Rethinking the Effects of Immigration on Wages

This paper asks the following important question: what was the effect of surging immigration on averageand individual wages of U.S.-born workers during the period 1990-2004? Building on section VII of Borjas(2003) we emphasize the need for a general equilibrium approach to analyze this problem. The impact ofimmigrants on wages of US born workers can be evaluated only by accounting carefully for labor marketand capital market interactions in production. Using such a general equilibrium approach we estimate thatimmigrants are imperfect substitutes for U.S.-born workers within the same education and experience group(because they choose different occupations and have different skills). Moreover, accounting for reasonablespeed of adjustment of physical capital we show that most of the wage effects of immigration accrue to nativeworkers already within a decade. These two facts, overlooked by the previous literature, imply a positiveand significant effect of the 1990-2004 immigration on the average wage of U.S.-born workers overall, bothin the short and in the long run. This positive average effect resulted from a positive effect on wages of allUS-born workers with at least a high school degree and a small negative effect on wages of U.S born workerswith no high school degree.