Restrictions on immigration flows are getting a lot of policy attention of late. The argument is that immigration reduces wages for the native-born population. But, is there evidence for that? As you might expect, there are literally dozens of studies that have looked into this question, and there are now several meta-analyses that combine the results across many studies (including the meta-analysis that I referred to in this 2016 post. That post referred to this 2005 article by Longhi et al., which found that:
Overall, the effect is very small. A 1 percentage point increase in the proportion of immigrants in the labour force lowers wages across the investigated studies by only 0.119%.
Longhi et al. then followed up with another article in 2010, which also found a very small effect of immigration on wages, specifically:
...a 1% point increase in the immigration to population ratio reduces wages by only 0.03%.
A new meta-analysis article by Amandine Aubry (Université de Caen Normandie) and co-authors, published in the journal Labour Economics (open access), picks up those two earlier meta-analyses, and extends the analysis up to 2023. Specifically, their analysis includes:
...88 studies published between 1985 and 2023, encompassing 2,989 reduced-form estimates of the wage effects of immigration.
Many post-2010 studies use shift-share (Bartik) instruments to estimate the causal effect of immigration on wages. These instruments predict regional immigrant inflows by interacting a region’s pre-existing settlement shares by origin with national inflows from those origins. They then use the predicted inflows as an instrument for actual inflows in an instrumental variables framework. This approach helps address the concern that immigrants may sort into destinations with stronger labour markets, which would make immigration and wages correlated for reasons other than a causal effect of immigration on wages.
Now, Aubry et al. are more concerned with investigating the heterogeneity in the estimated effects of immigration on wages, rather than the overall estimate. Nevertheless, I think the overall estimate is interesting and important, and for that they find:
...a 1% rise in the immigrant labour force reduces native wages by about 0.033% on average.
This overall effect is very similar to that from the second meta-analysis by Longhi et al. But it's tiny - a 1 percent larger immigrant labour force would reduce the wages of a native-born worker earning $1000 per week by about 33 cents. And, there is substantial variation around that small overall estimate, which Aubry et al. investigate in some detail. They find that:
...contextual heterogeneity explains part of the variance in the estimates. Estimates for Anglo-Saxon and developing countries are systematically larger than those for other economies, and the historical period covered by a study also affects the results, with later periods being associated with smaller effects. Third, methodological heterogeneity is key... In particular, instrumental variable estimations, which are commonly used to infer causality, yield smaller coefficients than OLS...
More recent studies tend to estimate smaller effects of immigration on wages, as do studies that employ instrumental variables (which also tend to be more recent studies). That accords with the results from the two Longhi et al. meta-analyses, where the second study found a much smaller overall effect than the first study. The shift-share instrument only became established as a method by David Card and others in the early 2000s, so its use only began diffusing from then. Given that these sorts of analyses have become the industry standard now, we can generally expect future studies to find smaller effects than older studies.
The results for developing countries, where the effect of immigration on wages is more positive than for developed countries deserves more exploration. Aubry et al.'s sample includes estimates from only a handful of developing countries (Colombia, Costa Rica, Malaysia, Peru, South Africa, and Thailand). This also suggests that more studies on the effect of immigration on wages in developing country contexts would be useful.
The overall takeaway from this meta-analysis is that immigration on average has a negligible overall effect on the wages of the native-born population on average. Unfortunately, this is one of those cases where the empirical results do not accord with 'folk economics'. Although the average effect is negligible, the wages of some subgroups may be negatively impacted by immigration in some contexts (and Aubry et al.'s results are consistent with the idea that the impacts are negative in some contexts or for some groups). The general public (and policy makers) will tend to focus on those negative impacts. Nevertheless, it should be possible in principle to address those negative impacts through policy (economists refer to this as the compensation principle), so that those who benefit from immigration (including immigrants themselves) can continue to do so.
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