Impact of Immigration on High-Skilled and Low-Skilled Native Workers

The recent increase in immigration has sparked ongoing discussions about its impact on job market outcomes for native workers. According to economic theory, an increase in the supply of labor (for example, through immigration) can reduce the wages that employers offer to all workers in a given job market, including both native and foreign-born workers. This fact may cause some workers who previously earned a higher wage to leave the job market because they are unwilling to accept a lower wage. However, it’s important to note that economic models often assume a homogeneous labor force. Immigrant workers of different skill levels compete with native workers of similar skill levels, depressing their wages.

Labor Market Effects of Immigration

Economists have carried out research to assess the effect of immigration on the labor market. They have taken into account the differing skills of immigrant and native-born workers and used two methods. Some have hypothesized that immigration would have the greatest impact on native-born workers with similar skills living in cities where there is a concentration of foreign-born workers. As a result, studies have been conducted comparing the labor market outcomes of native-born workers in high-immigrant and low-immigrant areas. Almost all of these inter-area studies have found limited evidence to suggest that immigration negatively affects the job prospects of native-born workers in general. However, a few Cross-City studies have estimated a small negative impact on low-skilled native-born workers.

Immigration’s Consequences

Some economists take a different view, arguing that cross-city studies underestimate the impact of immigration. These studies, they argue, do not take into account the fact that labor, capital, and goods respond quickly to immigration-induced increases in labor supply. For instance, if native-born workers quickly exit the labor market in areas with high immigration, the impact of immigration on wages will be felt more broadly, making it challenging for spatially based studies to identify any effects. Consequently, some experts have determined that the effects of immigration on the labor market can be most accurately determined by examining national data.

Distributional Issues

The arrival of foreign-born workers in a nation is predicted to change the distribution of national employment. As the decrease in post-immigration wages reduces the appeal of work, some native-born workers may choose alternative activities, leading to a decline in their participation in the labor force. On the other hand, the employment of foreign-born workers increases as they fill some of the vacancies left by native-born workers. This scenario is known as the displacement effect. The degree of substitution and the effect on wages will vary according to the degree to which labor demand and household labor supply response to changes in wage rates.

 Immigration is expected to not only rearrange employment opportunities within a nation but also change the distribution of national income. The alteration in wages of native-born workers as a result of immigration is redistributed among holders of capital and foreign-born workers, as some of the previous wages paid to native workers are now paid to capital owners and the rest to foreign-born workers.

 Immigration is anticipated to impact the distribution of resources within a nation and enhance the nation’s overall output and income. The rise in employment opportunities due to the integration of immigrants into the labor market contributes to the nation’s total income. Some of this increase is received by foreign-born workers as wages, while the rest goes to non-labor factors of production such as capital owners. These capital owners benefit from the immigration surplus and a portion of the wages that have been transferred from native-born workers.