It’s presidential election season again, which means that debates around the most politically divisive issues are front and center in the national news. Immigration is one of the most commonly debated topics, and according to data from Pew Research, 57% of Americans think that it is a top priority for the President and Congress.
Political narratives aside, what actually happens when immigrants come to the United States? You will get extremely different answers to this question depending on who you ask, so let’s instead use this opportunity to explore some of the data surrounding immigration. Specifically, what happens to the labor market when immigrants move in.
Before we talk about actual data, it will be useful to visit some of the basic economic theory behind this question. If a wave of immigrants move into a community and begin participating in the labor market, then theory says we should see a growth in the labor supply. Assuming that nothing else changes, this would have two main effects.
First, unemployment should rise. Assuming that the demand for labor is unchanged, then there would just be more people competing for the same number of jobs.
Second, wages would go down. Competition among potential workers should cause a race to the bottom for wages.
These two outcomes only happen in a perfectly competitive labor market, where all workers are competing for the same jobs and wages can fluctuate with supply and demand. In the real world, the labor market functions very differently.
To see just how differently this plays out in real life, we can look at the example of the Mariel boatlift, a mass migration event where thousands of Cubans moved to Florida in 1980. This event was the subject of a landmark 1990 paper by the economist David Card, who explored the labor market impacts of such a sudden shock.
Card’s study was a pioneering deployment of “difference-in-differences” economic evaluation. Card looked at unemployment and wages in Miami before and after the Mariel Boatlift then compared these to changes in unemployment and wages in comparable metropolitan areas. These comparable metropolitan areas served as “synthetic controls,” mimicking an experimental design and allowing Card to see what the actual impact of the sudden influx in workers had on employment and wages
Card found that, when compared to comparable metropolitan areas, the sudden wave of immigration actually had no effect on unemployment or wages in low-skill industries. Instead, the Miami labor market was able to immediately grow and absorb these new workers.
Why was this able to happen? The dynamics of labor markets are extremely difficult to understand, but I think there are a few main reasons.
One reason is that in a healthy economy, there should be room for growth. Many economists consider there to be “full employment” not when the unemployment rate is 0%, but rather when everyone who wants to work is able to with relative ease (the rule of thumb I learned is that full employment is equivalent to an unemployment rate of about 3% - 4%). There are far more technical definitions of full employment, but the idea is we should always expect there to be some job openings.
The second reason is that immigrants don’t just come here to work, they come here to live. They spend money in their new communities, they start their own businesses, they grow the local economy. By moving to Miami, the immigrants from the Mairel boatlift created the opportunity for employers to expand their operations.
The political discourse around immigration isn’t very data-driven these days, and that can be an issue. Hopefully this example helps shed some light on what actually happens when immigrants move to the United States.