Memorandum by Professor Barry R Chiswick,
University of Illinois
1. This is in response to the request from
the House of Lords Committee to Assess the Economic Impact of
Immigration. This statement is based on my over 30 years of research
on the economic determinants and economic consequences of international
migration. This research has been conducted for destination countries
on four continents (North America, Europe, Australia and Asia),
using the variety of methodologies and data sources that are available.
This includes research on immigrants in the United Kingdom, as
well as lectures delivered and conferences attended in the United
Kingdom.
2. My comments will focus on conceptual
issues since at this stage in the process of analysis it is most
important that the conceptual issues are clarified first. When
I am asked the question "What is THE economic impact of immigration?"
where the tone indicates the emphasis on the word "the",
I respond that this is not the best way to couch the question.
The impact varies depending on the characteristics of the immigrants
and of the host or destination economy.
IMPACTS ON
RELATIVE WAGES
3. Conceptually, it is best to think in
terms of two types of immigrants, which for simplicity we will
call "high-skilled" and "low-skilled", with
the same two skill groups represented in the native-born population.
High-skilled immigrants will have some characteristics in common,
without regard for their country of origin. They tend to have
high levels of schooling, which means they tend to have a high
degree of literacy, perhaps also numeracy, and critical thinking
or decision-making skills. Many, but not all, will have a high
degree of scientific or technical knowledge, and in the modern
era a high comfort level with computer technology. Many, but certainly
not all, will either have a degree of proficiency in the destination
language (in this case, English) or the ability to acquire proficiency
in that language shortly after arrival. These are all characteristics
that have been shown to improve the earnings of immigrants and
to facilitate their economic adjustment in the host country.
4. Although particular individuals may differ,
low-skilled immigrants generally have little formal schooling,
limited literacy proficiency in their mother tongue (and the destination
language), and limited scientific and technical knowledge. These
are characteristics associated with low earnings in the destination.
5. High-skilled and low-skilled immigrants
will, in general, have different impacts on the host economy and
labour market. Labour markets behave in a manner similar to other
markets, in that a greater supply of a given type of labour tends
to depress the market wage of workers with similar characteristics,
that is, who are good substitutes in production. An increase in
the supply of a given type of worker also increases the productivity
of the complementary factors of production with which it works,
including other types of labour and capital.
6. To give a simple example, an increase
in the supply of low-skilled restaurant kitchen help will result
in more competition for this type of job and lower wages for ordinary
kitchen workers. Yet this will increase the productivity (and
hence wages) of the master chefs because with more help for the
menial kitchen chores they can spend more of their time on the
highly specialised tasks for which they have trained. By the same
token, an increase in the supply of high-skilled chefs would raise
the productivity of low-skilled restaurant kitchen workers since
they would have more master chefs with whom to work.
7. The result of high-skilled immigration
tends to be an increase in the wages of all low-skilled workers
(and reduce their use of public income transfers) and a decrease
in the wages of high-skilled natives. This reduces income inequality,
which we generally view as a good development. Like high-skilled
natives, the taxes paid by high-skilled immigrants tend to be
greater than the costs they impose on the public treasury through
the income transfers they receive, the schooling received by their
children, and the publicly subsidized medical care that they receive.
High-skilled immigrants are also more likely to bring with them
the scientific, technical and innovative skills that expand the
production capabilities of the economy. As a result, the population
as a whole tends to benefit from high-skilled immigration, although
with some benefiting more than others.
8. Now consider the impacts of low-skilled
immigration. While these immigrants tend to raise the earnings
of high-skilled workers, their presence in the labour market increases
competition for low-skilled jobs, reducing the earnings of low-skilled
native-born workers. This not only increases income inequality,
which is rightly considered to be undesirable, it also increases
the need among low-skilled natives for public assistance and transfer
benefits. Because of their low earnings, low-skilled immigrants
also tend to pay less in taxes than they receive in public benefits,
such as income transfers (in cash and in kind), public schooling
for their children, and publicly provided medical services. Thus,
while the presence of low-skilled immigrant workers raises the
profits of their employers, and the earnings of high-skilled workers,
they tend to have a negative effect on the well-being of the low-skilled
native-born population, on income inequality, and on the native
economy as a whole.
9. These points are not purely theoretical
arguments. In the past two decades for example, the real wages
of low-skilled workers in the United States have remained stagnant
even as the real earnings of high-skilled workers have risen.
