The Effect Of Immigration On Wages And Employment: Explaining Why Native And Immigrant Workers Differ (essay).

Topic:- The effects of immigration on the United States economy

(a) The article claims that, “immigrants are often imperfect substitutes for native-born workers.” However, that does not stop many Americans from being concerned that immigrants will cause their wages to fall. Suppose that the authors of the article are wrong and that native-born and migrant workers are very similar, at least in the market for low-skilled workers. Use simple supply and demand analysis to illustrate the concerns of native-born workers. [Complete the diagram and use the space at the top to explain it.

(b) Explain why the analysis that you have presented in (a) is, according to the article, not correct. [Your answer should focus on these points: (1) Whether native-born and migrant workers are similar, as claimed in the question. (2) The possibility of an effect on the demand side as well as the supply-side effect. (3) The evidence presented in the article. References are not required.]

(a)

If we assume that native-born and migrant workers are very similar, then we can count native and immigrants workers as supply of workers.  Using a simple demand –supply framework for workers, with wages as the price of workers, we can analyse how immigrants affect wages and employment (measured as the number of worker in employment). The demand curve slopes down, while supply curve slopes upwards as in traditional theory.

Higher immigration is equivalent to an increase in this total supply of workers. This is shown as a right shift of the supply curve, so that we move from E to E1. At this point wages are lower and number of workers is higher as compared to initial point E. lower wages therefore become a concern area for native workers.

On the onset , it must be clear that the above diagram is based on the assumption that native and immigrant workers are same/equivalent. The article argues the opposite ( which implies that natives and immigrants are different in terms of skill or education or some other parameter that affects their employability) on many grounds:

1. The less educated immigrants have language issues- they often lack linguistic skills required for many jobs. In this way immigrants and natives do not compete for a job in fields that are communication-intensive.
2. The effect of immigrants is not uniform-it varies across occupations and across the skill spectrum. Immigrants are likely to work in innovative and technical industries, where language is not an issue. This makes both types of workers uncompetitive in technical industries.
3. On the lower end of the skill spectrum, the article informs us that ‘relative to the native-born, recently-arrived immigrants are less likely to have completed high school’, which makes immigrants uncompetitive at this end of the spectrum. Studies show that immigrants are not a competitive threat to native born workers, but pose a threat to older immigrants due to better education of the recent immigrant.

• A single labour market for all workers will be an incorrect paradigm to analyse wage and employment effects.  We need sector specific market for workers or a labor market based on education level. This is because the threat of immigrants lowering wages by raising supply varies on the basis on education and sector analysed. In fact recent immigrants are competition for older ones more than for native born workers as the latter are better in communicative skills.
• Wages are a result of interaction between demand and supply. We have looked at supply only. Any increase in demand can raise wages, and counter any wage depression that higher supply of immigrants may cause. This demand is again sector specific. The demand for immigrants as workers in innovative and technical sector may rise, where the immigrant has an edge can cause wages to rise if states try and get more immigrants to support these industries ( as domestic talent may be lacking). As, ‘states with a high concentration of foreign-born workers experience significantly faster productivity growth’ the higher demand for immigrant workers may contribute to rising wages.     

 References

What Immigration means for US employment and wages, ( May 4, 2012) retrieved from  https://www.brookings.edu/blog/jobs/2012/05/04/what-immigration-means-for-u-s-employment-and-wages/[18 May 2017]

How immigrants affect jobs and wages, (15 May 2017) retrieved from https://fullfact.org/immigration/immigration-and-jobs-labour-market-effects-immigration/ [ 19 May 2017]

Berenson. T, Immigration does not hurt native jobs or wages in US, ( Sep 21, 2016)  retrieved from https://time.com/4503313/immigration-wages-employment-economy-study/ [19 May 2017]

Peri, G (May 2014), Do immigrant workers depress the wages of native workers retrieved from https://wol.iza.org/uploads/articles/42/pdfs/do-immigrant-workers-depress-the-wages-of-native-workers.pdf [19 May 2017]