Do Surges in Less-Skilled Immigration Have Important Wage Effects? A Review of the U.S. Evidence

This paper reviews a small part of a vast professional literature on the labor market effects of new immigrants. It focuses on recent studies that have employed econometric techniques to estimate wage effects of less-skilled immigrants during the two great American immigration surges (roughly 1870-1914 and 1980 to the present). � The literature is fairly consistent in finding that large long-term immigrant surges have at least small negative wage effects for less-advantaged members of the labor force, and that these are likely to be largest for foreign-born workers and less-educated African-Americans in major immigrant-receiving regions. While this is consistent with the simple textbook prediction in a largely deregulated labor market, we might have expected more robust negative effects. The explanation may be that these effects are inherently difficult to isolate, especially given the quality of the data. Many less-skilled new immigrants are undocumented workers who are employed by individuals or small family businesses under-the-table and are either not counted or counted poorly. � The paper concludes that, while all consumers and many employers (both as households and as firms) have undoubtedly benefited substantially from the surge in undocumented low-skilled workers since the early 1980s, there are also some losers, and there is consequently a need for policy interventions designed to ensure that socially-acceptable wage levels, employment opportunities, and working conditions are maintained for our least advantaged workers, native- and foreign-born alike.�� David Howell is�a professor at Milano The New School for Management & Urban Policy. He is the editor of Fighting Unemployment: The Limits of Free Market Orthodoxy.immigration, wages, labor markets, labor supply

"Technological Change and the Demand for Skills in the 1980s: Does Skill Mismatch Explain the Growth of Low Earnings?"

The earnings of low-skill workers have suffered substantial declines since the mid 1970’s. The conventional explanation is that a technology-induced increase in skill requirements has resulted in a growing mismatch between the skills demanded by firms and those supplied by the workforce: declining demand for low-skill workers led to falling relative (and real) wages. But neither statistical nor case study evidence indicates that this period was characterized by a fundamental, economy-wide transformation in production technology or by a shift in the longterm upward trend in skill requirements whose timing and magnitude could account for the wage restructuring. What the evidence does suggest is that the collapse in wages was largely unrelated to skill restructuring. In the face of sharply increasing competition, employers adopted a “low-road” strategy aimed above all at reducing labor costs, through wage concessions from workers, the replacement of full-time with part-time and temporary workers, an increased reliance on low-wage outside contractors, and relocation to low-wage sites - a human resource strategy that was facilitated by rising supplies of workers willing to accept low wages (e.g., displaced high-wage workers and low-skill immigrants) and a variety of government policies. The mismatch appears to be less between skills demanded and skills supplied than between skills demanded and wages paid. This suggests that while there is a need to improve our education and training system, improving worker skills will not, by itself, have much impact on the distribution of earnings.

By What Measure? A Comparison of French and U.S. Labor Market Performance with New Indicators of Employment Adequacy

The unemployment rate is conventionally relied upon to measure national employment performance, and has been the main indicator justifying comprehensive labor market reforms, generally in the direction of deregulation and benefit reduction. The starting point of this working paper is that a well-functioning labor market should produce not just enough jobs, but enough “decent” jobs. We compare U.S. and French performance according to three indicators, calculated from each country’s main household survey for 1993-2005 by age, gender and education group. With low wages defined as less than 2/3 of the full-time median and inadequate hours defined as working involuntarily part-time, we calculate: 1) the low-wage share of employment; 2) the underemployed share of the labor force; and 3) the adequately employed share of the working age population. France performs well above the U.S. on all three indicators, particularly for less-educated workers, and the French advantage has grown substantially since the late 1990s. In 2005 the underemployed share of the male labor force with less than a high school degree was 64% in the U.S. and just 23% in France; for the female labor force, these figures were 84% in the U.S. and 41% in France. The adequately employed share of the prime-age (25-54) population with just a high school degree was 64% for U.S. men and 80% for French men; among women, these rates were 39% for the U.S. and 63% for France. These results indicate that accounting for adequate pay and hours of work has large effects on the measurement of labor market performance. The authors conclude by recommending that indicators such as these, and not just the unemployment rate, should have a central place in discussions of national labor market reform.This paper was revised in November 2008.labor supply, labor demand, wages, unemployment,

Unemployment Compensation and High European Unemployment: A Reassessment with New Benefit Indicators