As a result, income inequality has increased. Several factors
have been responsible for this development, but one of them has
been the very large increase in low-skilled immigration, including
those legally admitted and those who have violated US immigration
law.
THE "NEED"
FOR LOW-SKILLED
IMMIGRANTS
10. "But", I am often asked, "don't
the advanced high technology economics need low-skilled immigrant
workers to do the unskilled jobs that native workers are no longer
willing to do?" I respond: "At what wage will native
workers decline to take these jobs?" Consider the following
thought experiment: What would happen to the harvesting of field
crops and the mowing of suburban lawns if there were fewer low-skilled
workers? Farm mangers would pay higher wages to attract native-born
workers and this would speed up the mechanization of the harvesting
of field crops. The technology is there, but with low wages for
farm labourers there is little economic incentive for the growers
to mechanize or invest in other types of new technology. If the
supply of low-skilled immigrant workers decreased substantially,
mechanical harvesting would replace many low-skilled jobs with
capital (machines) and more highly-paid native workers.
11. How would suburban lawns get mowed if
there were fewer low-skilled immigrant workers? Wages for lawn
care workers would surely rise. The result would be that more
teenagers and other low-skilled native workers would find it worth
their while to make themselves available for this work. In addition
to this substitution of one type of labour (youthful and low-skilled
natives) for another (low-skilled immigrants), there would be
other adjustments to the higher cost of lawn mowing. One would
be letting the grass grow longer between mows—say, every
10 days instead of weekly. Another would be the substitution of
grass that grows more slowly, or the substitution of ground cover
or paving stones for grass, etc.
12. The point is that there would be many
ways for consumers and employers/producers to respond to the higher
wages of low-skilled workers to mitigate the adverse effects of
having fewer low-skilled immigrants.
A CENTURY AGO
13. At this point in the conversation, someone
usually points to the period of mass immigration of low-skilled
workers to North America and the United Kingdom in the decades
prior to World War I. If these arguments are valid now, wouldn't
they have applied at that time as well?—and we know that
immigration was a tremendous net benefit to the United States
and the United Kingdom at that time.
14. The economy and economic institutions
of 100 years ago were quite different from those of today in ways
that are both important and relevant to our discussion. Then,
rapid industrialization of the economy generated a very large
demand for low-skilled workers in mines and in factories producing
everything from steel to shirts. This is no longer the case. Technological
change, the increased cost of even low-skilled labour (wages plus
fringe benefits and employment taxes), the falling cost of capital
equipment, and globalisation/international trade have sharply
reduced the demand for low-skilled workers in the advanced industrial
economies in manufacturing, mining, agriculture, and even service
occupations and industries.
15. Moreover, 100 years ago income inequality
and income distribution issues were not a matter of public policy
concern. If there were poor people—so be it. If private
individuals and charities helped the poor—fine, but there
was nothing like the tax-funded income transfer, educational services
and health systems in place today.
IMMIGRATION POLICY
16. At the aggregate level, many analyses
consider immigrants as an undifferentiated whole without distinguishing
between high-skilled and low-skilled workers. These provide misleading
implications, often to the effect that immigrant impacts on wages
and income distribution are small. When the positive economic
benefits of high-skilled immigration are lumped together with
the more negative consequences of low-skilled immigration, they
appear largely to cancel each other out because there are both
gains and losses. In the real world, however, the penalty paid
by low-skilled natives because of high levels of low-skilled immigration
is not so easily cancelled out by the positive impacts of high-skilled
immigration.
17. Analyses of immigrant impacts must therefore
avoid viewing immigrants as an undifferentiated whole. Rather
it is for more useful to consider immigrants that differ by skill
level—high-skilled and low-skilled workers. It is this view
that has informed immigration policy in several important destinations,
in particular Canada, Australia and New Zealand. While these countries
do provide for the immigration of the immediate relatives of their
citizens, their focus is on the response to the questions: "What
can you contribute to our economy". The immigration authorities
assess educational credentials, occupation-specific experience
and skills, English language proficiency, and age (favoring young
adults), among other criteria. One selection mechanism is based
on allocating "points" for favourable labour market
characteristics. Those who receive more than a threshold number
of points would receive an immigrant visa for themselves, their
spouse and their minor children.
18. Studies have shown that a skills-based
point system will attract a higher ability and more productive
immigrant population than allocating visas on the bases of kinship
ties, random mechanisms, or other techniques that do not take
skills into account. The Government is to be congratulated for
introducing a skill-based points system for immigrants from outside
the EU.
9 September 2007
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