Blogs & Comment

What happens when you add 11 million people to the workforce? - Erica Alini

What happens when you add 11 million people to the workforce?

In all likelihood, the answer is not much at all. At least not if those 11 million people are the undocumented immigrants to whom the current U.S. immigration overhaul would grant legal status.

As both House and Senate work on draft legislation to fix the country’s dysfunctional immigration laws, one key issue is whether offering a path to citizenship to those who’ve entered the country illegally would have significant effects on the compensation and employment levels of native-born Americans. Middle-class wages have been stagnating for the past 30 years and unemployment is still 2.5% above the U.S. average historical rate. Many voters are understandably wary of policies that might erode one or the other.

If you think about immigration the usual way—that is, as a net increase in the labour supply—the evidence on what happens to natives’ wages is a bit murky. All else equal, more workers means more competition for jobs, which allows employers to lower wages. Lower wages, though, lead to higher profits, which, after a while, leads firms to hire more workers, which, in turn, puts upward pressures on wages. Now, predicting the net effect of a surge in immigration on wages and how long the adjustment will take, remains difficult, not least because isolating the effect of immigration from that of other things that might affect compensation levels (such as technology and globalization) is tricky. The rule of thumb, though, is that, after a few years, an influx of foreign workers has a very small or no impact on native wages. (All of this, of course, assuming we’re in a free market economy.)

The effects on employment tend to display the same evolution from the short to the medium term and also depend on a specific country’s labour market regulations.

But research also shows that, if immigration has little effect on wages and employment overall, it impacts different groups of workers differently. In general, the newcomers tend to displace some of the native workers that have the same skills while raising everyone else’s relative wage.

When it comes to U.S.’s 11 million undocumented workers, though, immigration reform wouldn’t quite increase the supply of labour. The extra people are already part of the workforce—they have been for years. Whatever adjustment their coming into the U.S. caused, it has already taken place.

The question, then, is whether legalization might provoke further adjustments, chiefly by improving illegal workers’ chances of getting a raise or a better job. It seems intuitive that it would, but the evidence overwhelmingly suggests that would not be the case in the U.S.

That’s because the vast majority of U.S. illegal immigrants have little education—about half has less than a high-school diploma. Acquiring permanent residence or citizenship, studies show, doesn’t improve a high-school dropout’s chances of moving up the career ladder. If you’re at the bottom, you stay at the bottom. Upward mobility as a result of legalization seems to be a bit better for those with more years of schooling. Illegal immigrants with a bachelor’s degree, for example, are the most likely to improve their earnings potential after getting their green card or U.S. passport, but they make up only about 15% of those currently working in the U.S. without authorization.

It’s a depressing prospect for the millions of illegal immigrants in the U.S. who currently live in poverty. Politically speaking, though, it makes amnesty a lot less problematic.