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Migration
Do Migrants Lower Your
Wage?
An enduring issue in the economics of migration is the
effect of migration on economic welfare in sending and receiving
countries. In Discussion Paper No. 71, Patrick Geary and Research
Fellow Cormac O Grada focus on one aspect of this question, how
immigration influences real wages in the host country. Economic theory
offers no clear prediction; it is easy to construct models predicting
either a rise or a fall in the real wage as a result of immigration.
Empirical work, too, is rather inconclusive. Of course wages and
immigration may be linked in another way: if 'pull' factors are
important in attracting migrants, then an influence in the opposite
direction from wages to migration might be expected.
The notion that immigration influences the real wage or vice versa, can
be expressed in terms of what is called 'Granger- causality' or
'precedence'. A variable X is said in this sense to 'cause' Y, if Y can
be better predicted using its own past values and past values of X than
with past values of Y alone; this can be tested with regression methods.
Once the direction of causality has been determined in this
manner, the sign and magnitude of the effect of one variable on the
other can be calculated.
In looking at these issues, Geary and O Grada used time series data on
United States immigration, real wages and GNP, available for the period
1820-1977. They investigated 'causality' for the period as a whole, and
for two sub-periods 1820-1914 and 1900- 1977. There was considerable
evidence of influence running from immigration to the real wage, but not
in the other direction. The influence was appreciably weaker in the
first sub-period, even though migration rates were higher then. Geary
and O Grada also found some weak evidence for 'causation' from GNP to
the immigration rate for the full period, and from the immigration rate
to GNP in the first period. Immigration tended to reduce the real wage
in all periods, but the magnitude of of this effect proved to have been
rather small. A trebling or quintupling of the immigration
rate reduced real wages by only 11% in one of the models studies.
Immigration and the Real Wage: Time Series Evidence from
the United States, 1820-1977
P T Geary and C O Grada
Discussion Paper No. 71, August 1985 (HR)
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