Tuesday, January 4th, 2011

The Price of Migration

It is an article of faith among voters in rich countries that immigration reduces the wages of domestic workers, who have to compete with the cheap immigrants for jobs. Emigration, by contrast, is tolerated as a relatively unimportant phenomenon.

But new research suggests that voters are exactly wrong: between 1990 and 2000 immigration to rich countries both increased the average wages of domestic workers and mostly reduced their level of inequality over the long term, boosting the wages of the less educated relative to those with more skills. Emigration, by contrast, cut average wages and increased inequality at home.

The argument that cheap immigrants cut wages for everybody else forgets that companies will invest more in industries and places where labor is plentiful, creating employment. California would likely have a smaller agricultural industry if it didn’t have so many inexpensive immigrant farm workers. Emigration, by contrast, deprives the sending country of some of its best workers, those more willing to take risks, reducing economic output and incomes in the long run.

But the counterintuitive results are also due to the type of migrants that moved during the 1990s: in most rich countries both immigrant and emigrant workers were more skilled, on average, than the workers that didn’t move. Losing skilled workers to emigration increased the wages of those that stayed behind, increasing inequality. By the same token, incoming skilled workers increased average incomes and reduced income inequality.

The researchers did find that immigration reduced wages of low-skilled workers in the United States, which received lots of low-skilled illegal immigrants during the 1990s. But the pay cut due to immigration amounted to only 0.4% of their wage. And the wages of the highly skilled increased correspondingly. In every other rich nation immigration increased average wages and boosted pay at the bottom relative to the top. In Australia, immigration increased pay at the bottom by 4.5%. Across Europe, emigration proved net bad and immigration net good.

So perhaps politicians in the world’s richest nations should resist jumping onto the anti-immigrant bandwagon. Their economies would do better if they spent their energies encouraging hi-skilled immigration and getting better at keeping their best workers at home.

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