COMMENT: THE ELUSIVE SEARCH FOR NEGATIVE WAGE IMPACTS OF IMMIGRATION

Abstract

Labor demand curves slope down.1 From this statement it is a short leap to the Malthusian proposition that an increase in the supply of workers reduces wages. So short is the leap, in fact, that the title of George Borjas’s (2003) paper “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market” seems to imply that as a theoretical matter, immigration has to lower the wages of natives. In a well-functioning economy, however, increases in population do not necessarily cause falling wages. The effect depends on the supply of capital, on the characteristics of the added workers, and on the structure of technology. In fact, the papers by Ottaviano and Peri (OP) and Manacorda, Manning and Wadsworth (MMW) in this symposium argue that the impacts of immigration on native workers in the United States and the UK have been very small. How can these papers arrive at such different conclusions than Borjas (2003), who claimed that US immigration between 1980 and 2000 had lowered average native wages by about 3% and the wages of the least-educated natives by 9%? There are three crucial differences in the assumptions used by the different authors. First, Borjas (2003) holds capital fixed. In contrast OP and MMW assume that in the longer run capital adjusts to keep the capital–labor ratio on its long-run path (or equivalently, that capital is perfectly elastically supplied). As was illustrated in an earlier version of OP (e.g. Ottaviano and Peri 2008, Table 8) and acknowledged by Borjas and Katz (2007, Table 1.11) this matters a lot. If immigration increases aggregate labor supply by 10% (as it did in the United States between 1980 and 2000) and capital is fixed, average wages would be expected to fall by about 3%. If capital can adjust, however, the effect on average wages is approximately zero. Importantly, OP (Figure 2) show that the trend in the US capital–labor ratio was similar in the 1980–2000 period as in earlier decades. This and other evidence, including the remarkable inflows of capital