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More Immigration Doesn’t Reduce US Wages–fight the “lump of labor” fallacy!

Immigration restrictionists often claim immigrants “steal jobs and decrease wages.”  The reality is different and a bit more nuanced.

Reason Magazine’s Alex Muresienu  provides an excellent summary of what is a consensus view among economists who have studied this issue.

How, you might ask, is that possible? After all, the basic laws of economics suggest that an increase in the supply of labor should lower the price of labor. But increased immigration doesn’t just increase the supply of labor—it also expands the demand for labor. Immigrants aren’t just workers. They also help start businesses, and they purchase goods and services from existing businesses. 

Indeed, immigrants play a substantial role in American entrepreneurship. Immigrants make up 15 percent of the U.S. population but start around 25 percent of new businesses. And while high-skilled immigrants disproportionately found the largest American companies, less-skilled newcomers are also disproportionately responsible for low-income entrepreneurship.    

So that’s why native wages didn’t drop. If you look at immigrants as contributing only to labor supply and not labor demand, you are committing what economists call the lump of labor fallacyGiven how entrepreneurial immigrants tend to be, letting more foreigners into United States might actually be a partial solution to slow wage growth, not its cause. 

See also Douglas Holtz-Eakin and Patrick Hefflinger:

Nearly 1,500 economists, including six winners of the Nobel Prize in Economics and covering the spectrum of political preferences, signed a letter to President Trump and the leadership of the House and Senate attesting to the economic benefits of immigration. (I organized the letter along with the folks at New American Economy.) The letter makes the very straightforward points:

  • Immigration brings entrepreneurs who start new businesses that hire American workers.
  • Immigration brings young workers who help offset the large-scale retirement of baby boomers.
  • Immigration brings diverse skill sets that keep our workforce flexible, help companies grow, and increase the productivity of American workers.
  • Immigrants are far more likely to work in innovative, job-creating fields such as science, technology, engineering, and math that create life-improving products and drive economic growth

Immigration restrictionists are aware of these studies and the overwhelming consensus on this issue.  Which leads one to reasonably ask, if they have other motivations for wanting immigration reduced.