When critics of immigration make their case, they often point to the labor market. The argument goes something like this: An increase in the supply of workers creates additional competition for jobs, and if immigrants are willing to accept lower wages than American-born workers, then it's the American workers who will suffer.
It’s true that an inflow of new, able-bodied workers generally means an increase in the labor supply, though immigration patterns affect industries differently. And that can certainly have an impact on the wages of some workers. But there’s another piece to this puzzle that is often overlooked—and that’s the increased demand for services that comes along with a burgeoning population.
A new working paper investigates this other side of the immigration equation. Researchers from Indiana University and the University of Virginia modeled demand within a local economy, using decennial census data and looking at the populations of metro areas. They specifically focused on demand for the goods produced by "non-tradable industry," meaning those goods and services that must be sold or tendered domestically by local workers, such as hospitality, teaching, retail, and construction. (Tradable industry, by contrast, includes things such as manufacturing, engineering, and other jobs that can be outsourced.) Part of the rationale behind this separation for the purpose of the study is that demand for tradable goods can be the result of forces outside of a local economy, while demand for non-tradable goods are beholden to population shifts within a specific location.
John McLaren of UVA and Gihoon Hong of Indiana, coauthors of the study, found that when looking specifically at non-tradable sectors, each new immigrant produced about 1.2 new jobs, most of which went to native-born employees. Put more simply—if 1,000 new immigrants were to move in, the local economy would end up gaining about 1,200 new jobs. The researchers refer to this increased demand effect as a “shot-in-the-arm” for the local economy. They also find that while in some models an influx of immigrant workers will always lower wages for those in tradable professions, it also can cause the wages for those in non-tradable professions to see a wage increase, as demand for everyday goods and services grow with the expanding population. There was also some evidence that immigration might help provide greater diversity of such goods and services.
Of course there are some limitations to these findings when it comes to highlighting the positives that a new population of immigrants can bring to a local economy. The study does not wholly refute the idea that immigration can introduce additional competition into the job market and create changes, sometimes negative ones, to wages within local economies. The research also doesn't necessarily give a full picture of what happens to jobs in the tradable sector. It does however bring up a compelling point about the need for a thorough and holistic approach to answering the question of how immigrants can impact the workforce and in what ways the positive outcomes may mitigate, or even trump, existing negative narratives.
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