Impact of Immigration on the Distribution of American Well-Being

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Changes in the net immigration rate and in the age distribution and skills of immigrants have important effects on the average age and skill mix of the population. In the short run increases in immigration boost the number of workers and aggregate earnings and reduce the ratio of elderly to non-elderly. This paper examines the impact of U.S. immigration since 1980 on trends in wages and income and the relative incomes of young and old. It simulates the wage and income distributional impacts of a reduced flow of immigrants into the United States. Even ignoring the possible spillover effects of immigrant labor supply on the wages earned by natives, the average wage of working Americans has slipped as a result of an increased number of low wage workers from abroad. Immigrants arriving after 1979 reduced the average annual wage by 2.3 percent in 2007. The slowdown in wage growth affects the growth of Social Security benefits. For workers attaining age 62 in 2007, the basic Social Security benefit would have been about 1.8 percent higher if the average wage had risen at the rate observed among native workers and immigrants who entered the U.S. before 1980 rather than among all resident workers, including workers who entered after 1979. Immigration since 1980 has also reduced U.S. household incomes and increased income inequality. Policies that reduce the inflow of immigrants or increase the average skills of new entrants would boost household income. If the flow of adult immigrants who have less than a high school education had been reduced by half after 1979, median income in 2006 would have been 1.8 percent higher and average income would have been 1.2 percent higher than the levels actually observed. The effects of this policy would have been significantly greater in the case of young working-age families; they would have been smaller in the case of households with a family head older than 65. On balance, immigration since 1980 has reduced the relative incomes of working-age residents compared with those of the population past 65.