Generous unemployment benefits lie at the heart of the conventional explanation for persistent high unemployment. The effects of benefit generosity are more ambiguous in a broader behavioral framework in which workers get substantial disutility from unemployment controlling for income, and know that unemployment has scarring effects in the future. The micro evidence suggests modest effects of changes in generosity, but there are reasons to doubt that the impacts on national unemployment rates are consequential. The strongest evidence for the orthodox prediction comes from cross-country regressions on the OECD’s gross replacement rate (GRR), but we find little support in the pattern of annual changes in the GRR and the unemployment rate for OECD countries over the last three decades. We take advantage of newly released and much improved net replacement rate indicators from the OECD, which show little correlation with either the GRRs or with unemployment and employment rates. The evidence does not offer compelling support for the view that benefit generosity is at the root of high European unemployment. ��

"Job Quality, Labor Market Segmentation, and Earning Inequality: Effects of Economic Restructuring in the 1980s by Race and Gender"

The authors examine the effects of employment restructuring in the 1980s on white, black, and Hispanic men and women within a labor market segmentation framework. Cluster analysis is used to determine whether jobs can be grouped into a small number of relatively homogeneous clusters on the basis of differences in job quality. With data centered on 1979, 621 occupation/ industry cells covering 94% of the workforce are analyzed with 17 measures of job quality, ranging from earnings and benefits to skill requirements and working conditions. The paper finds strong support for dual and tripartite schemes that closely resemble those described, but never satisfactorily verified, by the segmented labor market (SLM) literature of the 1970s: the "primary" (independent and subordinate) and "secondary" segments. But the findings also show that each of these three large segments consists of two distinct and easily interpretable job clusters that are significantly different from one another in race and gender composition. The job structure has become more bifurcated in the 1980s, as "middle-class" jobs (the subordinate primary segment) declined sharply and the workforce was increasingly employed in either the best (independent primary) or the worst (secondary) jobs. White women became much more concentrated at the top, while white men and black and Hispanic women were redistributed to both ends of the job structure. Black and Hispanic men, however, increased their presence only in the two secondary job clusters. Meanwhile, the quality of secondary jobs declined considerably, at least as measured by earnings, benefits, union coverage, and involuntary part-time employment. As these results would suggest, the paper research found that earnings differentials by cluster, controlling for education and experience, increased in the 1980s. The male and female wage gap also increased, as did the portion of these increasing differentials that were accounted for by changes in the distribution of racial groups among clusters.

Are Protective Labor Market Institutions Really at the Root of Unemployment? A Critical Perspective on the Statistical Evidence

This report debunks the myth that labor market protections, such as unions and unemployment benefits, are responsible for high European unemployment rates.

"Employment Restructuring and the Labor Market Status of Young Black Men in the 1980s"

The decline in the employment status of young black men relative to their white peers in the post-1970 U.S. Labor market is the impetus for this research. This paper examines the effects of recent employment restructuring on young workers by race and sex. In the case of the least educated group of young black men (aged 25-34), the employment-to-population ratio declined by almost 35 percent (equivalent to 28 percentage points) from 1970 tol985. Moreover, the 1980s were a stark reversal to the decades-long trend of a narrowing of the black/white earnings gap. Recent literature on demand-side trends for black employment has employed aggregate Census industry and occupation classifications: A more accurate depiction of change among various demographic groups is represented in an increasingly consistent segregation of job classifications. The findings indicate that job segments with the highest concentration of young black men had the lowest employment and earnings growth, but the highest growth in educational requirements, between 1979 and 1989. Furthermore, while the distributions of moderately educated young black and white women among segments converged during this time, the black and white male distributions diverged sharply. Hence, the results imply a strong link between changes in rates of labor market discouragement and changes in job opportunities, job quality, and educational requirements. A lingering question remains for future research: Given that the distribution of young, moderately educated black and white women has narrowed substantially, why have young black men failed to redistribute themselves toward higher-quality, growing job segments as effectively as their white counterparts?

"Institutional Failure and the American Worker, The Collapse of Low-Skill Wages"

Howell argues that the collapse of low-skill wages in the United States cannot be explained by a skill mismatch resulting from a technology-driven decline in the for low-skill labor. He presents evidence refuting the prevailing belief that a substantial shift in demand away from low-skill work characterized the 1980s. He asserts that a more compelling explanation for the growing wage gap can be found in fundamental changes in the institutions, practices, and norms that determine labor market outcomes--a return to a confrontational attitude toward labor by management, a shift to a laissez-faire approach to regulatory and redistributive functions by government, and management's adoption of low-road strategies to cut labor costs in response to competitive pressures.