Rethinking the Effects of Immigration on Wages

Abstract

This paper asks the following question: what was the effect of surging immigration on average and individual wages of U.S.-born workers during the period 1990-2004? We emphasize the need for a general equilibrium approach to analyze this problem. The impact of immigrants on wages of U.S.-born workers can be evaluated only by accounting carefully for labor market and capital market interactions in production. Using such a general equilibrium approach we estimate that immigrants are imperfect substitutes for U.S.- born workers within the same education-experience-gender group (because they choose different occupations and have different skills). Moreover, accounting for a reasonable speed of adjustment of physical capital we show that most of the wage effects of immigration accrue to native workers within a decade. These two facts imply a positive and significant effect of the 1990-2004 immigration on the average wage of U.S.-born workers overall, both in the short run and in the long run. This positive effect results from averaging a positive effect on wages of U.S.-born workers with at least a high school degree and a small negative effect on wages of U.S.-born workers with no high school degree.