View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

short essays and reports on the economic issues of the day
2006 ■ Number 14

New Views on Immigration
Rubén Hernández-Murillo
n the past three decades, the share of foreign-born workers
in U.S. total employment has increased markedly, from
2.6 percent in 1970 to 13.2 percent in 2003. Among
economists, one of the fundamental issues in the immigration
debate is estimating the effects that foreign-born workers have
on the real wages of U.S.-born workers. Until recently, the findings indicated that there were very few benefits in terms of
higher real wages. In fact, some studies had suggested that the
effects could be large and negative, particularly for U.S.-born
workers with low levels of schooling. For example, one influential study found that, because of immigration, real wages
of U.S.-born workers declined about 3 percent between 1980
and 2000 for the average worker and almost 9 percent for
workers without a high school diploma.1
On the other hand, recent studies by economists Ottaviano
and Peri identify benefits derived from the diversity of the
immigrant population. They argue that previous findings
focused solely on the partial effect of foreign-born workers
on the wages of U.S.-born workers within very similar occupation and educational attainment groups; but these findings
ignored the effects that an increase in the number of foreignborn workers has for groups of U.S.-born workers with different characteristics.2,3 The authors accounted for the effects of
the differences in educational attainment and occupational
choices among foreign- and U.S.-born workers and found that,
on average, real wages of U.S.-born workers increased by about
2 percent between 1980 and 2000. They also found that wages
of workers without a high school diploma declined in real
terms, but only slightly, by about 0.4 percent.
In the context of an increase in immigration, the authors
identify two sources of differences between foreign-born
workers and U.S.-born workers that affect wages positively.
These positive effects rely on the assumption that U.S. firms
employ a balanced mix of workers with different characteristics.
First, the authors observe that the distribution of educational
levels differs between foreign-born and U.S.-born workers.
The share of foreign-born workers with low levels of schooling
as well as the share with high levels of schooling both tend to


exceed those of U.S.-born workers. Meanwhile, the share of
foreign-born workers with intermediate levels of schooling
tends to be less than that of U.S.-born workers. Thus, competition from increased immigration among workers with low
and high levels of schooling leads to an increase in employment and to a decline in the wages of workers in these educational levels. Because firms employ a balanced mix of workers,
workers with intermediate levels of schooling become comparatively scarcer and their wages rise. The distribution of
U.S. workers (about 60 percent of the total) is concentrated at
intermediate levels of schooling and the authors find that their
gains lead to an overall positive effect on wages.
Second, the authors observe that, even among workers with
similar educational attainment levels, foreign-born workers
choose very different occupations, attenuating competition
for the jobs that U.S. workers seek. U.S.-born workers, particularly those with low and high levels of schooling, possess
characteristics that cannot be easily substituted by those of
foreign-born workers, so their wages do not decline much in
response to an increase in the number of foreign-born workers.
Increased immigration, particularly in the short run, can
carry large adjustment costs. The assimilation of new immigrants is associated with an increased need for public spending,
the provision of public schools, and law enforcement. Additionally, integration of immigrants into the labor force does
not occur seamlessly. In the long run, however, as immigrants
are assimilated, their rich diversity of abilities and occupations
has the potential to improve the wages of U.S.-born workers.
All of these costs and benefits ought to inform the debate over
immigration. ■
1 Borjas, George J. “The Labor Demand Curve Is Downward Sloping: Reexamining

the Impact of Immigration on the Labor Market.” Quarterly Journal of Economics,
November 2003, 118(4), pp. 1335-74.

Ottaviano, Gianmarco I.P. and Peri, Giovanni. “Cities and Cultures.” Journal of
Urban Economics, September 2005, 58(2), pp. 304-37.


Ottaviano, Gianmarco I.P. and Peri, Giovanni. “Rethinking the Gains from
Immigration: Theory and Evidence from the U.S.” 2006, FEEM Working Paper
No. 52.06;

Views expressed do not necessarily reflect official positions of the Federal Reserve System.