The reason we don't have free movement of people in the UK is that immigration controls are supported by a powerful superstructure of myths about immigration. This is the fifth in a series of six questioning these myths. Here I am concerned with the forceful idea that migrants lower wages for the native population. This is an important topic because the logic goes that any increase in immigration that might follow the abolition of immigration controls would depress wages further, leading to a massive decline in our standard of living. I will attempt to show that in fact the opposite is true: there is no evidence that immigration has a negative impact of the wages of natives, and in fact unfettered movement would lead to an increase in people's incomes.
The effect of immigration on wages has been a hot topic for many years. But the most important studies on the reality of the situation - as opposed to simplistic prejudices - demonstrate there is no negative effect caused by immigration on the wages of natives. In 2003, the Home Office commissioned an independent report looking at this issue. The study examined numerous international surveys and conducted its own study in Britain. It found "The perception that immigrants depress the wages of existing workers does not find confirmation in the analysis of the data laid out in this report." (quoted here)
This conclusion is echoed by studies reported on the website of the American Civil Liberties Union (ACLU):
"In June 2007, the President's Council of Economic Advisers (CEA) issued a report on "Immigration's Economic Impact."...the Council concluded that "immigrants have an overall positive effect of the income of native-born American workers."...immigrants tend to complement natives, not substitute for them...
"Immigrants allow higher-skilled native workers to increase productivity and thus increase their incomes...young immigrant workers fill gaps in the low-skilled labor markets.
"...in a 1997 study, the National Research Council estimated the annual wage gain due to immigration to be $10 billion each year. In 2007 the CEA estimated the gain at over $30 billion per year."
However it's not all rosy since "the CEA acknowledges that an increase in immigrant workers is likely to have some negative impact on the wages of low-skilled native workers". This is because some immigrants might be able to do the job of a native low-skilled worker better and cheaper, thereby undermining his salary. But as a low-skilled native will already be on a low salary, and as there are limits as to how low the pay can go, the impact of immigration on this sector is small. Furthermore the positive impact of immigration on other sectors means that tax relief could be given to the low-skilled workers which would offset the small negative impact on the wage. The CEA concluded that reducing immigration "would be a poorly-targeted and inefficient way to assist low-wage Americans."
The ACLU finishes its report by observing that "California saw an increase in wages of natives by about four percent from 1990 to 2004 - a period of large influx of immigrants to the state - due to the complimentary skills of immigrant workers and an increase in the demand for tasks performed by native workers."
Meanwhile studies for the Institute of Public Policy Research have also found a lack of evidence that immigration negatively affects native's wages. And in a 1993 OECD publication, George B. Borjas wrote, "modern econometrics cannot find a single shred of evidence that immigrants have a major adverse impact on earnings". In fact it can be argued that an influx of refugees and migrants can cause boom conditions as the Cuban exiles have in Miami and the former Algerian white settlers have in the south of France.
So it seems that the widely-held view of immigrants depressing wages is untrue. This view was based on the idea that an increase in labour supply would necessarily lead to a cheapening of the commodity that is labour-power in the same way that the "iron law" of supply and demand affects the prices of all commodities. However, that this is not borne out by the evidence itself stands in need of some explanation. There are three influencing factors which I think account for why labour-power is not cheapened by immigration. These three influences are summarised by saying the free migration of labour increases the productivity of labour, which in turn, allows for wage rises, not decreases.
Firstly free migration allows jobs to be matched to those best suited to them in terms of the skills they have acquired. This means greater efficiency which in turn leads to greater productivity of labour.
Secondly free migration prevents closures in vital sections of the economy. For example, if an economy is growing and the population are becoming more skilled and talented, then lower-skilled areas of the economy are going to suffer from a labour shortage. Thus either these areas shut down in a country - their function subsequently becoming imported (and therefore more costly), or an influx of lower-skilled labour fills its shoes. Thus immigration prevents closure and outsourcing of vital sectors of the economy.
Thirdly when immigration is legal, the working population's bargaining power - which is more of an influence on wages than the mere number of people - is stronger (because everyone has the right to join unions and have legal protection from unscrupulousness/hyper-exploitation). This means the workers are more satisfied, and therefore they are more productive rather than being like a Homer Simpson "do it in a half-assed way" type.
Bearing in mind these points, it seems that those who would like to see higher wages for everyone ought to support open borders. As Hamilton and Whalley estimated in 1984 in the Journal of Development Economics, because migration of labour is potentially a means of increasing the productivity of labour, an international free market in labour and the abolition of all immigration controls would cause a doubling in world incomes (cited in Hayter, T. "Open Borders: The Case Against Immigration Controls", p.160).
Bring it on!
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