construction workers

Immigration and its Economic Impacts

Elliott Eisenberg Advocacy, Economy, Featured

construction workersRecently, Senator Tom Cotton from Arkansas and Senator David Perdue from Georgia introduced legislation aiming to reduce legal immigration to slightly more than 500,000 per year from the current rate of one million per year. The explanation given by both senators was that reducing the number of immigrants would shrink the pool of labor, thus raising wages, and hopefully encouraging some of the many Americans who have quit the labor force to return. While sounding plausible, the data does not support this position. Moreover, reduced immigration will bring the U.S. perilously close to a situation it has never seen: near-zero population growth.

“The overall economy is better off by boosting innovation and reducing prices for consumers.”
Per an exhaustive study carried out by the U.S. National Academy of Sciences, immigration does not drive down wages. Rather, immigration was found to have a “very small” and short-term effect on native-born workers lacking a high school degree. Another study that looked at non-European immigration into Denmark between 1991 and 2008 found that immigrants didn’t reduce wages, and instead freed natives to do more agreeable work. And when only high-tech immigration is analyzed, at worst, studies find that wages of American computer workers and scientists are depressed by up to 10 percent, but the overall economy is better off by boosting innovation and reducing prices for consumers.

While somewhat counterintuitive, these studies demonstrate that rather than taking jobs performed by natives, immigrants create new employment opportunities, and along the way, can push the natives into higher paying jobs. The mistaken belief that immigrants reduce employment opportunities for Americans is based on a false notion that there is a fixed amount of work to be done, and that job gains made by immigrants come at the expense of natives who are displaced.


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In addition, immigrants often bring skills that are in great demand. For example, at present, there is a shortage of occupational and physical therapists, nurses, construction workers, engineers, metal workers, etc. However, wages in these professions do not appear to be rising substantially faster than those in occupations where labor shortages are less severe. This is because more construction and metal workers simply cannot be found, regardless of the wage offered. Thus, employers have been forced to cut back on production because of a dearth of skilled labor. This situation helps no one.

“Immigrants often bring skills that are in great demand. For example, at present, there is a shortage of occupational and physical therapists, nurses, construction workers, engineers, metal workers, etc.”
Separately, ponder this: on average, the working-age population grew by 1.4 percent per year between the years 1965 and 2015, and economic growth averaged 3 percent. Assuming current fertility and immigration rates, the working-age population will grow just 0.3 percent per year between now and 2037. With only 500,000 immigrants per year, the working-age population will grow by just 0.1 percent per year. And with no immigration, the working-age population shrinks by 0.1 percent per year. Under these conditions, we will be lucky to see annual GDP growth of 1.5 percent per year, not to mention declining house prices. House prices would be expected to fall in cities in counties with declining populations, as the number of buyers would progressively decline.

While many Americans fear that immigrants — in particular illegal immigrants — threaten their employment opportunities and wages, in almost all situations that is not the case. Frequently, immigrants perform demanding physical work that Americans prefer not to do, and even when that is not so, immigrants often have skills that are in short supply.

In an economy that is rapidly aging and slowly growing, immigration is the key to population growth. That growth will allow us to avoid a host of painful problems, including declining property values and rising tax burdens that we would be wise to avoid.

 

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Elliott Eisenberg

Article by Elliot Eisenberg, Ph.D., president of GraphsandLaughs LLC. His daily economics and policy blog can be found at www.econ70.com.

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