Imports, Immigrants Hurt the Unskilled

TRADE union leaders often claim that foreign "cheap labor" beats down the wages of United States workers. Free-trade enthusiasts usually dismiss such opinions as ungrounded in fact.Now new research by three academic economists offers some support for the union leaders' thesis. Freer trade benefits Americans on average, says one of the three economists, George Borjas of the University of California, San Diego. But it does hurt some workers, particularly the less-skilled. So, he suggests, when Congress considers the free-trade pact with Mexico that is now under negotiation by the Bush administration, it should be aware of the findings in their paper. Less-skilled Americans, particularly young men, were already hard hit economically during the 1980s, Mr. Borjas notes. Real earnings, after inflation, of 25- to 35-year-old male high school graduates and dropouts actually declined, while those of the college-educated rose. Moreover, these less-educated workers had a harder time finding jobs in the 1980s. Their rates of employment fell. The research by Borjas, plus Richard Freeman and Lawrence Katz, both of Harvard University, finds that two reasons for the widened economic split in the nation during the 1980s were the larger inflow of less-skilled immigrants, including illegal immigrants, and the rise in the US trade deficit, notably the increase of imports in industries that hire low-skill workers. In a National Bureau of Economic Research paper, the three estimate that from 15 to 25 percent of the 11 percentage point rise in the earnings of college graduates relative to high school graduates from 1980 to 1985 can be attributed to the massive increase in the trade deficit over the same period. Many of the extra imports substituted for and competed with the labor of US workers with only a high school diploma. As the trade imbalance declined in the late 1980s, the effect on the college/high school wa ge differential diminished. Further, the large share of new immigrants with less than a high school education and the concentration of the trade deficit in industries that intensively employ high school dropouts hurt the earnings and employment opportunities of native workers who were high school dropouts. By 1988, the trade deficit and continued immigration increased the effective supply of high school dropouts by 28 percent for men and 31 percent for women. This change accounts for between 30 and 50 percent of the approximately 1 0 percentage point decline in the relative weekly wage of high school dropouts between 1980 and 1988, the three economists estimate. That amount of harm to the wages of high school dropouts, they add, is approximately equal to that caused by the decline in unionization of the US labor force in the 1980s. In the 1970s and 1980s, the US economy became more connected with the rest of the world. The ratio of the sum of exports and imports to national output increased from 16 percent in 1970 to 25 percent in 1990. By 1985, the trade deficit reached some 3 percent of national output. At the same time, immigration flows increased as upwards of 700,000 to 800,000 legal and illegal immigrants entered the country annually. Figuring it would take "so many" US workers to produce "such and such" a quantity of imports, the three economists find that the annual increase in the implicit labor supply due to the mid- and late-1980s trade deficit in manufactures was on the order of 1.5 percent for the economy as a whole and 6 percent for the manufacturing sector. Immigrants increased the labor supply by about 0.3 percent per year. However, unlike trade deficits that only change the implicit labor supply annually, immigration permanently increases the nation's work force as long as the immigrants remain working. The 1980s immigrant flow boosted the share of the US work force that is foreign-born from 6.9 percent in 1980 to 9.3 percent in 1988. Over 20 percent of the total high school dropout work force was foreign-born by 1988. Borjas wouldn't want the US to put up a wall against immigrants and imports. But, he adds, the nation should know that "even free trade isn't free." It has economic consequences.