Immigration can bring small overall gains but uneven wage effects

Immigration can yield modest overall economic benefits for native-born individuals, yet it can result in significant, unequal shifts in wages across various occupations, according to recent research led by King's Business School. The study challenges the notion that headline averages can accurately capture the nuances of immigration's impact on the labor market.

The research, titled "The Immigration Surplus Revisited," revisits the concept of the "immigration surplus," first proposed by economist George Borjas in 1995. This theory suggests that immigration can generate aggregate economic gains for the native-born population, despite these gains not necessarily being evenly distributed.

The analysis, based on U.S. data, indicates that a 1% increase in total employment through immigration could lead to an approximately 0.01% increase in earnings for the native-born population. However, the effects on wages are far more pronounced and uneven. Wages in lower-paid occupations, where migrant workers are overrepresented, are likely to decline, while wages in other sectors may rise.

The distribution of these wage effects depends on the skills that immigrants possess. If migrant and native-born workers possess similar skill sets, the model predicts no overall surplus and no redistribution of wages among native-born workers. Conversely, the greater the differences between the skill sets of migrants and natives, the larger the overall gain, but the disparities in relative wages also intensify.

The findings emphasize that policy choices regarding the skill mix of immigration can influence both the overall economic impact and the distribution of wage gains and pressures across the labor market. The researchers caution against relying solely on wages to gauge the overall benefit to workers. While immigration may lead to better-paid jobs for native-born individuals, these higher wages might offset additional training or less appealing work conditions.

Therefore, a higher wage does not necessarily equate to an improved overall situation for the worker. The study underscores that assessing immigration's impact requires looking beyond average wage figures to understand the broader implications for different segments of the labor market.