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America, but with fewer immigrants



America, but with fewer immigrants

America is an outlier. Its GDP per capita is much higher than any other country with at least 10 million inhabitants. The US GDP per capita (adjusted for PPP) is $85,373, while the next nine range from Taiwan at $77,858 to Great Britain at $58,880. (These are all IMF estimates for 2024.) If you prefer nominal GDP measured at current exchange rates, the difference is even greater. The US is back at $85,373, while Australia comes in second at $66,589.

There is another way in which the US is an outlier. We have experienced far more immigration than any other country. How should we think about these two facts?

Opponents of immigration often claim that it makes America poorer by driving down wages. Presumably this means that if we had experienced less immigration, we would be even richer. Imagine if instead of 330 million people, our population had only increased to 110 million – somewhere between Germany and Japan. How rich would we be in that case?

I suppose it is possible that even though America is much richer than all other medium and large countries, and even though we have had much more immigration than other countries, immigration has depressed incomes in America. Perhaps with lower levels of immigration we would be even more of an outlier.

But does that seem likely?

David Levey referred me to a recent study of this question Alessandro Caiumi and Giovanni Peri. Here’s the summary:

In this article, we revive, extend, and improve on the approach used in a series of influential articles from the 2000s to estimate how changes in the supply of immigrant workers affected U.S. native wages. We begin by extending the analysis to the more recent years 2000-2022. We are also introducing three important improvements. First, we introduce an IV that uses a new skill-based shift share for immigrants and the demographic evolution for natives, which we show passes validity tests and has reasonably strong power. Second, we provide estimates of the impact of immigration on the employment-to-population ratio of natives to test whether displacement exists at the national level. Third, we analyze the occupational improvement of natives in response to immigrants. Using these estimates, we calculate that immigration is due to complementarity between natives and immigrants and the university skills of immigrants, had a positive and significant effect of +1.7 to +2.6% on the wages of lower-educated native workers in the period 2000-2019, and no significant wage effect on natives with a university education. We also calculate a positive employment effect for most native workers. Even simulations for the most recent period 2019-2022 suggest small positive effects on non-university wages and no significant displacement effects on employment. [Emphasis added]

I think this is the key:

complementarity between natives and immigrants and the university skills of immigrants

Other countries are usually good at one thing, like building cars or pumping oil from the ground. America’s diverse population allows us to adapt to changing global trends. When new industries develop, we are usually at the forefront (smartphones, fracking, professional basketball, e-commerce, electric cars, AI, GMO food, superhero movies, high-speed trading, etc., etc. We have all kinds of people, able to to fill all kinds of niches.

Opponents of immigration may have a model in mind where adding labor to a fixed amount of land reduces per capita output. But that’s not how the real world works. The American people, not the country, are his greatest resource.

P.S. The GDP per capita of very small countries is often distorted by factors such as multinational income, oil revenues and tax haven status.