American Sociological Association

The Economics of Migration

June 5, 2019

by Jonathan Portes

The essence of the economic case for migration is very simple: it is the same as the case for markets in general. If people make decisions on the basis of their own economic self-interest, this will maximize efficiency, overall output, and, at least on some measures, welfare. This applies to where people live and work just as much, if not more, than it applies to buying and selling goods and services. Of course markets fail here, as elsewhere, and “more market” is not always better. But the view that, as a general proposition, markets are good at allocating resources—including human resources—is widely shared among economists.

And this analogy holds in a narrower, more technical sense as well. The classic argument for free trade, as advanced by David Ricardo and Adam Smith, is not just analogous to, but formally identical to, the argument for free movement. It is easy to see this. In economic terms, allowing somebody to come to your country and trade with you (or work for you or employ you) is identical to removing trade barriers with their country. It allows greater specialization—the principle of comparative advantage—and hence greater overall efficiency.

So what is the impact if a country reduces barriers to trade or migration? Theory suggests that, for both trade and migration, the impact of reducing barriers will be positive, but there will be distributional consequences. That is, GDP—and more importantly, GDP per capita—will increase, but some individuals and households will lose out, at least in the short run. In particular, trade will hurt those working in sectors where the country does not have a comparative advantage, while immigration will hurt those working in direct competition with immigrant workers.

The main beneficiaries of immigration are likely to be the immigrants—since, by definition, they are taking advantage of the opportunity to move believing that they will be better off (economically or more broadly) in a different country and by a sufficient amount to justify the costs (again, economic or broader) of moving. While individuals may be wrong about this (as with anyone who makes a decision when there is uncertainty about the future), in general the majority of gains from immigration can be expected to accrue to those who take up the opportunities it presents.

Immigration’s (Non)Impact on Jobs and Wages

Public and policy concern in the United States and other developed countries tends, for obvious reasons, to focus on the impacts on existing residents and especially the distributional impacts of immigration—the potential negative impacts on employment and wages for low-skilled workers. Many non-economists (and even some economists) simply assert as an article of faith that such effects must exist—usually suggesting that it’s a matter of “supply and demand.”

But this is very bad economics. It’s entirely true that immigrants add to labor supply. Indeed, it’s even true to say that immigrants “take our jobs” (I work and live in London, and I’m sure that I, like many UK-born economists, have at some point failed to get a job because my prospective employer preferred to hire an immigrant). But the point is that immigrants (directly or indirectly) add to labor demand as well as labor supply; they earn money and spend it.

Ignoring this effect, as many do, is what economists call the “lump of labor fallacy”—the idea that there are only a certain number of jobs to go around, so that if an immigrant to the United States (or an old person or a woman) takes one, then an American (or a young person or a man) must lose out. But while an immigrant may “take” one job from an American worker directly, they may also “create” one job for American workers. Similarly, wages for American workers might rise or fall. So the only way to find out what immigration does to jobs and wages is to look at the data.

The economic impacts of immigration go beyond the direct impact on the jobs and wages of natives, just as the economic impacts of trade aren’t only about reduced prices for cheap consumer good imports.

The most famous research evidence on this in the developed world comes from David Card’s 1990 study of the Mariel boatlift. The 1980 movement of Cuban refugees to the United States represented a huge “supply shock” of mostly low-skilled immigrants into Miami, Florida’s labor market. Card found, surprisingly, that the impact on native wages was very small. This result was so controversial that economists are still arguing about it, nearly 30 years after it was published, with the leading U.S. immigration economist George Borjas disputing his conclusions (although the consensus, as outlined by development economist Michael A. Clemens for Vox in 2017, remains that Card’s original result stands). More broadly, a huge body of subsequent research, both in the United States and elsewhere, has largely supported Card’s conclusions (reviewed, for example, in a 2011 NBER working paper by economists Sari Pekkala Kerr and William R. Kerr). The consensus is that negative impacts of migration for native workers in developed countries are, if they exist at all, relatively small and short-lived.

In the UK, we had our own recent “experiment” with a large increase in migration when eight central and Eastern European countries, all with incomes much lower than the UK, joined the European Union (EU) in 2004. Unlike most of the other existing member states, the UK chose not to impose any transitional restrictions on the right of these new European citizens to take up work within its borders. As a result, the number of immigrants from elsewhere in the EU working in the UK has more than tripled to about 2.4 million, or about 7% of the workforce. But to the considerable surprise of many economists, including me, there is now a clear consensus that even in the short-term this increase does not appear to have had a negative impact on the employment outcomes of UK natives. Indeed, despite recent years seeing the highest levels of immigration in recorded British history, the employment rate is at its highest level since records began. Higher immigration has been accompanied by an expansion of jobs for native workers.

The logical corollary is that, if you’re worried about the jobs and incomes of low-skilled workers, restricting immigration isn’t the place to start. In their 2018 American Economic Review paper, Clemens, Ethan G. Lewis, and Hannah M. Postel illustrate what is likely to happen instead. In 1965, the United States abruptly ended the “bracero” program, which allowed Mexican workers to come into the country for seasonal agricultural work; the rationale was that cutting off access to cheap foreign workers would improve employment prospects and push up wages for Americans. But that didn’t happen—instead farmers simply reduced the number of workers they employed by switching crops or investing in new, more expensive technology.

Read the full article in the Spring 2019 Contexts.

 

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