Discussions of economic inequality are common nowadays thanks to Thomas Piketty’s new book Capital in the Twenty-First Century. There are several good critiques of Piketty’s book and at least one wonderful podcast. I’m not convinced that economic inequality in a (mostly) free-market economy matters one way or the other for economic growth, social stability, or political stability (ceteris paribus), so this blog is a response to those concerned that liberalized immigration could exacerbate wealth inequality.
Papers on how immigrants affect the wages of Americans almost uniformly present the results as relative gains or losses compared to the wages of other workers. While that work is valuable, below I will only discuss papers that focus exclusively on economic inequality caused by immigration.
Borjas et. al. found that immigration (along with trade) only modestly affects earnings inequality – a role not substantial enough to account for more than a small percentage of the change. Instead, he attributes the growth in income inequality to the acceleration of skills-biased technological change (SBTC) and other institutional changes in the labor market.
David Card failed to find a substantially causal relationship between increased immigration and growth in wage inequality. He discovered that immigration explains about 5 percent of the rise in overall wage inequality between 1980 and 2000. An important distinction is between the wage inequality effects of immigration on natives and the effects on wage inequality for immigrants and natives. While 5 percent of the growth in overall wage inequality can be attributed to immigration, immigration’s effect on native wage inequality is negligible. Immigrants tend to have either very high or very low wages compared to natives, meaning that immigrants have a naturally higher residual level of income inequality than natives do. Thus, immigration causes the economy-wide level of wage inequality to increase without changing native wage inequality. Immigration has little, if any, effect on native wage inequality according to Card.