Critics of America's liberal trade and immigration policies have often argued that they have depressed U.S. wages. Now, in a new National Bureau of Economic Research working paper, economists George J. Borjas, Richard T. Freeman, and Lawrence F. Katz provide some hard estimates of such effects. Their study focuses on the wid-ening gap in earnings between les- ser-educated and higher-educated workers during the 1980s -- a period during which college graduates' wages rose in real terms while real earnings of lesser-educated workers either failed to grow or actually declined.
The authors' analysis of the labor content of imports that substituted or competed with the products of U.S. workers indicates that by the mid-1980s, the trade deficit was increasing the "implicit" labor supply of the manufacturing sector by about 6% annually. As a result, they say, the 11% decline in the wages of high school graduates relative to college graduates between 1980 and 1985 was nearly a third larger than it would otherwise have been.
The biggest part of the trade deficit, however, was concentrated in industries that intensively employ high school dropouts. Thus, its impact on the earnings of U.S. dropouts was even greater, as was the impact of the wave of new immigrants in the 1980s, which included relatively few high school graduates but many poorly educated workers.
By 1988, the researchers estimate that the combination of the trade deficit and continued high immigration (including illegals) had boosted the implicit supply of high school dropouts by 30%. These two factors accounted for some 30% to 50% of the 10 percentage-point decline in dropout wages relative to high school and college grads in the 1980-88 period.
In short, by augmenting the effective supply of less educated workers in the 1980s, imports and increased immigration helped to depress their wages and thus widen the earnings gap between less- skilled and more-skilled Americans.