This coming Monday, millions of Americans will celebrate Labor Day—a day to recognize the contributions that American workers have made to our economy and society. It is equally important, however, to recognize the contributions of immigrant workers and the positive impacts they have on native-born workers.
For decades, immigrants and their families have played a vital role in the U.S. labor force and economy at large. Today, however, our broken immigration system stifles the contributions of immigrants and in turn withholds significant benefits from American workers.
Comprehensive immigration reform—such as S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act, which passed in the Senate in June with a bipartisan supermajority of 68 to 32—would go a long way to improve our immigration system. This common-sense reform would provide legal status and citizenship to the 11 million undocumented immigrants in the United States and create a flexible system to admit future immigrants into our country. But as detailed below, immigration reform would also benefit all American workers by improving the earnings of native-born workers and generating new jobs.
Immigrants’ impact on wages
Research shows that immigration will positively affect U.S. workers’ wages and employment. How can that be? While overly simplistic views of economic theory might suggest that wages will decline in the short run as the supply of labor increases, this is not the case with immigration for two reasons.
First, immigrants generally do not have a direct negative impact on the earnings of native-born workers, as native-born workers and immigrant workers generally complement each other rather than compete for the same job. Native-born workers and immigrants tend to have different skill sets and therefore seek different types of jobs. Thus, immigrants are not increasing the labor market competition for native-born workers and therefore do not negatively affect American workers’ earnings.
To be sure, there are some instances when immigrants and the native born are similarly skilled and substitutable for similar jobs. Recent research has found, however, that firms respond to an increase in the supply of labor by expanding their business. Thus, an increased supply of labor as a result of immigration is easily absorbed into the labor market as a result of increased demand for labor, without lowering the wages of native-born workers.
Second, research finds small but positive impacts on native-born workers because of the indirect effects that immigrants have on the labor market and economy. As economists Michael Clemens and Robert Lynch explain in The New Republic, “In some areas of the economy, lesser skilled immigrants have kept entire industries alive.” This not only helps native-born workers within the industries but also native-born workers whose jobs are associated or closely connected to those industries.
Research shows, for example, that as new immigrants come into the country, the number of jobs offshored in the manufacturing sector decreases. By ensuring that more manufacturing jobs stay in the United States, not only do native-born manufacturing workers benefit, but the demand for services that the manufacturing industry relies upon—such as the transportation of manufacture goods throughout the United States—also remains high. Thus the “upstream” jobs held by native-born workers in industries associated with manufacturing are also better off as a result of immigration.
Moreover, when one considers how immigration affects different groups of American workers who may be the most likely to compete with immigrants, the positive story still holds true. Research finds that as immigrants enter the labor market, African Americans respond to these changes in the workforce by moving up to higher-skilled—and presumably higher-paying—jobs. In fact, African Americans are three times more likely to transition to higher-skilled jobs as a result of immigration than non-African American workers. Recent evidence similarly shows that an increase in immigration of the magnitude implied by S. 744 would increase the earnings of more educated Hispanic women and men by 1.1 percent and 2.25 percent, respectively.
Combining the research on how new immigrants will affect the wages of American workers with the future flow of immigrants expected under S.744 allows us to estimate the Senate bill’s impact on American workers’ wages. A recent study finds that the rise in immigration between 1990 and 2006, which increased labor-force participation by about 12.5 million, increased the earnings of U.S. workers by between 0.6 percent and 0.7 percent. Applying these findings to the current and expected future flows of immigration under S. 744 means that the earnings of U.S. workers would rise between 0.4 percent and 0.7 percent as a result of immigration.
Legalized immigrants’ impact on wages
In addition to providing avenues for new immigrants to enter the U.S. labor market, S. 744’s legalization provisions would greatly improve the lives and economic potential of the currently undocumented immigrants living in the country. Allowing these immigrants to reach their greatest economic potential will have positive economic effects on all American workers.
Research from the Center for American Progress shows that undocumented immigrants’ earnings will increase by 15 percent over five years when they receive legal status and by an additional 10 percent over five years when they acquire citizenship. This is because, with legal status and citizenship, immigrants are able to fully participate in the labor force, receive full protection under our employment laws, and find jobs that best match their skills.
In turn, immigrants will spend their increased earnings throughout the economy on things such as homes, cars, and clothing. This increase in consumption means that business will be better off and will lead to higher earnings for American workers. In fact, research shows that within 10 years of providing legal status to undocumented immigrants, the cumulative increase in income of all Americans would be $470 billion.
Immigrants create jobs
Research on how immigration impacts U.S. workers often focuses on how immigration affects the wages of native-born workers. Equally important, however, is how immigration affects employment opportunities for the native born. Research shows that increased immigration does not displace U.S. workers for many of the same reasons that there are not negative wage effects. Another reason that immigrants do not displace U.S. workers from their jobs is that many immigrants create their jobs by starting their own business. In fact, according to the 2011 Current Population Survey, 7.5 percent of the foreign-born population is self-employed. Thus, we can expect that under S. 744, between 600,000 and 840,000 of the newly legalized immigrants would be self-employed.
Not only are immigrants unlikely to take jobs away from the native born, but they can also create new jobs for American workers. According to the 2010 American Community Survey, there were 900,000 small-business owners among current immigrants—close to 18 percent of all incorporated business owners. Yet in the same year, immigrants accounted for just 16 percent of the workforce. The entrepreneurial nature of immigrants, however, is not being fully realized, given that there are 8 million undocumented workers. To be sure, some of these undocumented workers currently run their own business, but these businesses likely exist in the underground economy. Thus, legalizing these undocumented entrepreneurs will formalize their businesses and bring their employees above ground, leading to better job opportunities.
The legalization provisions under S. 744 could potentially bring between 336,000 and 470,000 entrepreneurs into the formal economy.* Given that the average immigrant-owned business hires 11 employees, these businesses would account for between 3.7 million and 5.2 million jobs in the formal economy, which is equivalent to 45 percent of those who are currently unemployed in the United States. Some of these 3.7 million to 5.2 million jobs may be new jobs as a result of immigrants starting businesses and hiring workers for the first time. Others, however, may simply be jobs that are formalized for the first time. Nonetheless, whether they are new jobs or recently formalized jobs, the U.S. labor market and economy will be better off, as formal jobs often have higher pay and generate greater tax revenues.
Conclusion
Too often throughout our country’s past, immigrant and native-born workers have been pitted against each other in an attempt to stifle social and economic progress. Today, however, Congress has an opportunity to fix our immigration system and improve the economic well-being of all Americans.
Fallacies about the negative impact that immigrants have on native-born workers should not halt the progress that the Senate made in June. Under sensible immigration reform such as S. 744, immigrants would trigger increased wages for native-born workers and generate new jobs. As the House returns from recess next month and considers immigration reform, it is more important than ever to understand the positive effects that immigrants have on native-born workers.
Adriana Kugler is a Senior Fellow at the Center for American Progress and a full professor of public policy at Georgetown University. Patrick Oakford is a Research Assistant on the Economic and Immigration Policy teams at the Center.
* Note: These numbers are calculated by taking 4.2 percent of the roughly 8 million undocumented immigrants who are working in the United States and the 11.2 million undocumented immigrants residing in the United States. To be sure, these estimates include some of the undocumented immigrants who are likely already self-employed in the underground economy. Therefore, some of these estimates will not be new jobs created but instead jobs that will be in the formal economy for the first time.