by
Cecil E. Bohanon and T. Norman Van Cott
Low-wage immigrant labor displaces American workers but brings lower prices for goods and services for consumers.
Give me your tired, your poor, your huddled masses yearning to breathe free ... I lift my lamp beside the golden door.
--Emma Lazarus, The New Colossus
 t's an old story, a story embedded in America's national psyche. An immigrant comes to the United States, drawn by beacons of economic opportunity, political freedom, and religious toleration. Lacking English-language skills and being unaware of America's cultural dynamics, the immigrant starts out on the bottom rung of the economic ladder.
Time overcomes the handicaps; fueled by a strong work ethic, the immigrant climbs the ladder. America ends up with a new American household, which, in turn, becomes the progenitor of other American households. A "nation of immigrants" is the wealthiest nation in the history of the world.
 |  Still the land of opportunity: Hispanic immigrants negotiate with a man who needs day laborers in Silver Spring, Maryland. Roger L. Wollenberg / UPI Photo Service
But there's another immigrant story, just as old and just as engrained in American consciousness. In the second story, immigrants slice themselves a piece of the U.S. economic pie at the expense of hardworking, native-born Americans. Immigrants impoverish native Americans by bidding wages down, and Americans pay a price for letting immigrants in, a price exacted in lower living standards.
The two "stories" stand in stark contrast with each other. Nevertheless, they define the two prisms by which immigrants are viewed. What is interesting is that the tension between the views is a constant component of our nation's history. Whether the immigrants came in by a sailing ship in 1790 or 1840, a steamer in 1900, or an airplane in 2004; whether they were German, Irish, Chinese, Japanese, Italians, east European Jews, Cubans, Vietnamese, Koreans, Russians, or Hispanics; the same two perspectives inform the immigration debate.
On one hand is the first immigrant story of economic benefit and promise; on the other hand is the second story of economic harm and despair. Both versions claim to be mapping the consequences of immigrants selling their labor to the American economy. Which story is correct? Which one makes economic sense?
To cut to the chase, immigrants affect the economy in much the same way that laborsaving technical innovations do. Just as employers who switch to adopt these cost-saving innovations gain, Americans who employ low-wage immigrants gain. More important from a longer-run perspective, Americans who consume the fruits of immigrant labor gain, just as consumers gain when they buy goods and services whose prices have fallen due to the cost-saving innovations. But just as workers lose when laborsaving innovations displace them, Americans who compete for jobs with low-wage immigrants lose.
Comparing gains and losses
 ow do the gains and losses compare? Straightforward analysis reveals that what gainers gain exceeds what losers lose. In other words, working immigrants increase the U.S. economic pie, a result consistent with the first immigrant story. A larger economic pie doesn't make it any easier for those who compete with immigrants for jobs. They're still worse off, which is the message of the second immigrant story.
Immigrants and American Prosperity
Immigrants affect the economy in much the same way that labor-saving technical innovations do.
Americans who employ low-wage immigrants gain.
Americans who consume the fruits of immigrant labor gain, just as consumers gain when they buy goods and services whose prices have fallen due to the cost-saving innovations.
But just as workers lose when labor-saving innovations displace them, Americans who compete for jobs with low-wage immigrants lose.
Working immigrants enhance the well-being of Americans, just as the steam engine, electricity, and computers have undoubtedly raised Americans' living standards.
The reason is simple: both immigrants and innovations reduce the costs of production.
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But it is this latter loss that is an engine of economic progress, perverse as that might sound to some. Indeed, if immigrants don't push wages down, just as if technical innovations don't reduce production costs, they offer no pot of gold at the end of the economic rainbow. As Harvard economist George Borjas put it in his 1999 book, Heaven's Door: "If some workers are not harmed by immigration, many of the benefits that are typically attributed to immigration ... cease to exist. ... No pain, no gain."
Let's bring these results down to earth with a simple numerical example. Suppose it's 1880 and American apple pickers are earning $100,000 per year in the orchards. Further suppose that these Americans' next most lucrative job pays $70,000. The $70,000 figure represents Americans' rock-bottom price for picking apples--if they're offered any less, they'll move on to other jobs. Moreover, $70,000 measures what the United States sacrifices in terms of money that could be used for other things in the event Americans pick the apples for $70,000. There are no free lunches, and apples aren't free, either--even when Americans pick them.
Nor would the apples be free if, say, Irish immigrants pick them. Now the apples would cost the United States what the Irish are paid to pick them. The Irish will displace American pickers only if they will pick for less than American pickers' rock-bottom $70,000 price. If the Irish pick for $60,000, the American pickers will move on to those next most lucrative occupations.
Americans get the apples by giving up $60,000 instead of the $70,000 they give up when Americans pick apples. In other words, the United States gets the apples and $10,000 of savings by opting for the Irish pickers. Anyone who has ever bought apples (or anything else for that matter) will tell you that paying less for apples means you have more money for other things. It is no less true for a nation.
Note that apple orchard owners gain $40,000, the difference between what they pay American and Irish pickers. At the same time, American apple pickers lose $30,000, the difference between what they earn as pickers and what they earn in those next most lucrative jobs. Gains exceed losses by the difference in the costs of picking. Costs matter.
The effects brought about by immigrant pickers are analogous to what would happen if American apple pickers are displaced by machinery that can pick the apples for $60,000. Bad for the pickers, good for orchard owners; on net, a gain.
