the press, who may only think that immigration issues are newsworthy if they affect non-Caucasian people.

  10. 10
    gin-and-whiskey says:

    It’s pretty obvious that their real motivation is racism.

    Er… no, it’s not. Have you seen the statistics?

    The vast, vast, majority of illegal immigrants are from Mexico (the largest source) or other areas in Latin America. That’s entirely unsurprising: (1) they can walk; and (2) they come from countries which are far down the prosperity scale from the US.

    If you’re going to stop a problem by addressing governmental action towards it, focusing on the 80% target is pretty sensible.

    That doesn’t mean that there aren’t racists as well–there are, and I expect that almost all of them would oppose illegal immigration. But there are so many well-supported and non-racist reasons to oppose illegal immigration, and “racists think that as well” isn’t enough to make them moot.