Location: Halstead, Kansas, United States

This is my seventh year at Halstead which is also where I live with my wife and my soon to be two year old daughter.

Sunday, March 27, 2005

Immigration and Reduced Wages

I come back to this topic every now and then. Usually, when I find information the supports my view that free trade and open immigration is good. Today I read a post by Bryan Caplan over at EconLog and he makes a good point about the argument that immigration reduces wages:

Everyone in a country can get richer as per-capita income falls. Proof by example: Suppose the residents of Country A earn $50,000 per year each without immigration, and $60,000 per year with immigration. They benefit from cheaper lawn-mowing. The residents of Country B earn $2,000 per year if they stay at home, or $10,000 per year if they immigrate to Country A to mow lawns.

Now what happens to per-capita income in Country A if immigrants double the population? Per-capita income falls from $50,000 to .5*$60,0000 + .5*$10,000=$35,000. The more immigrants come in, the more steeply per-capita income declines. "Immigrants hurt our standard of living. QED!"

Of course, nothing of the kind has happened. By assumption, immigration makes both natives and immigrants richer. But per-capita income declines, as a matter of pure arithmetic. The numbers don't lie, but they are very easily misinterpreted.

He has some other examples for different situations that are also worth reading.


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