Stay informed with free updates
Simply sign up. global economy myFT Digest – delivered straight to your inbox.
Does the arrival of migrant workers lower the wages of those already living in the country, or not?
For years, mainstream economists have been telling people who worry that immigrants are cutting into their wages: erroneous. Yes, they said, new people increase the labor supply, but they also increase the demand for goods and services, which eventually leads to some decline. This theory is supported by a number of empirical studies that have found that immigration has a very small, if any, effect on the wages of native workers.
But many economists warn that President-elect Donald Trump’s plan to deport millions of undocumented immigrants will create labor shortages, increase costs and increase inflation in the U.S. economy. Could both of those statements be true? Doesn’t the idea that deportations will fuel inflation tacitly acknowledge that migrant workers have actually been suppressing wages all along? People aren’t stupid. I think it’s more likely that they will notice obvious intellectual inconsistencies and that will lead them to distrust or simply ignore what economists say on the topic.
However, I don’t think these two statements are necessarily mutually exclusive. It’s just that the economics profession (with some honorable exceptions) has failed to try to understand how immigration is reshaping labor markets. Most economists have examined the impact on wages or employment levels of workers in their countries. But that is too narrow a lens.
I realized this while reporting on the implications of Brexit and the end of freedom of movement in the UK. For example, consider the perspective of a woman who worked in a food factory in Sheffield. She watched an increasing proportion of the expanding workforce become agency workers, mostly from Eastern Europe, whose schedules could be cut and changed without notice and who did not receive the same benefits as hers. Her pay and working conditions were not cut, but she felt her migrant colleagues were being exploited and the sector was no longer a good place for new entrants. Over time, people like her retired and the sector became dominated by migrant workers.
The point is that the economy is dynamic and employers in some sectors respond to the availability of migrant workers by changing or expanding in certain ways that they would not have done before. Meat processing plants in the UK have increasingly moved to 12-hour shifts and remote locations because they have been able to find temporary migrant workers to fill these roles, even if they are not suitable for settled workers who have families and prefer to live in larger cities. It has more amenities. The head of the British Meat Processors’ Association once told me: “To be honest, working patterns have evolved around the non-UK workforce.” British farmers responded Since 2004, growing labor-intensive fruit has made it possible to secure seasonal workers in Eastern Europe.
Immigrants are deeply embedded in an economy that is being reshaped around them, meaning that if they suddenly leave or are expelled, the short-term economic disruption could be severe in some sectors. It annoys me when employers imply that native workers are too meek or lazy for these jobs. But hiring non-immigrants is right. Because they are very difficult jobs, and native workers (fluent native speakers) have better alternatives.
If wages are raised and conditions are sufficiently improved, it is clear that local workers will be involved. However, many of these sectors work at good margins and do their best to keep prices down by selling their produce to grocery chains. In post-Brexit Britain, the hope that employers would raise wages and an army of British workers would fill the gap has not really come true. Farmers complained that fruit was rotting in the fields, and pig farmers said they had to slaughter healthy pigs due to a shortage of workers at slaughterhouses. Soon the government sought to recruit migrant workers and gave them more visas.
Whether it’s wage increases or simple production shortages, there’s a real possibility that prices for products like vegetables and milk will rise in the U.S. if Trump implements his deportation plan. If certain American products become more expensive, they may be replaced by imported products instead. This may be a compromise Trump voters are willing to make. But neither side could explain it properly.
sarah.oconnor@ft.com
