November 6, 2007
Do immigrants raise or lower wages?
The idea that "immigrants take our jobs" has always been ridiculous to economists, or anyone who thinks seriously about how an economy works. (If a million people migrate to the UK, who is going to sell them food and clothes, build them houses, teach their children? When the population is larger there is more demand for workers.)
However, the idea that immigrants lower the wages of native workers is not at all ridiculous. I speculated in "The Undercover Economist" that the NHS was a low-cost operation in part because of its willingness to employ migrant nurses and doctors to keep costs down. The economist George Borjas (now blogging) argues that low-skilled migrants to the US help to depress the wages of low-skilled natives. That is reasonable.
But it may be wrong. The mix of new skills may complement the existing demography well; it may also encourage new capital investment. It is fair to say that economists do not really agree.
The latest contribution is from Gianmarco Ottaviano and Giovanni Peri, arguing that immigration raises native wages and (less surprisingly) rents:
In this paper we document a strong positive correlation of immigration flows with changes in average wages and average house rents for native residents across U.S. states… the correlations are compatible with a causal interpretation from immigration to wages and rents of natives.
The paper is here.
So immigrants with the same skills as natives lower wages, while immigrants with new skills for growing sectors do not?
The NHS has been looking abroad for workers ever since Enoch Powell - and does it mainly to meet skills shortages rather than to keep wages artificially low.
The last Tory government cut doctor training programmes. As a result, when Labour increased funding the only way to employ enough doctors to meet voters’ expectations was to recruit abroad.
Also, British doctors refuse to work in areas like the S.Wales valleys, creating more demand for immigrant medics.
Posted by: dave | November 6th, 2007 at 4:05 pm | Report this comment