Since about 1850, international migration has played an important role in labor markets. In the first wave of immigration, from 1850 to 1913, over a million people migrated to the Americas each year. Most were from European countries. After several decades of war and economic depressions, massive immigration resumed in 1945, and most of the immigrants were from less-developed countries. The most recent wave of immigration started in 1990 and has increased the supply of labor to the U.S. economy by about 10 percent per decade.
Immigration creates winners and losers within the economy. The increase in the supply of labor decreases wages for the native workers who have the same skill level as the immigrants. Because the average U.S. immigrant has less education and earns less income than the average native, immigrants compete with low-skill natives, decreasing their wages. On the benefit side, the decrease in the wages of low-skill labor decreases production costs and product prices, so consumers benefit. In general, we expect low-skill workers to lose as a result of immigration because the lower wages will dominate the benefits of lower consumer prices. In contrast, we expect high-skill workers to benefit from lower prices.
Economists have estimated the net effect of immigration on the U.S. economy. George Borjas shows that immigration to the United States has a small positive effect, with the losses in wages of low-skilled workers more than offset by gains to consumers and firms. This conclusion is consistent with the idea that exchange increases efficiency and the size of the overall economic pie. Studies of the most recent wave of immigration suggest that immigration decreases the wages of high-school dropouts and other low-skilled workers.