The net gains for Americans don't stop here; nor do the gains rest for long in the pockets of orchard owners. Owning apple orchards is now more lucrative, causing other orchard owners to be attracted to apple production. This, in turn, generates more apple production and puts downward pressure on the price of apples, ensuring that American apple consumers share in the expansion of the U.S. economic pie as a consequence of immigration. Indeed, in the long run, American consumers reap the bulk of the benefits from immigrant labor in the form of lower-priced goods and services.
What about today?
 he analysis is not unique to 1880 or to apples. Nor is it unique to the Irish. If one changes the year from 1880 to 2004, the product from apples to computer software, and the immigrant group from Irish to Indian, the economic conclusions remain the same. Indeed, a 1997 report by the National Academy of Science on the contemporary immigration issue stated: "Some [native-born Americans] largely gain from immigration because the goods produced by immigrants, with their lower wages, will now be cheaper. On the other side of that coin, some native-born Americans may see their wages or even their jobs jeopardized as they compete directly with immigrant workers."
 | Always willing to work: Many immigrants could find only low-paying jobs doing piecework upon their arrival in the United States. These women are sewing pants in New York City in 1889.
Courtesy of the Library of Congress
Throughout American history, some have viewed immigrants in the light of the first immigrant story, while others have viewed them in the light of the second story. Indeed, in 1882, four years before the Statue of Liberty began beckoning the world's "tired, poor, and huddled masses," the two competing stories were at center stage in Washington, D.C. This was the year the U.S. government enacted the first of three successive ten-year bans on Chinese immigration.
In the 1880s, Massachusetts was a state rich in factories and physical capital. A steady supply of immigrant workers enhanced the interests of Massachusetts mill owners and their customers. Among those opposing the ban were the two senators from Massachusetts, George Hoar and Henry Dawes. During the Senate debate, each argued from within the confines of the first immigrant story. Senator Hoar, for example, said (as noted in the Congressional Record), "I will not deny to the Chinaman any more than I will to the negro or the Irishman or the Caucasian the right to bring his labor, bring his own property to our shores, and the right to fix such a price upon it as according to his own judgment and his own interest may seem to him best."
Senator Dawes expressed similar sentiments, to wit: "I do not know any particular difference between Asiatic labor and European labor; it is labor, and it never occurred to me that the difference between men was the difference in the places where they were born. I always supposed it was a difference in the character of men."
Hoar and Dawes were unable to prevail against their "second story" opponents. Sen. James Slater from Oregon, for example, noted: "We who are pressing this bill understand it to be a bill in the interest of labor. We understand it to be a measure to protect labor, to keep him from being ground down by the capitalists by employing Chinese labor so cheaply that the white man, or the American citizen, if you prefer the term, is unable to live at the prices for which these immigrants will work."
More ominous, but still within the boundaries of the second story, were the comments of Missouri's Sen. George Vest, who said of Chinese immigrants: "There is not an American instinct among them. ... They come among us and are a fungi upon our body politic. ... I mention this to show that the people of California are not alone in their belief that this is under God a country of Caucasians, a country of white men, a country to be governed by white men."
Implicit in all this is that the immigrants work. In the nineteenth and early twentieth centuries, this was a valid assumption. To paraphrase the Nobel laureate and economist Milton Friedman, "The welfare state as we know it did not exist during that time." However, the remainder of the twentieth century witnessed the growth of an extensive system of welfare entitlements. Many of the entitlement benefits go to low-income residents, including immigrants. In many cases, receipt of the benefits is contingent on not working.
 | The start--or end--of the road: A "coyote" or guide for illegal aliens, hangs on to the fence marking the U.S.-Mexico border while searching for signs of the U.S. Border Patrol near Douglas, Arizona.
Jack Kurtz / UPI Photo Service
Discerning the consequences of such welfare-state entitlements on immigration economics is not rocket science. Nonworking immigrants deny to the United States the larger economic pie that working immigrants generate. In fact, to the extent that the welfare state turns working immigrants into nonworking immigrants, its effect is similar to government legislation that prevents U.S. firms from adopting cost-reducing, labor-saving technology. Unfortunately, there's more: the wherewithal to finance these transfers necessarily comes from American taxpayers. Nonworking immigrants living off American taxpayers are a losing proposition for Americans.
A number of studies have attempted to assess immigration's consequences in the context of the welfare state. Many use questionable theoretical and empirical methodologies, as they seem bent on obtaining particular results. One of the better studies, however, is the aforementioned National Academy of Science effort, which argues that the consequences are ambiguous.
Ambiguity suggests that public policies that move the United States toward encouraging working immigrants will have long-run positive consequences. Working immigrants enhance the well-being of Americans, just as the steam engine, electricity, and computers have undoubtedly raised Americans' living standards. The reason, again, is simple: both immigrants and innovations reduce the costs of production.
Sorry to say, the transition to the longer-run outcome is not easy, for the more immediate consequences of immigration are less evenly distributed across the population. And just as the Luddites in nineteenth-century England smashed laborsaving textile machinery, one can expect (as observed throughout U.S. history) vehement opposition by those espousing the second immigrant story. Nevertheless, in the race among nations, victory will go to those nations more open to the first story.
Cecil E. Bohanon is professor of economics at Ball State University in Muncie, Indiana. His research interests include applied microeconomic issues and public policy analysis. T. Norman Van Cott is professor of economics at Ball State University. His research interests include applied microeconomic issues and economic history.
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