Immigration and Wages

Immigration can have many, many effects, and I wish to comment on a single one of these possible effects: effect on wages. There was a large wave of immigration between 1890 and 1910 in America. In the raw data, not attempting any complex model to hold all things equal, wage rates didn’t fall. They actually rose. Of course, one can always argue that they would have risen even more had not the immigrants arrived. However, if we cannot see a negative effect in the raw data and we actually see the opposite, a rise, it’s unlikely that some omitted factor is going to reverse this.

The crude model saying that wages will fall assumes that the immigrants compete with existing workers in competing for a fixed number of jobs. However, according to the economics of Jean-Baptiste Say, admired by the Austrian school, supply creates its own demand. If there are a million new immigrants, they will expand the work force, expand the hours worked and produce more goods which gives them the buying power to buy the goods they want. The whole economy gets bigger, and there is no necessary reduction in the wages of existing workers. Think of 100,000 new immigrants who create a new city away from the existing ones. They need not drive down wages of existing workers elsewhere. If there’s plenty of land, they may not even raise land and rent prices. If these immigrants form a set of concentrated enclaves within existing communities, their new supply will create demand for what they’re producing. It’s not much different from what happens as population grows and native newcomers enter the economy.

Granted, there are many complications such as short-run vs. long-run adjustments, local instances of wages being under pressure, and pressure on public facilities, but the big picture is that in a free market economy, which I’m assuming, markets will operate to absorb new labor supply because there will be new jobs to create the new supply that they will demand. This process is facilitated if new arrivals have sponsors here who have already scouted the possibilities of jobs and can house the arrivals for awhile.

Some may argue that markets do not adjust instantaneously. New people have to be absorbed, and this takes some time. Surely, if 7 million new people arrived in Chicago from overseas, rents would rise. But this would cause new supply to be built and existing housing to accommodate more people. If new supply were not feasible or bad government regulations precluded it, the arrivals would be induced to move elsewhere. Market prices induce adjustments that mitigate short-term impacts.

The main worry about immigrants seems today to be mainly a cultural one, not an economic one, and that includes the worry that their voting patterns and preferences won’t be like the pre-existing ones. Voters in the existing population can already swing to new positions and support new kinds of politicians. Even before considering immigrants, the question is whether all people should have the power to vote, even among non-immigrants.

Another very real worry is that the government admission process is ineffective in filtering out criminals, bad apples, no-goods and terrorists.

As far as voting goes, the American system of federal government is already light-years away from being a real republic. Congress does not represent the people; a single Congressman who stands in the place of 800,000 constituents cannot possibly re-present their views, i.e., distill them and speak for them in a body that’s supposed to coordinate the views of 325 million people. Consequently, we have a government that most people distrust and rightfully so. The danger is that new immigrants concentrated in particular regions will come under the sway of politicians and philosophies that accelerate the existing destruction of the values and culture that made the country great in the first place.

These very real concerns aside, my main point is that the economic concerns about immigrants, the populist and nativist concerns, shouldn’t be exaggerated. That’s what economic theory suggests to me, at any rate. And some common sense immigration actions, such as sponsorship, can mitigate the economic impacts.


9:01 pm on October 25, 2018