How Immigration Disproves the Lump of Labor Fallacy

The Lump of Labor Fallacy tells us that an economy’s jobs are limited. As a result, when more people arrive to fill them, wages plunge and their original occupants suffer. Yes?

Not necessarily.

Immigration Case Studies

Called the Mariel Boatlift, in 1980, more 125,000 Cubans arrived in the U.S. The city that drew the largest number, Miami, saw more than 45,000 immigrants flood its labor market–a 7 percent increase. From a statistical perspective, though, the impact was minimal. Wages did not sink; unemployment did not rise.

One reason was demand. While yes, all of these people hit the supply side of the jobs market, they also affected demand. Arriving with nothing, they needed sheets and towels and soaps, milk and couches. They needed the extra workers who would produce and sell them what they required.

In a 1990 paper, UC Berkeley economist David Card adds that the economy needs to be pretty healthy to pay the short term cost of shelter, food and health care. On the jobs side, that healthy economy needs to be able to provide work. Dr. Card suggests that in 1980, Miami satisfied both criteria.

From: “The Impact of the Mariel Boatlift on the Miami Labor Market”

More recently, economist Giovanni Peri from UC Davis cites a complementary role for immigrants. Willing to accept lower paying low skilled jobs, unskilled immigrants occupy the bottom rung of the jobs ladder in services and agriculture while less educated workers born in the U.S. find employment in manufacturing and mining. For the skilled worker also, immigrants and people born in the U.S. divide when we see the jobs they perform. Dr. Peri says we could even observe a domestic version of comparative advantage that boosts productivity.

Our Bottom Line: Economic Growth

Through an economic lens, immigration is a plus. However, research does divide the short and long term. if the economy is growing then immigrants can be absorbed by a local economy while during a downturn, the impact can be slightly negative. Looking ahead, within seven to ten years, the injection of new workers lifts productivity and income.