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The Independent Institute
Commentary

Immigration Doesn’t Displace Natives


Despite relatively robust economic expansion, unemployment remains at or near the top of Americans’ concerns. In parts of the country, including our most populous state, California, unemployment rates are at or above 8%. In this environment, there is growing criticism about the impact that immigration has on the job security of Americans. Some politicians, notably Gov. Pete Wilson of California, have found their popularity surge as their anti-immigrant rhetoric increases.

California vs. Florida

The current wave of immigrant-bashing rhetoric recalls similar experiences earlier in American history. For example, in the last decade before World War I, when immigrant flows were at a peak, social scientists argued bitterly whether immigrants were as industrious as predecessors who came in the mid-19th century. Modern econometric investigation has shown that those immigrants responded mightily to economic stimuli, moving to areas of the nation where labor productivity and wages were the highest. Similarly, statistical evidence suggests that modern immigrants go where economic opportunities are the greatest.

Do immigrants displace native-born Americans from jobs? Proponents of immigration restriction argue that newly arrived immigrants take jobs that otherwise would go to natives. Supporters of this view point out that the state with the largest immigrant presence by far, California, also has the highest unemployment rate of any large American state. They neglect to tell you, however, that some other states with relatively high immigrant populations have relatively low rates of unemployment. Florida, for example, in February had an unemployment rate of 5.7%, well below the national average of 6.5%, despite having the nation’s third-largest immigrant population (about 13% of the state population in 1990).

With Lowell Gallaway and Stephen Moore, I have recently looked at the historical and contemporary evidence in a study for the Alexis de Tocqueville Institution. Using several different periods and approaches, we consistently found no statistically meaningful relationship between immigration and unemployment. However, if there is any correlation, it would appear to be negative: Higher immigration is associated with lower unemployment. For example, immigration reached its highest level (relative to population) in the first 25 years of this century; the average annual U.S. unemployment rate was 5.05%; In the next 69 years of relatively smaller immigrant flows, the average unemployment rate was 7.35%. In our 1993 book "Out of Work: Unemployment and Government In Twentieth-America" (Holmes & Meler), Mr. Gallaway and I used a powerful regression model to explain U.S. unemployment that emphasizes labor costs. In our recent study, we found no statistically reliable correlation between the percentage of the population that was foreign-born and the national unemployment rate over the period 1900-89, or for just the postwar era (1947-89).

Another approach is cross-sectional, comparing the 50 states. Messrs. Gallaway, Moore and I took the 10 states with the highest average percentage of immigrant population in the 1960-90 period and compared them with the 10 states with the smallest relative immigrant presence. In the 10 high-immigrant states, the median unemployment rate in the 1960-91 period was about 5.9%, compared with 6.6% in the 10 low-immigrant states.

Classifying the states according to unemployment rates and confining our analysis to the 1980s leads to even more startling results, as shown in the accompanying chart. We compared the 10 states with the lowest average annual unemployment rates in the years 1980-90 with the 10 states with the highest average annual unemployment rates. The median proportion of the population that was foreign-born was 1.56% in the high-unemployment states, compared with 3.84% in the low-unemployment states. More immigrants, lower unemployment.

Why doesn’t immigration cause unemployment? Immigrants expand total output and the demand for labor, offsetting the negative effects that a greater labor supply might have. Immigrants tend to be highly productive and promote capital formation through high savings rates. They fill vital niches at the ends of the skill spectrum, doing low-skilled jobs that native Americans rebuff (at prevailing wages) as well as sophisticated high skill jobs. In deed, the willingness of immigrants to work hard probably explains why per capita income of the foreign-born population in the 1990 census actually slightly exceeded that of the native-born.

In light of all this evidence, why do some Americans blame immigrants for joblessness? First, there is the visibility problem. Americans literally can see jobs that immigrants have riled. By contrast, the jobs that are created by high immigrant productivity, capital formation and demand for goods are far less visible. Second, politicians and labor union leaders often need a scapegoat, someone to take the blame off themselves and their actions that raise labor costs and thus unemployment. Political entrepreneurs have learned that they can win votes attacking immigrants (many of whom cannot vote), so they do so—never mind the facts.

Economic Lesson

The most important economic lesson of the past generation is that nations that let resources flow freely according to market forces tend to flourish relative to ones that control such resource movement through central planning, trade and property-rights restrictions, high taxation, or oppressive regulation. Immigration reflects the movement of the most important of all economic resources. Our nation of immigrants has prospered from the inflow of new human capital re-sources from abroad. Immigrants are part of the solution to America’s economic woes, not the problem.


Richard K. Vedder is a Senior Fellow at the Independent Institute in Oakland, Calif., Distinguished Professor of Economics at Ohio University, and co-author (with Lowell Gallaway) of the award-winning Institute book, Out of Work: Unemployment and Government in Twentieth-Century America.


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