The Surprising Truth About Immigration and Tech Growth

When the IT revolution comes to a region in the United States, it’s often very good news for two groups of workers: highly skilled, native workers and lower-skilled immigrants.

The worst place to be is stuck in the middle as a semi-skilled, middle-wage worker—whether native or immigrant—as our nation continues to see what labor economists call the “hollowing out” of the labor force. Those unable to upgrade their skills to move up the economic ladder may wind up moving down—and even out. And low-skilled, native workers also may struggle.

These were among the key findings of a decades-spanning study of 720 regions in the United States, known as “commuter zones,” that I conducted with my colleague Giovanni Peri, professor of economics at the University of California-Davis, and Gaetano Basso, an economic advisor at the Bank of Italy.

We mapped the 720 commuter zones and created a measure of technological advancement by combining the composition of industry in an area and the degree of computer usage in that industry. That allowed us to get a picture of the areas that experienced huge technology growth by decade, from the 1970s to 2010.

Then, we looked at what happened in the labor market in those areas. Specifically, we looked at immigration patterns to see what role they play.

Alleviating Downward Pressure

When technology takes off in an area, many people probably think it attracts highly-skilled, computer-savvy immigrants to fill the new IT jobs being created. But that’s not what we found. It’s quite the opposite.

We found that immigration does indeed increase in many of the booming tech regions, but it primarily occurs at the lower-skilled end of the labor spectrum. When you think about it, that does make sense. When you have more people making higher wages in an area, it increases demand for services—everything from au pairs for two-income families to janitorial and landscaping workers to health care aides.

What happens—and we document this empirically—is that in areas where low-skilled immigrants flow in, most of the high-skill positions go to native workers who either already have the training, education, and skills or those in middle-wage, semi-skilled positions who can move up the skill ladder by going to college or getting a master’s degree to fill the new, better-paying IT jobs.

The flip side is that in areas where immigrants do not flow in for the burgeoning low-skilled positions, you instead see a lot of mid-skilled native workers ultimately transition into the service sector. In places where immigrants are flowing in to fill those jobs, you see much less of that.

What does that mean? Immigrants help alleviate the downward pressure on middle-wage, native workers. The influx of immigrants filling low-end service jobs creates greater opportunities for middle-wage workers to advance their skills and move up the employment ladder. And when native workers upgrade their skills in high-skill areas, it tends to crowd out highly skilled immigrants.

That creates a vacuum that pulls in low-skilled immigrants. Absent an influx of immigrants, that vacuum instead pulls down more middle-wage native workers for the low-skilled jobs.

Is Immigration Good?

Which raises the question people are always asking: Is immigration good for the U.S.? And is immigration good for American workers?

There are winners and losers in lots of changes, including immigration. If you are a low-skilled, native service employee in a region that faces a massive influx of immigrants of the low-skill variety, chances are your earnings are going to take a hit, and maybe your employment prospects are going to take a hit. We certainly document that.

But just as there are winners and losers, there are costs and benefits. In economics, the benefits in this case come from the production side of things and the consumption side of things.

On the production side, native workers who can upgrade their skills can move up into higher-paying jobs. That’s the positive aspect for those who can do it. If you’re stuck in the service area, it’s not great for you. But some workers are getting higher wages.

And then there’s the consumption side, which gets missed in a lot of studies. An influx of low-skilled immigrants for service jobs keeps down the costs of all those services that are becoming increasingly in demand in places with technology growth. That benefits everybody.

There’s an economic idea, developed by the late economist William Baumol in the 1960s, called “cost disease.” Simply put, when productivity increases in the technology and manufacturing sectors, wages rise while prices usually fall. But in labor-intensive sectors of the economy, where productivity is more resistant to computerization and machines, wages also often rise, to keep pace, and so do prices. Healthcare and education are two often-cited examples.

Based on our study, I believe that immigration can be a partial solution to the cost of disease we see in areas with technological growth because it will tamp down the costs of those services that are immune to computerization, immune to technology. We know finding native workers willing to work in certain agricultural and service industry jobs is difficult. But immigrants, many of whom are from very fraught places with low economic opportunities, are more than willing. It’s a potential win-win.

When we weigh the pros and the cons of immigration, what we come away with is an overwhelming picture of the pros. In that sense, it’s similar to trade. Trade is many, many people benefiting, and a few people getting hurt or even decimated. There’s a real parallel here when it comes to immigration: a few people getting hurt, most people winning.

One thing we would urge, which is beyond the scope of our work here, is for policymakers to think about redistributing the potential resulting windfall in such a way that everyone can win. There is the possibility of that. It’s not happening now. But I think our work points to the fact that, if you look at it aggregately, the flow of immigration we see in areas where technology is booming should be viewed as a positive.