The Prospects for American Workers: Immigration’s Impact

October 30, 2003 • Testimony

Mr. Chairman, Congresswoman Jackson‐​Lee, and members of the Subcommittee, thank you for inviting the Cato Institute to testify today on the subject of immigration and American workers. Immigration has been a blessing to the United States throughout our history, and continues to bless Americans today.

Immigrants play an important part in the success of America’s free‐​enterprise economy, filling important niches in the labor market. Immigrants gravitate to occupations where the gap between the supply of workers and demand for them is greatest, typically in the highest‐​skilled and lowest‐​skilled jobs. That hourglass shape of the immigration labor pool complements the native workforce, where most workers fall in the middle range in terms of skills and education. As a result, immigrants do not compete directly with the vast majority of American workers.

Immigration provides a safety valve for the U.S. labor market, allowing the supply of workers to increase relatively quickly to meet rising demand. When demand falls, would‐​be immigrants can decide not to enter, and those already here can decide to return home. The result is a more efficient economy that can achieve a higher rate of sustainable growth without encountering bottlenecks or stoking inflation.

The impact of immigration on the relatively small segment of the workforce that competes directly with immigrants is more than offset by the lower prices that all workers enjoy for the goods produced by immigrants, and by the higher return on investment. The comprehensive study by National Research Council in 1997 concluded that immigration delivers a “significant positive gain” of $1 billion to $10 billion a year to native Americans. And those gains from immigration recur year after year.

America’s recent history confirms that our economy can prosper during times of robust immigration. During the long boom of the 1990s, and especially in the second half of the decade, the national unemployment rate fell below 4 percent and real wages rose up and down the income scale, including for the poorest one‐​fifth of American households, during a time of high immigration levels. America’s poverty rate fell by three percentage points during the 1990s, and almost 10 percentage points among African Americans.

Those remarkable gains occurred during a decade of large immigration inflows, including low‐​skilled immigrants from Mexico.

Low‐​skilled immigrants benefit the U.S. economy by filling jobs for which the large majority of American workers are overqualified and unwilling to fill. Important sectors of the U.S. economy depend on low‐​skilled immigrant workers to remain in business‐​hotels and motels, restaurants, construction, light manufacturing, health care, retailing, and other services.

The demand for less‐​skilled labor will continue to grow in the years ahead. According to the Department of Labor, the largest growth in absolute numbers of jobs will be in those categories that require only “short‐​term on‐​the‐​job training” of one month or less. Across the U.S. economy, the Labor Department estimates that the total number of such jobs will increase by 7.7 million in this decade.

Meanwhile, the supply of American workers who would be satisfied with such work continues to shrink because of an aging workforce and rising education levels. By the end of this decade, the average age of American workers will be 40.6 years. Meanwhile, younger and older workers alike are now more educated as the share of adult native‐​born men without a high school diploma has plunged, from more than 50 percent in 1960 to below 10 percent and falling today. Immigrants provide a ready and willing source of labor to fill that growing gap on the lower rungs of the labor ladder.

Immigration does lower the wages of high school dropouts, but the combined effect of international trade and technological change are believed to be even greater. Barring low‐​skilled immigrants from the U.S. workforce would not reverse the underlying economic trends arrayed against the least skilled and educated. What those workers need for their long‐​term success is not less competition from immigrants but more skills and education.

In fact, competition from immigrants actually gives native‐​born workers an even greater incentive to stay in school and enhance their skills. Such competition actually increases the likelihood that native‐​born Americans will stay in school rather than drop out because immigration increases the wage premium young workers receive for completing high school. We saw this happen early in the 20th century when low‐​skilled immigration spurred a dramatic increase in the share of Americans earning their high school degrees.

Our current dysfunctional immigration system is colliding with reality, and reality is winning. Since 1986, the U.S. government has labored in vain to stem the inflow of illegal immigrants, with the result that more than 5 million undocumented workers live in a legal twilight zone. Many of them are unable to bargain effectively with employers for a full market wage, relegating them to secondary markets where they are more likely to be paid in cash or hired through subcontractors.

The result is submarket wages and submarket working conditions for undocumented workers and for legal immigrants and native‐​born workers who compete with them in the labor market. As a result, employer sanctions and other enforcement efforts have acted as a kind of tax on low‐​skilled workers in the United States, whether immigrant or native.

In conclusion, members of the subcommittee and Congress have three basic options before them. We can muddle through with the status quo, leaving millions of currently illegal and mostly low‐​skilled immigrants in the legal shadows, unable to realize the full benefits of their labor in the marketplace.

Or we can redouble the failed policies of the past and crack down, once again, on illegal immigration, building more fences, assigning thousands more agents to patrol the border, and raiding more workplaces.

Or we can recognize reality by fixing America’s flawed immigration system so that it conforms to the realities of a free society and a free and efficient economy. A legalized system of migration would, in one stroke, bring a huge underground market into the open. It would allow American producers in important sectors of our economy to hire the workers they need to grow. And it would raise wages and working conditions for millions of low‐​skilled workers and spur investment in human capital.

Thank you and I look forward to your questions.

About the Author
Daniel Griswold
Former Director, Herbert A. Stiefel Center for Trade Policy Studies