Study: Immigration suppresses wages, raises cost of living


A new study on the US labour market shows that immigration suppresses wages of incumbent workers and lifts their cost of living. In a nutshell:

  • Immigration suppresses wages by increasing competition among workers for positions. It also lifts the housing rents paid by workers, raising their cost of living.
  • High-skill priority immigration has a suppressive effect on high-skill wages and low-skill immigration has a suppressive effect on low-skill wages.
  • Therefore, both groups suffer a reduction in economic welfare (‘utility’) when immigration of the same type (high skill or low skill) is increased.
  • Immigration is great for landlords, whose income increases as demand for housing outstrips or pressures supply.
  • Immigration, therefore, increases inequality.

Below are key extracts from the study:

Evaluating a skill-selective immigration policy…

First, I consider the effects of the United States adopting a skill-selective immigration policy similar to the UK. Such a policy would lead to a 46% increase in high-skill immigrants…

Table 1 reports changes in average welfare in annual wage units by worker characteristics in gateway and other cities under fixed and free migration. The columns labeled ‘Δ$’ show the change in the dollar amount, and the columns labeled ‘Δ%’ express the change as a percentage of welfare in the absence of the specified policy reform.

Negative welfare impacts from immigration

In the fixed migration case (columns 1 and 2), the average welfare impact on high-skill natives in gateway cities is equivalent to a reduction of almost 3% in annual consumption: $3,304 and $2,114 for high-skill men and women, respectively. The reduction is considerably more severe for high-skill immigrants, equivalent to around an 8% loss in annual consumption: $7,497 and $5,344 for men and women, respectively.

The impacts are less substantial in other cities. Among low-skill workers in gateway cities, average welfare improves by around 1% for natives ($569 and $463 for native men and women, respectively), and by 0.4% for their immigrant counterparts ($146 and $116 for men and women immigrants, respectively). The average gains for low-skill workers in other cities are similar to those in gateway cities.

In the free migration case, the negative impacts on the average welfare of high-skill natives and high-skill immigrants in gateway cities are attenuated. The welfare losses of those who move from gateway cities are substantially mitigated. This is shown in columns 5 and 7 of Table 1.

The difference between the change in welfare of movers and forced stayers represents the ‘gains from internal migration’. The gains are equivalent to an almost $1,000 increase in annual consumption for high-skill natives in gateway cities. The welfare gains for low-skill natives become slightly smaller…

The additional rental income accruing to landlords is sizable, and it could on average result in welfare gains if redistributed…

Evaluating a skill-neutral immigration policy

Next, I evaluate a skill-neutral policy, one that increases the stock of immigrants by the same amount as the skill-selective policy, but maintains the US skill composition of immigrants in 2007. This involves a 25% increase in immigrants.

Table 2 reports the changes in average welfare under the skill-neutral policy. The arrival of new immigrants has more positive wage effects on high-skill natives and less negative wage effects on high-skill immigrants relative to the skill-selective policy.

This is because a larger portion of new immigrants in this case is low-skill, and so the negative wage effect is counterbalanced by the complementarity between high- and low-skill labor. But the rising housing costs lead to a decline in the welfare of both low- and high-skill workers.

Nevertheless, because all workers are free to migrate within the United States, the negative impacts in some cities are attenuated. The migration responses of low-skill workers to this second policy are more pronounced. This is because the most adversely affected group in this experiment is low-skill immigrants…

Finally, there is a significant increase in rental income accruing to landlords from increased immigration. This suggests that an appropriate tax scheme on rental income would be an important consideration if policy-makers want to redistribute the gains and losses from immigration more evenly.

Who would have thought? Making workers compete for jobs with migrants lowers their wages, increases their cost of living and raises inequality. Exactly what MB has argued from the get-go.


Now watch as the immigration boosters and fake left ignore these findings.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.