Immigrants, Skills, and Wages: Measuring the Economic Gains from Immigration

March 2006
by Giovanni Peri, Ph.D.

Foreign-born workers do not substitute perfectly for, and therefore do not compete with, most native-born workers. Rather, the complementary nature of the skills, occupations, and abilities of foreign-born workers increases the productivity of natives, stimulates investment, and enhances the choices available to consumers. As a result, immigration increases the average wages of all native-born workers, except those who do not have a high-school diploma. Even for the small and shrinking number of native-born workers without a high-school diploma, the decline in wages from immigration is much smaller than some have estimated. A well-balanced immigration policy that attracts foreign-born workers at both ends of the educational spectrum would maximize the economic benefits of immigration for the native-born and build on the traditional appeal of the United States as a country of destination for both highly skilled and less-skilled immigrants.

Among the findings of this report:

• Immigration raised the average wage of the native-born worker by 1.1 percent during the 1990s. Among native-born workers with a high-school diploma or more education, wages increased between 0.8 percent and 1.5 percent. Among native-born workers without a high-school diploma, wages declined by 1.2 percent.

• Most foreign-born workers either lack a high-school diploma or have at least a bachelor's degree, while most native-born workers either have a high-school diploma or some college short of a four-year degree.

• Since workers with different levels of education perform different tasks and fill different roles in production, the majority of native-born workers (those with intermediate educational levels) experience benefits, more than competition, from foreign-born workers concentrated in high and low educational groups.

• Even among workers with the same level of formal education, the foreign-born tend to be employed in different occupations than U.S. natives. Less-educated foreign-born workers, for instance, are found mostly in agricultural and personal service jobs, while less-educated natives are found mostly in manufacturing and mining.

• The relatively large positive effect of highly skilled immigrants on the wages of native-born workers with a college degree or more is driven by the fact that creative, innovative, and complex professions benefit particularly from the complementarities brought by foreign-born scientists, engineers, and other highly skilled workers.

• Family reunification policies have served the purpose of keeping earlier immigrants favorable to new immigration, while purely economic considerations would lead them to turn against new immigrants in order to reduce competition for jobs.