Immigration: Good for Productivity, Good for Wages

It's commonly understood that immigration reform is going to be hellish for Democrats in 2010. There are a couple reasons for this. One is that most efforts to allow temporary work programs or to streamline naturalization are referred to, in the cable news vernacular, as "amnesty." Another is that nobody will want to talk about helping illegal immigrant workers while one-sixth of the legal workforce is unemployed. Illegal immigrants take jobs from legal residents, right? They drive down wages across the country, right? Not according to this research from NBER:

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technologial change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

This is fascinating stuff. From a political perspective, of course, an NBER study doesn't change very much. From a policy perspective, I always hesitate to take the findings of one study too literally, since policy conclusions can be subject to interpretation. For example, while it seems clear to me that immigration is a net benefit for the economy, the broad strokes of immigration's impact on productivity, specialization and wages can obscure specific instances where an employer's ability to hire cheaper labor can drive down incomes in vulnerable economic sectors.

The bottom line is that immigrant policy is an emotional and complicated issue that spans domestic policy, foreign policy and homeland security, yet Americans are likely to view the debate through the lens of -- broken record, sorry -- jobs. Ross Douthat was right on this: Before Obama goes after immigration, he'll have to pin unemployment.