How Does Immigration Affect Income Distribution?

This post is mostly just a stub I’m using for a link to a paper I stumbled across, “Immigration and the Distribution of Incomes” by Francine D. Blau and Lawrence M. Kahn. Here’s a snippet from their conclusion:

In our review, we discussed possible reasons for the seemingly small effects of immigration on the native income distribution that many studies have found. First, it is possible that the open economy model of factor prices that are invariant to relative factor supply movements within a country applies. However, the evidence on the impact of immigration on industrial shifts seems inconsistent with this reasoning, since immigration does not appear to cause large changes in the overall industry structure/product mix. Second, it is possible that increases in the supply of immigrant labor of a given skill level induce the use of technologies that are intensive in that type of labor. There is some evidence in favor of this view, which in effect says that the supply of immigrant labor creates
its own factor demand within industries. Third, it is possible that substitution between high school dropouts and high school graduates is very high. If so, then increased immigration of less skilled workers, as is common in most OECD countries, will only change relative wages if immigration causes an increase in the aggregate of less skilled and medium skilled workers. There is some evidence for a high degree of substitutability between these two types of labor, although it is not unanimous.

Finally, it is possible that immigrants and natives are imperfect substitutes even within detailed education-experience groups. Researchers have found that production function estimates of immigrant-native substitutability are sensitive to specification; however, a recurring theme in the literature on immigration and wages is that immigration has larger effects on the wages of prior immigrants than on natives.

The paper has lots of interesting data from various countries and I think it should receive more attention than it has.

Although the authors approach the subject, there’s one thing missing from this paper as it’s generally missing from this discussion which is that an ongoing supply of low skill workers makes practical business models in which low skill labor is used rather than automation and a smaller number of jobs with higher skills. In itself that would foster more people at the high end of the income distribution than would otherwise be the case, more people at the low end of the income distribution than would otherwise be the case, and fewer people in the middle than would otherwise be the case. It’s no accident that the Germans call a system that allows the immigration of large number of low skill immigrants “the American system”.

2 comments… add one
  • PD Shaw Link

    Anecdotal support from a British professor:

    “In the aftermath of yesterday’s vote for Brexit, I had several conversations that surprised me. The first, with a Romanian who had recently arrived in the UK, who claimed that all the Indians and Pakistanis he knew had voted for Brexit. The second, with Pakistani friends, was that an overwhelming majority of their friends had voted for Brexit, even though they did not normally vote. The reasons given were economic: they expected lower taxes and lower competition from Eastern European migrants in low-wage jobs.”

    Economic self-interest limited inter-migrant solidarity in the vote for Brexit.

  • Guarneri Link

    Just a casual observation.

    Penetration of automation in low skill functions seems to be accelerating, especially in retail order taking and billing, and in manufacturing warehouses and packing. In retail I have to believe its inability to,pass through price and employee skills. In manufacturing I KNOW it’s employee availability with skills. (As rudimentary as they are).

Leave a Comment