Columbia University Study

This is a wonderful piece of in depth work. Go to their homepage and click on immigrant studies.

United States Technological Superiority and the Losses From Migration
February 2005

By Donald R. Davis and David E. Weinstein
Download the .pdf version
Coverage in The Washington Times
This study employs a new approach to examine the impact of immigration on the U.S. economy. Unlike earlier studies, we do not treat the movement of immigrant labor into this country in isolation. Older studies assumed that abundant resources and demand for labor was the primary reason for immigration, assumptions more appropriate to the 19th century. We start by assuming that the technological superiority of the modern American economy and resulting high standard of living is the primary factor motivating immigration. The study also takes into account the new global economy, including the movement of capital as well as trade. Our findings show that immigration creates a net loss for natives of nearly $70 billion annually. Among the report’s findings:
In 2002, the net loss to U.S. natives from immigration was $68 billion.
This $68 billion annual loss represents a $14 billion increase just since 1998. As the size of the immigrant population has continued to increase, so has the loss.
The decline in wages is relative to the price of goods and services, so the study takes into account any change in consumer prices brought about by immigration.
The negative effect comes from increases in the supply of labor and not the legal status of immigrants.
While natives lose from immigration, the findings show that immigrants themselves benefit substantially by coming to America.
Those who remain behind in their home countries also benefit from the migration of their countrymen.
The model used in this study can be summarized as follows: High U.S. productivity motivates the entry of foreign workers and capital. As a consequence, the movement of foreign labor and capital into the United States expands U.S. exports and reduces exports by foreign countries who now have fewer workers and less capital. This depresses the prices of U.S. exports while raising the price of its imports, which is bad for U.S. natives. While the addition of immigrant workers makes the overall U.S. economy larger, natives in the United States are worse off because immigrants take not just the increase in income, but other income as well. This is because American workers are now competing with foreign workers who, because they have entered the United States, now have access to superior American technology, which is the primary source of American workers’ competitive advantage in the international economy. In other words, American workers are better off competing with foreigners if the foreign workers stay in their own countries and don’t have access to American technology. By allowing the foreign workers into the United States, Americans face competition with foreigners equipped with American technology. The Economic Costs of ImmigrationAmerica is often described as a nation of immigrants. And so it is. One reason for immigration has been the promise of liberty. However, even from the start, a second very powerful reason has been the opportunity America provides for prosperity. Waves of immigrants have come, particularly from Europe, Asia, and the Americas (especially Mexico) to enjoy the high wages available here and escape the relative penury of their native lands. Through the end of the 19th century and into the 20th century, a prime advantage of America that allowed it to deliver these high wages was its great abundance of land and natural resources. Increasingly, though, in the last half of the 20th century, the principal advantage of America has not been its resources, but rather its leadership of the world in technology or productivity. Economists have long been interested in the consequences of immigration. A large and highly varied theoretical literature has developed that considers potential sources of gains and losses for a country experiencing immigration. Surprisingly, these theoretical models almost never have a word to say about the role of technological advantage as a motive for migration—even though this is surely the most important reason for the wage advantage in America that is the proximate reason for most migration. The empirical literature on immigration has considered a wide variety of questions regarding the impact of immigration on America. In recent years, an important strand of this has considered the overall impact of this immigration on the American economy.1 Here, again, the analysis has treated immigration as if it were motivated principally by an abundance of resources, as would have been appropriate in the 17th, 18th, 19th, or even early 20th centuries, but that is not appropriate to 21st century America. The choice of an intellectual framework within which to examine the consequences of immigration is not a purely academic squabble. By choosing the traditional framework, where immigration is motivated by relative labor scarcity, one has also pre-determined in qualitative terms the outcome of any empirical study. Such studies necessarily conclude that the principal national consequence of immigration is the redistribution of income between natives similar to the immigrants and other factors of production. Likewise, as a matter of theory, the traditional framework concludes that the economic consequences for the receiving country as a whole are positive, though negligible. Empirical work in this conventional tradition cannot alter these conclusions, only quantify them.In this essay, we summarize the conclusions of a paper that provides a new approach to studying the economic consequences of immigration.2 The starting point for the analysis is that immigration to America is ultimately motivated by American technological superiority. Once we accept this as a starting point, though, it is no longer appropriate to study the movement of labor in isolation. High American productivity does provide a motive for the immigration of labor. But it also provides an incentive for the inflow of productive capital. That is, high productivity yields high returns for all factors of production, which suggests that these inflows should be studied jointly. This is precisely what our study does