The Causes of Wealth Inequality (12): Immigration

Immigrants are usually somewhat poorer than natives, mainly

  • because they come from poorer countries,
  • because they are less well educated and less skilled (on average) and
  • because they are sometimes more at risk of being unemployed.

So it’s tempting to use data on increasing immigration flows – such as those that occurred in the U.S. during the last decades – in order to explain rising income inequality. Inequality is then viewed, not as the result of an unjust economic system, but as the mechanical result of demographic changes.

The timing is hard to ignore. During the Great Compression, the long and prosperous mid-20th-century idyll when income inequality shrank or held steady, immigration was held in check by quotas first imposed during the 1920s. The Nobel-prizewinning economist Paul Samuelson saw a connection. “By keeping labor supply down,” … a restrictive immigration policy “tends to keep wages high.” After the 1965 immigration law reopened the spigot, the income trend reversed itself and income inequality grew. (source)

However, there’s little evidence that immigration keeps wages low at the bottom end of the native income distribution (except for high-school dropouts and to a limited extent), which is where immigration’s effect on inequality is supposed to occur. See here for a discussion of the evidence. One can even make the case that immigration benefits the poorest sections of the native population. See this post. So, immigration can’t explain rising income inequality. But perhaps the sheer number of poor immigrants can account for rising inequality? Maybe immigration doesn’t produce inequality by pushing down native wages but simply by changing the demographic: more poor people (in this case immigrants) means higher inequality.

Gary Burtless [notes] that immigrants “accounted for one-third of the U.S. population growth between 1980 and 2007”. [E]ven if they failed to exert heavy downward pressure on the incomes of most native-born Americans, the roughly 900,000 immigrants who arrive in the United States each year were sufficient in number to skew the national income distribution by their mere presence. [However,] [h]ad there been no immigration after 1979, he calculated, average annual wages for all workers “may have risen by an additional 2.3 percent”. (source)

And that number would have been hardly sufficient to stop the actual increase in income inequality. So even if there had been no immigration, inequality would have increased. There must therefore be other causes and explanations.

Maybe you’re wondering what the problem is, in which case you can go here. More on immigration is here. More posts in this series are here.

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