It has long been argued that increasing immigration into the United States has significantly perpetrated the rising income inequality between the top 1% and the rest of the population. The popular argument supporting this claim is that the overall increase in population due to the influx of immigrants has lowered the wage equilibrium firms are willing to pay for labor. Advocates of this claim say that most immigrants are low-skilled workers that cross the border in search for a better income and quality of life. Since the minimum pay offers them an exponentially higher income than they would have otherwise had in their country of origin, immigrants are willing to work for a lower wage than the average American. As immigrants become a larger part of the labor force, the lower the wage that firms are willing to pay for low-skilled labor. Contrary to popular belief, since the late 1990s immigration has been steadily decreasing, while the disparity of wealth between the top 1% and the rest of the population has constantly widened since the begging of the 1980s.
Unauthorized immigrants are characterized in 2 groups: those who “entered without inspection” and those who entered legally but overstayed their visas.
Looking at the graphs, immigration in the United States has been steadily increasing since the early 1980s. During the 1980s and early 90s there was a decline in immigration, partly due to President’s Regan and Clinton’s tightening of border control and enforcement, only to have immigration levels rise again in the mid-90s and reach a historic high at the beginning of the next century. Since then immigration levels have been steadily decreasing, reaching its lowest level since the early 1980s in 2014, while the inequality gap between the rich and the rest has continued to widen since the late 1970s. These graphs suggest that immigration has little or no effect on the increasing income inequality. However, we may be able to attribute the rise in inequality to factors like innovations in technology that require more human capital, the brain drain phenomena, and the middle class’ reliance on credit loans to keep up with the spending norm of the rich due to stagnating incomes.
When human capital is at a premium and companies compete for skilled labor, the cost of premium human capital can reach extremely high levels. Developments in technology like computing, the internet, and other revolutionary inventions that jumpstarted the age of information have increased firms’ demand for human capital; and the natural response of the labor market is to supply more of what is being demanded. The amount of U.S College enrollments have almost doubled since 1979. Then, only 11.57 million students were enrolled in universities. In 2014, that number almost doubled at 20.21 million students. In the late 1980s, the number of enrolled students started increasing at a more rapid rate than in previous years, signaling the major technological advancements made at that time and illustrating the corresponding increase in demand and supply of skilled labor. The problem is that as more and more people earn a bachelor’s degree, the less valuable it becomes for firms and the less they are willing to pay for that level of human capital. Since people with degrees surpassing a bachelor’s degree are still relatively scarce, firms compete for their services and bid up their wages in order to lure them. This is a fundamental issue behind the rising incomes of the rich and stagnating incomes of the middle-class. Furthermore, the middle-class is becoming increasingly dependent on credit and mortgage loans for consumption and are stuck paying off their debt (further widening the inequality gap).
Immigration might be aiding the issue of increased inequality, but not the way one may think. Being the biggest economy in the world, the U.S attracts a lot of foreign human capital that compete amongst themselves for the opportunity to study or work in the U.S. This phenomena called “brain drain” occurs mainly in developing countries and it refers to the issue where the brightest and most talented individuals leave their country of origin for the opportunity for better jobs, a higher education and/or more income. By offering various different programs, scholarships, and grants, the United States can be selective of who they admit in the country judging individuals by personal merits, academic achievements, or any desirable skill or asset. Again, the price to hire the services of said skill labor is not cheap and firms compete against each other by biding up their wages until a competitive equilibrium is reached. This increased cost of employing a premium skilled labor may be coming at the expense of the unskilled labor. Now, immigrants constitute an important population in sectors high-skilled sectors of the economy and their being rewarded accordingly. Evidence that brain drain might be occurring can be seen in the graph below. While immigration into the United States has been decreasing on net for several years now, the number of legal immigrations has increased significantly since 2003, and it’s safe to assume that most if not all high-skilled immigrants traveled to the United States legally.