Does Immigration Lower Wages?

What economic theory and research say about how immigration affects the pay of workers already living in a place.

One of the most debated questions in migration economics is whether newcomers lower the pay of workers already there. A simple supply and demand picture suggests they might: immigration increases the labor supply, the number of people available to work, and more supply can mean a lower price. But real economies are more complicated, and the evidence gives a more nuanced answer than either side of the debate often admits.

Substitutes and complements

The key idea is whether new workers are substitutes or complements for existing workers. A substitute does the same job with the same skills, so the two compete directly. A complement does different work that makes the other worker more productive. If an immigrant construction labourer arrives, a local labourer may face more competition, but a local site supervisor or electrician may find more projects to work on. Whether wages go up or down for a given group depends on which of these effects is stronger for them.

Migrants are also consumers

Immigrants do not only supply labor; they also spend money on rent, food, transport, and services. That spending creates demand for more workers. Businesses may also expand or invest in new equipment when more workers are available. Over time, these responses can absorb newcomers without lowering average wages, which is why many economists stress the difference between the short run versus long run: adjustment takes time.

A famous natural experiment

In 1980, a sudden boatlift brought about 125,000 Cubans to the United States, many of whom settled in Miami, adding roughly 7 percent to the city's workforce within a few months. Because the arrival was sudden and not driven by Miami's economy, researchers treated it as a natural experiment. An influential 1990 study by economist David Card found little measurable effect on local wages or unemployment. Later work by economist George Borjas, focusing on a narrower group of workers without a high school diploma, argued that their wages did fall. Other researchers questioned that reanalysis. The debate shows how much results can depend on which workers are studied and how.

What the broad evidence suggests

Studying this question is hard, because migrants choose where to go, often heading to places that are already growing. Researchers therefore look for natural experiments, events where migration changed for reasons unrelated to local conditions. A major 2016 review by the United States National Academies of Sciences concluded that, over periods of ten years or more, immigration’s effect on the overall wages of native-born workers is very small. It also found that any negative effects tend to be concentrated on specific groups: earlier immigrants, who are often the closest substitutes, and sometimes workers without a high school education. Studies in Europe and elsewhere reach broadly similar conclusions, though results vary by country and period.

Why the debate continues

Small average effects can hide real losses for particular workers in particular places, and those losses matter to the people who experience them. At the same time, the gains, including higher productivity, new businesses, and lower prices for some services, are spread more widely and are harder to see. Reasonable people can weigh these differently, which is one reason immigration remains a lively political topic even when economists broadly agree on the averages.

Assuming there is a fixed number of jobs

A common error, sometimes called the lump of labor fallacy, is to picture a fixed pool of jobs, so every newcomer must take one from someone else. In reality, the number of jobs grows with the population, because new workers also spend money and businesses expand. That does not mean no one is ever affected, but it does mean the simple math of a fixed pie is misleading.

Key takeaways

Immigration raises labor supply, but migrants also add demand as consumers.
Effects depend on whether newcomers are substitutes or complements for existing workers.
Researchers use natural experiments, like the 1980 Mariel boatlift, to study wage effects.
Broad reviews find small long-run effects on average wages, with larger effects for close substitutes.
Averages can hide real local losses, which is part of why the debate continues.