Immigration and Wages: Does Immigration Lower Native Workers' Pay?

Abstract

One of the most politically charged questions in economics is whether immigration depresses wages for native-born workers. The preponderance of evidence from natural experiments and careful empirical studies finds small or negligible average effects on native wages, with concentrated negative effects on prior immigrants doing similar work. The labor market is more flexible than simple supply-and-demand models predict, and immigrants also increase demand for goods and services.

Background

The intuitive case for immigration depressing wages is simple: more workers competing for jobs pushes wages down. But labor markets are not simple commodity markets. Immigrants are also consumers who create demand; they often complement rather than substitute for native workers; and labor markets adjust through capital investment, occupational shifts, and productivity changes. Testing whether wages actually fall requires natural experiments — large, unexpected immigration flows that allow economists to observe before-and-after wage changes.

The Evidence

The Mariel Boatlift remains the most cited natural experiment. In 1980, Fidel Castro briefly allowed emigration from Cuba, and approximately 125,000 Cubans arrived in Miami over six months — a sudden 7% increase in Miami's labor force. David Card's landmark 1990 study in the Industrial and Labor Relations Review compared Miami wages and unemployment to four comparison cities and found essentially no effect on wages or employment of low-skill native workers. This remained the consensus finding for two decades.

George Borjas's 2017 reanalysis challenged Card's conclusions. Borjas reanalyzed the Mariel data focusing specifically on male non-Hispanic high school dropouts and found significant wage declines. The methodological dispute — about which comparison cities to use, whether to include Hispanic workers, and how to define low-skill workers — generated a large empirical literature. Subsequent work by Peri and Yasenov (2019, Journal of Human Resources) using broader samples found no wage decline, consistent with Card's original findings. Most economists now regard the Mariel evidence as showing small or negligible wage effects.

European evidence from natural experiments shows similar results. The 2004 enlargement of the EU, which gave workers from Eastern European countries the right to work in the UK and Ireland, created a large immigration flow. Dustmann, Frattini, and Preston (2013, Economic Journal) found that low-wage immigration initially reduced wages at the lower tail of the wage distribution but had positive effects at the median and top — consistent with immigrants and native workers performing different tasks even in similar skill categories.

Immigration from lower-wage countries reduces wages of prior immigrants. Across studies, the most consistent finding is that new immigration has the largest negative wage effect on previous immigrants who compete directly for the same jobs. Borjas (2003) estimated that a 10% increase in the supply of workers in a particular skill group reduces wages in that group by 3–4%, but this effect is concentrated among immigrants already in the country, not native-born workers.

Immigration raises wages at higher skill levels. High-skilled immigration — particularly in STEM fields — is associated with innovation and productivity spillovers that raise wages across the skill distribution. Peri (2012, Journal of the European Economic Association) estimated that high-skilled immigration raised average wages by 1.8–2% over the period 1990–2006 through these complementarity effects.

Fiscal effects are separate from wage effects. Much of the political controversy conflates wage competition with fiscal costs (use of public services). These are distinct empirical questions. The National Academies of Sciences 2016 report The Economic and Fiscal Consequences of Immigration found that first-generation immigrants often have negative short-term fiscal impacts (primarily due to education costs for children) but that second-generation immigrants are among the strongest net fiscal contributors of any population group.

Counterarguments

Adjustment costs are real and concentrated. Even if average wage effects are small, labor market adjustment to immigration takes time. Workers in directly competing occupations in specific geographic areas can experience real wage losses or employment disruption during the adjustment period. These costs are not equally distributed, and aggregate averages can obscure local harms.

The distributional question matters more than the average. If immigration modestly raises median wages while suppressing wages at the bottom, the aggregate effect is positive but the distributional effect may be regressive. Whether that trade-off is acceptable is a political question, not an empirical one.

Estimates depend heavily on time horizon and methodology. The difference between Card's and Borjas's Mariel findings illustrates that methodological choices substantially affect conclusions. The range of plausible estimates for wage effects remains wide.

What We Can Conclude

The best available evidence from natural experiments finds small average negative wage effects from immigration for native workers, with larger negative effects concentrated among prior immigrants in directly competing skill categories. High-skilled immigration is associated with wage gains through productivity and innovation effects. Labor markets adjust to immigration more flexibly than simple supply-demand models predict, partly because immigrants and natives perform different tasks even within similar skill categories. The distributional consequences — who bears the costs and who gains — are more important policy questions than aggregate average effects.

References

• Card, D. (1990). The impact of the Mariel boatlift on the Miami labor market. Industrial and Labor Relations Review, 43(2), 245–257.
• Borjas, G. J. (2003). The labor demand curve is downward sloping: Reexamining the impact of immigration on the labor market. Quarterly Journal of Economics, 118(4), 1335–1374.
• Peri, G., & Yasenov, V. (2019). The labor market effects of a refugee wave: Applying the synthetic control method to the Mariel boatlift. Journal of Human Resources, 54(2), 267–309.
• Dustmann, C., Frattini, T., & Preston, I. P. (2013). The effect of immigration along the distribution of wages. Review of Economic Studies, 80(1), 145–173.
• National Academies of Sciences, Engineering, and Medicine. (2016). The economic and fiscal consequences of immigration. National Academies Press.