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Council of Economic Advisors Report Corroborates BPC Findings on Immigration and Employment

By Kenneth Megan

Monday, June 27, 2016

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In a new report, the White House Council of Economic Advisors (CEA) analyzes declining labor force participation among working-age males, and concludes that immigration does not play a major role. The report instead points to factors such as increasing rates of disability as well as declining demand for lesser-skilled occupations to explain workers’ growing detachment from labor markets.

The CEA report affirms the Bipartisan Policy Center’s findings on immigration, which were released in a new report, Culprit or Scapegoat? Immigration’s Effect on Employment and Wages. The BPC report pushes back against the claim that immigrants displace U.S. workers, and instead points to other reasons for declining native-born employment—namely increasing rates of retirement, disability and school enrollment. A native-born individual is defined as an American citizen at birth, regardless of where they were born.

Unfortunately, skeptics often blame immigration for poor labor market outcomes among native-born Americans. In particular, there has been pushback against the CEA report for being inconsistent. The report claims that decreasing demand for lesser-skilled occupations is a chief cause of declining labor force participation. However, the White House has written in the past that immigration is needed to fill labor shortages in lesser-skilled industries.

How can these two forces operate simultaneously?

The answer lies in the fact that native- and foreign-born workers tend to be employed in different industries, a trend that has persisted for at least the past decade. Some of the lesser-skilled native-born industries have seen declining employment, whereas the lesser-skilled foreign-born industries have been more likely to see stronger employment growth.

For example, “Office and Administrative Support” positions are generally lesser-skilled, with over 90 percent of occupations in this industry requiring no more than a high school education. This sector also disproportionately employs native-born workers, and has experienced sluggish employment growth in recent years. Between 2011 and 2015, the industry saw just 0.2 percent annual wage growth. On the other hand, both the construction and agriculture industries have seen robust job growth in recent years—at 1.8 percent annually between 2011 and 2015—and have even suffered from labor shortages. These industries disproportionately employ foreign-born workers, and the vast majority of positions within these industries require no more than a high school diploma. Ultimately, employment growth varies greatly by industry.

Another common refrain among some immigration opponents is that reducing immigration would work to increase labor force participation. In the absence of immigration, the theory goes, wages would increase and native-born workers would flock to the lesser-skilled, disproportionately foreign-born industries.

However, the truth behind this assertion is ambiguous at best.

Native-born workers tend to have a higher prevailing wage than the foreign-born—even in lesser-skilled occupations. Employers could raise wages to attract native-born workers in the absence of immigration, but this would likely force them to raise prices, which would likely decrease consumer demand and could lead to employment declines. Alternatively, instead of raising wages, employers could choose to automate or offshore, which would also lead to employment declines.

An alternative view is that immigration strengthens labor markets by plugging labor shortages and boosting demand for goods and services—both of which lead to further employment growth.

When all these factors are considered, immigration does not harm the labor market—it complements and enhances it.