Immigration and Labor Market Effects: What Research Shows About Economic Integration

Immigration to the United States is both an economic and a political phenomenon, and the research on its labor market and fiscal effects is often cited selectively in debates that are ultimately about values as much as facts. A careful examination of what research actually shows about how immigration affects wages, employment, public finances, and economic growth reveals findings that are more nuanced than either strong supporters or strong critics of immigration typically acknowledge. Labor market effects of immigration are the most extensively studied and most debated dimension of immigration economics. The concern is that immigrant workers, by increasing labor supply, reduce wages and employment opportunities for native-born workers who compete for the same jobs. Research finds that these effects are more complex and generally more benign than this concern suggests. Immigrants and native-born workers tend to have different skills, language abilities, and occupational preferences that make them complements in production rather than pure substitutes. Research finds that immigrants tend to sort into occupations at the extremes of the skill distribution, in high-skill professional jobs and in lower-skill manual labor, while native-born workers are concentrated in the middle of the skill distribution. Research on the wage effects of immigration for specific subgroups finds that prior immigrants, who compete most directly with new immigrants for similar jobs, face the largest wage effects. Native-born workers with the least education, who may compete with lower-skill immigrants in specific local labor markets, are studied most carefully for potential negative effects. Research finds modest negative effects on wages for this group in some studies, and no significant effects or positive effects in others, with the variation across studies reflecting differences in methodology, time period, and local labor market conditions. High-skill immigration produces more consistent positive findings. Research on high-skill immigrants, including those admitted on H-1B visas and those who arrive as international students and remain, finds that they are associated with higher rates of patent activity, business formation, and innovation. Studies find that science and engineering immigrants contribute disproportionately to technological innovation as measured by patent authorship. Research on immigrant entrepreneurship finds that immigrants start businesses at higher rates than native-born Americans and that immigrant-founded companies produce employment and economic activity. Fiscal effects of immigration, meaning the effects on government revenues and expenditures, have been studied at both the federal and state/local levels. Research finds that immigrants overall are roughly fiscally neutral at the federal level, with their tax contributions approximately offsetting their use of federal programs. State and local fiscal effects are more variable and sometimes negative, because immigrants and their children are more likely to use public education and because local governments bear more of the cost of social services. However, research on second-generation immigrants, the American-born children of immigrants, finds strongly positive fiscal contributions that more than offset any short-term fiscal costs associated with first-generation immigration. Undocumented immigrants represent a distinct policy and research context. Research on the fiscal and economic contributions of undocumented immigrants finds that they pay substantial amounts in state and local taxes, Social Security, and Medicare taxes on wages (despite being ineligible for these benefits), and that their labor contributions are economically significant in agriculture, construction, food processing, and other sectors. Research on the economic consequences of large-scale deportation or immigration enforcement finds significant negative effects on GDP, specific sectors, and state economies where undocumented immigrants are concentrated. Economic integration of immigrants, meaning the process by which immigrants achieve earnings and occupational levels comparable to native-born workers, has been studied across immigrant cohorts and origin countries. Research finds that earnings assimilation, the process by which immigrants' earnings catch up to those of native-born workers with similar characteristics, occurs over time but at rates that vary significantly by immigrant origin, education level, and host country context. Recent research finds that the rate of economic integration has slowed for more recent immigrant cohorts relative to earlier ones, reflecting changes in the composition and policy context of immigration. The research on immigration economics does not support the simple narrative that immigration depresses wages and takes jobs from native-born workers, nor does it support the equally simple narrative that immigration is an unambiguous economic boon with no costs for any workers. The effects are complex, vary across skill levels and geographic contexts, and play out over different time horizons. Research provides a basis for designing immigration policy that maximizes economic benefits while addressing distributional concerns, but the values and political considerations that shape immigration policy go well beyond what economic research alone can resolve.