Land of Shrinking Opportunity

As the job market tightens and immigrants keep coming, wages at the bottom of the ladder take the biggest hit

It's 8 o'clock on a sunny summer morning, but the mood inside Casa de Maryland's employment and training center in Silver Spring is anything but light. About 30 men, most of them immigrants from Central America, talk softly as they wait anxiously for offers of day labor from contractors. Many have been waiting since the nonprofit center opened two hours earlier. Orlando, who came to the U.S. from El Salvador last year, shakes his head in frustration. "Only five people have gone out [to work] today," he says, not giving his last name because he's likely in the U.S. illegally. "A year ago, more than 20 people would have gone by now. And there are more people looking for work, so [employers] pay us less." Last week, Orlando spent nine hours digging holes in rocky soil for a landscaper who paid him $64. On similar jobs last year, he says, he would have earned at least $90. "It's getting tough to send money to my family," says the burly 38-year-old, who has a wife and six children in El Salvador. Still, Orlando has no intention of returning to his country, where he would earn even less.

Orlando is one of the record 14 million immigrants the U.S. has absorbed like a sponge since 1990 (charts). The surge of newcomers contributed mightily to the U.S. boom. Legal immigrants alone comprised 34% of workforce growth over the decade, and up to 5 million illegals added even more. Yet so robust was the job market that even less-skilled workers enjoyed 2% annual pay gains in the late 1990s, after declines in the prior 20 years.

But the steady flow of immigrants could pose more of a problem in a slower economy. Already, slackening demand has slashed the pay gains of low-end workers near zero, according to an analysis of U.S. Census Bureau data by the Economic Policy Institute (EPI), a Washington (D.C.) think tank. Yet immigrants like Orlando aren't likely to go home, where jobs are even scarcer. The slowdown may not deter legal immigrants, either, since most come to join their families.

So as immigration continues unabated, what will be its effect on U.S. labor markets? That depends, of course, on which economic scenario plays out. Many economists expect the U.S. to rebound next year, which would help keep unemployment low. So for workers with college degrees, continued high inflows won't have much impact, since their pay gains haven't yet been pinched, the EPI found. But "if the demand for low-wage work is weakened, and we [continue to] have an influx of low-skilled immigrants, I'd expect to see low-skilled wages return to their stagnant ways," says EPI economist Jared Bernstein. What's more, immigration could surge higher if talks between Mexico and the Bush Administration yield an accord that lets in more folks from south of the border.

SOCIAL BURDEN. Against a slow-growth backdrop, growing immigration may also lead to more social distress. States that have expanded social services for immigrants face increasing demands just as tax receipts dwindle. If that goes on for long, immigration may start to look less like an economic safety valve and more like a social burden. Many immigrants may suffer, too, since food stamps and other safety-net benefits are less available to them if they can't find work.

Part of the problem is that immigration doesn't ebb and flow with economic cycles. It may be that the tide of illegals has begun to slow; apprehensions of illegal Mexicans at the border are down 20% since October, according to Pia M. Orrenius, an economist at the Federal Reserve Bank of Dallas. But as long as U.S. wage rates remain nine times those of Mexico, where more than half of illegals come from, the U.S. will always be a magnet. Legal immigrants don't move in sync with the economy, either. Most of the 800,000 annual entrants in the 1990s came on the basis of family ties. Over the next decade, legal immigration alone will account for 35% of growth in the labor force. "Immigration is pretty much immune to the business cycle," says Milken Institute demographer William H. Frey.

The stress will be felt more among the less-skilled because so many immigrants fall into that category. While new immigrants arrive better-educated than they did 30 years ago, U.S. education levels have jumped since then. In 1970, 48% of recent immigrants aged 25 to 64 lacked a high school diploma, vs. 42% of the native-born group, according to Steven A. Camarota, research director of the Center for Immigration Studies in Washington D.C. By 2000, immigrant dropout rates had fallen to 32%, but the ranks of native-born dropouts had plunged to just 10%. The result: Immigration swells the labor pool at the low end most, putting pressure on wages for unskilled Americans and helping to push the wage gap wider, says George J. Borjas, Harvard University public policy professor.

MEAGER PROGRESS. Continued large-scale immigration could also stall mobility for newcomers themselves. If the supply of low-skilled workers continues to grow, it will be all the harder for immigrants to move up the ladder in a slow-growth climate. That will exacerbate immigrants' comparatively meager progress in recent years. In 1970, 26% of established immigrants--those who had resided in the U.S. for 11 to 20 years--lived in or near poverty, compared with 35% of native-born Americans, according to Camerota. By 2000, 41% of established immigrants lived in or near poverty, while the native rate had fallen to 29%. "If immigrants are struggling to keep their heads above water now, it will become much more difficult if the economy worsens," says Camarota.

Immigration should pose less of a strain at the upper end. A National Academy of Sciences panel last year estimated that holders of H-1B visas--temporary permits for highly skilled foreigners--represented 10% of total information technology professionals in the U.S. That probably has depressed pay for some, but the impact has been masked by overall real wage gains.

Plenty of employers still want skilled workers. For example, Adea Group Inc., a Dallas-based high-tech employment company, is scouting laid-off programmers with H-1B visas to fill contract jobs in Texas, Georgia, and Florida. Many skilled foreigners think they can ride out the slowdown. "Of course I'm worried, but the work we're doing is unique, so hopefully it will be all right," says Ramesh Ardeli, 26, a software engineer from India on an H-1B visa who recently jumped from AMS Services in Virginia to Lightel Systems, a nearby telecom startup. Nontech employers hunger for skilled talent, too, from school teachers to nurses.

Of course, resentment toward immigrants of all skill levels could rise if the economy sinks into a deeper funk. But if the outlook brightens fairly soon, the U.S. will keep absorbing workers from around the globe with relative ease. Even so, it will take another golden era of record hiring to give any running room on wages to millions of low-wage workers--whether they're American-born or immigrants like Orlando.

By Amy Borrus

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