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What Happened to U.S. Wages During Mass Immigration?

immigrants-1843-16jll8jAmerica’s immigration debate often focuses on how immigrants affect the welfare state, even though many immigration restrictionists would oppose immigration even if we did wall off the welfare state for new immigrants. “It's logical that if you bring in a massive supply of low-wage workers, you're going to pull the workers down,” said Sen. Jeff Sessions, R-Ala., recently. But history contradicts this notion. Immigration pushes wages for U.S. workers up, not down.

America’s first Secretary of Treasury Alexander Hamilton would not have agreed with Sen. Sessions. He thought immigrants pushed Americans up, not out, of the labor market. “Foreign emigrants... exhibit a large proportion of ingenious and valuable workmen, in different arts and trades, who, by expatriating from Europe, have improved their own condition, and added to the industry and wealth of the United States,” Hamilton said in 1790. He found “the use of immigrants will leave Americans free to engage in more dignified pursuits.”

History proved Hamilton correct. Historian Aristide Zolberg notes in his recent treatise on the history of American immigration that by the turn of the 20th century, manufacturing’s “skilled upper component consisted largely of natives or ‘old’ immigrants, whereas the lower semiskilled and unskilled one was filled by newcomers,” and that “recent research has confirmed contemporaneous reports of an overall increase of real wages in manufacturing.” In other words, by taking lower-skilled jobs, immigrants created better opportunities for Americans elsewhere in the economy, as predicted by Hamilton and by Say’s Law.

From 1890 to 1914, more than 15 million people poured into the United States, mostly from Europe. More than 1.3 million came in  1907 alone. That would be like 4 million coming in one year today--which would be four times the number allowed in legally last year. Despite this enormous increase in the workforce, worker compensation rose 40 percent over that era. Overall, America’s fastest period of economic growth was during the time of mass immigration (4.17 percent annually). By the end of the period, Henry Ford was paying automobile assembly line workers the highest wages in the world, despite the immigration flood, or as Say’s Law indicates, partly because of it.

Despite huge numbers of immigrants during this period of open borders, immigration responded to the demand for new workers based on the labor market. In 2006, a team of political scientists analyzed the employment data for the pre-war period starting in 1890 and concluded there was “a correlation (r = -0.425; significant at .01 level) with changes in the unemployment rate. This suggests that immigration was sensitive to demand-pull forces”—that is, immigrants come in lower numbers when fewer jobs are available. As recent evidence confirms, U.S. businesses seek immigrants when they are expanding, not when they are contracting.

It is true  wages for the lowest-skilled natives and most recent immigrants stayed constant for much of this period. But the general increase in prosperity raised living standards, even for these workers. From 1870 to 1913, average life expectancy increased by 10 years, and the average workday fell from 10 hours to eight (Costa 1998).

Even if the poor don’t benefit directly, immigration creates greater opportunities for upward mobility. Carmel Chiswick has found that “one of the consequences of an immigration policy that benefits natives in general is that it generates incentives for investment in human capital by natives.” In other words, as the benefits from education rise thanks to immigration, more Americans find it in their interest to get educated.

In fact, immigration may have caused America’s “high school movement” -- the increase in high school enrollment from 12 perent in 1910 to 50 percent in 1930. In a detailed 2002 study of the period for the International Monetary Fund, Rodney Ramcharan concluded, for instance, that “the massive immigration of unskilled labor in the late 19th and early 20th century triggered the U.S. high school movement” by raising “the private return to education and engendered schooling investment.”

This point is often ignored by restrictions. Time and time again, immigration has shown to increase the wages of most U.S. workers ($30-$80 billion/year), but to have only a tiny effect on low-skilled workers in the short-term. By allowing for the general benefit, low-skilled Americans have greater opportunities for income mobility. Treasury economists Gerald Auten and Geoffrey Gee have found that 45 to 58 percent of those in the bottom 20 percent had moved to the top 80 percent from 1996 to 2005, meaning more than half of the workers who might be slightly hurt in the short-term ultimately benefit from low-skilled immigration over time.