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Will the arrival of migrant workers drive down wages for those already in the country?
For years, mainstream economists have been telling people who worry about immigrants driving down wages that they are wrong. Yes, they said, new immigrants increase the labor supply, but they also increase the demand for goods and services, so they end up being more or less eliminated. This theory is supported by a number of empirical studies, which find that immigration has little, if any, impact on the wages of native workers.
Yet many economists now warn that President-elect Donald Trump’s plan to deport millions of undocumented immigrants will create labor shortages, drive up costs and fuel inflation in the U.S. economy. Are these statements true? Is the idea that deportations will fuel inflation an implicit admission that migrant workers have indeed been driving down wages? People are not stupid: I suspect they notice glaring intellectual inconsistencies that make them more likely to distrust or simply ignore what economists have to say on the subject.
However, I don’t think these two claims are necessarily mutually exclusive, but simply because the economics profession (with a few honorable exceptions) has done a poor job of trying to understand the ways in which immigration reshapes labor markets. Most economists look for effects on wages or employment levels of local workers. But the lens is too narrow.
I realized this when I reported on the impact of Brexit and the end of freedom of movement. Consider, for example, the views of a woman I once interviewed who worked in a food factory in Sheffield. She has watched more and more people in the expanding workforce become agency workers, most of them from Eastern Europe, whose work arrangements can be cut and changed without notice, and who don’t get the same benefits as hers. Welfare. Her wages and working conditions have not been affected, but she believes her fellow migrant workers are being exploited and that the industry is no longer a good place for new entrants. Over time, people like her retired and the industry became dominated by migrant workers.
The point is that the economy is dynamic and employers in certain sectors will respond to the supply of immigrant workers by changing or expanding in certain ways that they might not otherwise do. Britain’s meat processing plants are increasingly moving to 12-hour shifts and remote locations as they can find temporary migrant workers to fill the positions, although they are less suitable for settled workers who may have families and prefer the greater conveniences of living in big cities facility. As the head of the British Meat Processors Association once told me: “If we’re honest, working patterns have evolved around non-British labour.” After 2004, British farmers responded to the emergence of seasonal workers from Eastern Europe by planting More labor-intensive soft fruits.
Because immigrants are deeply embedded in the economy being reshaped around them, this does mean that if these immigrants suddenly leave or are deported, there could be severe short-term economic disruption in some sectors. Employers annoy me when they imply that local workers are too weak or lazy to do these jobs, but they’re right when they say it’s hard to recruit non-immigrants – and for good reason, because these jobs are so hard and local Workers (fluent English native speakers) have better options.
If you raise wages and improve conditions sufficiently, local workers will surely step in. In a post-Brexit Britain, hopes of employers raising wages and an army of British workers filling the wage gap have not really materialized. Farmers complained of fruit rotting in their fields and pig farmers said they were forced to kill healthy pigs due to labor shortages at slaughterhouses. Soon after, the government relented and granted them more visas to recruit migrant workers.
Whether through higher wages or simple production shortages, prices for products like vegetables and milk in the U.S. are likely to rise if Trump carries out his deportation plan. Certain U.S.-produced goods may also be imported if they become more expensive. This may be a trade-off that Trump voters are happy to make. But neither side explains this very well.
sarah.oconnor@ft.com
