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Low-Skilled Immigrants Are Good for the Working Class

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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Usually, when I talk about immigration, it’s the high-skilled variety I’m referring to -- people with college degrees or professional skills. When most Americans think about immigrants, however, they focus on the manual laborers -- many of them without documentation -- who come to the U.S. from Latin America to build houses, landscape lawns or pick vegetables instead of starting the next Google. This kind of immigration is somewhat out of favor, since these folks compete with low-skilled locals for manual labor jobs. Even though the effect of the competition is small, it isn't zero, and in the current political climate everyone wants to do everything they can to protect the working class.

But this opposition is probably misplaced. New research shows that low-skilled immigrants may do a lot more for the native-born working class than we thought.

The new evidence comes via new research by economists Mette Foged and Giovanni Peri. Their paper studies the impact of refugees in Denmark in the 1990s and 2000s. During that time, Denmark had a program of scattering refugees throughout the country, called the spatial dispersal policy. The refugees, many of them fleeing the Yugoslavian wars, were mostly uneducated and spoke little Danish. By comparing the areas where the government decided to send refugees with other areas, Foged and Peri were able to see what happened to natives when a large number of low-skilled immigrants got plunked down next door.

Instead of a small negative effect on the local native-born -- as most studies in the U.S. tend to find -- Foged and Peri found a positive effect. That’s right -- low-skilled immigrants actually raised the wages of their less-educated native-born counterparts in the surrounding area. The data followed the native-born workers for a long time, letting the authors confirm that the change was durable.

How does that happen? One reason is that immigrants are not perfect substitutes for the native-born -- their skills are, to some degree, complementary. The authors found that this was responsible for part of the positive effect. But Foged and Peri also found that less-educated natives responded to the economic competition by changing jobs. They shifted from manual labor to office jobs, which usually paid higher wages. The unemployed also got a slight boost -- low-skilled natives actually tended to enter the workforce when immigrants showed up nearby.

The authors’ result depends on the assumption that the dispersal of the refugees was essentially random -- in other words, the government didn’t send the new immigrants to areas where it knew that local labor markets were poised to improve. The authors claim that the resettlement locations were chosen without regard to economic factors, and they show that the refugee destinations were uncorrelated with labor-market strength at the time. That’s not a perfect slam-dunk, but it’s pretty good.

So what does this tell us about low-skilled immigration? First, it confirms the assertion, often repeated by U.S. leaders, that low-skilled immigrants “take the jobs Americans don’t want to do.” But it also shows that immigrants often give the native-born a helpful push, motivating them to increase their skills and get better jobs. To the extent that Americans are like Danes, and that  Latin American immigrants with little education are similar to poorly educated Yugoslavian refugees, this means that there's little reason  to worry much that these immigrants put economic pressure on the American working class.

That does leave one question, though -- why do native-born workers need that push in the first place? If desk jobs are less onerous and pay more, why don’t low-skilled natives just go get those jobs even without the threat of immigrant competition? An obvious explanation is that people aren’t really the rational optimizing machines of economic models, and sometimes fail to act in their own interest unless some outside force pushes them to do so.

But the story may be more complicated than that. Changing occupations is a big risk -- there is no guarantee that that higher-paying job will materialize. If it doesn’t, you’ll be out in the cold. So the Yugoslavian immigrants might have simply forced the Danish laborers to take a risk they didn’t want to take. That risk paid off. But it might not always. That implies that governments might want to offer more services to help low-paid native workers try to get higher-paying jobs, especially by providing them some kind of insurance should the move be unsuccessful. A stronger social safety net -- like Denmark’s -- might be just the thing needed to help low-skilled immigration be a better deal for America's working class.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net