The Effect of Immigration on Output Mix, Capital, and Productivity

Federal Reserve Bank of Atlanta E C O N O M I C R E V I E W First Quarter 2002 T he fraction of the U.S. population composed of the foreign-born reached 11 percent in 2000, the highest in seventy years. The large number of immigrants in the United States has prompted concern about possible negative effects on labor market outcomes among natives. Such concerns are particularly widespread among less-skilled workers because the proportion of immigrants who have not completed high school is at least twice that of natives (U.S. Census Bureau 2000). These concerns have not been borne out by much of a large literature examining immigration’s effects on wages. A number of studies have found little correlation between immigration inflows and changes in wages at the metropolitan or state level. Changes in industry composition, labor productivity, capital, or other factors may explain why immigration does not appear to affect wages at the regional level. For example, the output mix in an area may change in response to immigration flows, with areas experiencing an influx of low-skilled immigrants becoming more specialized in production of lowskilled outputs. If immigrants are a complement to some groups of native workers, such as low-skilled immigrants complementing high-skilled natives, an increase in labor productivity may occur for some workers; wage increases for workers with increased productivity could offset lower wages for other workers, leading to no change in average wages. The Effect of Immigration on Output Mix, Capital, and Productivity