Has the surge in immigration since 1970 led to slower wage growth for native-born workers? Academic research does not provide much support for this claim. The evidence suggests that when immigration increases the supply of labor, firms increase investment to offset any reduction in capital per worker, thereby keeping average wages from falling over the long term. Moreover, immigrants are often imperfect substitutes for native-born workers in U.S. labor markets. That means they do not compete for the same jobs and put minimal downward pressure on natives’ wages. This might explain why competition from new immigrants has mostly affected earlier immigrants, who experienced significant reductions in wages from the surge in immigration. In contrast, studies find that immigration has actually raised average wages of native-born workers during the last few decades.

Immigrants are at the forefront of innovation and ingenuity in the United States, accounting for a disproportionately high share of patent filings, science and technology graduates, and senior positions at top venture capital-funded firms. In addition, the presence of immigrants often creates opportunities for less-skilled native workers to become more specialized in their work, thereby increasing their productivity.

Immigration generally also improves the government’s fiscal situation, as many immigrants pay more in taxes over a lifetime than they consume in government services. However, native-born residents of states with large concentrations of less-educated immigrants may face larger tax burdens, as these immigrants pay less in taxes and are more likely to send children to public schools.

Labor Market Competition

A popular view is that immigrants are taking jobs from American citizens. However, although immigrants increase the supply of labor, they also spend their wages on homes, food, TVs and other goods and services and expand domestic economic demand. This increased demand, in turn, generates more jobs to build those homes, make and sell food, and transport TVs.

Most empirical studies indicate long-term benefits for natives’ employment and wages from immigration, although some studies suggest that these gains come at the cost of short-term losses from lower wages and higher unemployment.1 Standard economic theory implies that while higher labor supply from immigration may initially depress wages, over time firms increase investment to restore the amount of capital per worker, which then restores wages. Steady growth in the capital-labor ratio prevents workers’ average productivity, and therefore their average wages from declining over the long run. Figure 2 shows the pre-1980 trend in the capital-labor ratio extrapolated over the next few decades – the period when U.S. immigration accelerated. Consistent with the theory, the actual capital-labor ratio did not significantly or permanently deviate from that trend after 1980.2