Immigration and Wage Inequality

Featured in print Digest

Immigration accounts for just a small share - about 5 percent - of the rise in overall U.S. wage inequality between 1980 and 2000.

How does immigration affect the economic opportunities of American workers? A controversial topic for decades, this question has become extremely important as approximately 1.25 million immigrants per year arrived in the United States between 2000 and 2005, with a third or more of them undocumented and with low education and skills. Is the impact of these new arrivals on native wages related to the widening U.S. wage gap between high- and low-skilled workers?

In Immigration and Inequality (NBER Working Paper No. 14683), Research Associate David Card uses both cross-city and time-series data to show that immigration accounts for just a small share - about 5 percent - of the rise in overall U.S. wage inequality between 1980 and 2000. Card's results further support earlier research showing that the competitive effects of immigrant inflows are concentrated among the immigrants themselves. While the impact of recent immigrant inflows on the relative wages of U.S. natives is small, the effects of immigration on overall wage inequality (that is, among both immigrant and native workers) are larger than on wage inequality among U.S. natives alone. That reflects the concentration of immigrants in the very high or very low skill categories, and the higher residual inequality among immigrants than natives.

Using data from Chicago, Detroit, Philadelphia, Los Angeles, and other cities, Card draws three conclusions. First, workers with less than a high school education are perfect substitutes for those with a high school education. In other words, dropouts and high school graduates, whether immigrants or natives, compete for the same jobs (although high school graduates earn somewhat more per hour). Second, workers with a "high school equivalent" education and those with a "college equivalent" education are imperfect substitutes. The former simply do not have access to the same jobs, opportunities, or wages as the latter group. Third, within broad education classes, immigrants and natives similarly are imperfect substitutes. "Immigrant arrivals have hardly distorted the relative fraction of college-equivalent workers in the economy and have therefore had little impact on the college-high school wage gap," he writes.

-- Sarah H. Wright