There is broad consensus among economists that immigration has a small but positive impact on the average income of Americans over the long term. But far less analysis has been done on the impact of immigrants on the labor market in the shorter term, particularly when viewed through the lens of the recession and its lingering labor market effects.

In a new Migration Policy Institute report, The Impact of Immigrants in Recession and Economic Expansion, University of California, Davis economist Giovanni Peri finds that immigration unambiguously improves employment, productivity and income but that it also involves some short-term adjustments (such as worker retraining or adoption of new technology). It was commissioned to inform the work of MPI’s Labor Markets Initiative, which is conducting a comprehensive, policy-focused review of the role of legal and illegal immigration in the labor market.

The report, which examines short- and long-run impacts of immigration on average and over the business cycle of growth and contraction, finds that:

• Immigrants do not reduce native employment rates over the long run (10 years), while increasing productivity and average income for native-born workers. Immigration to the United States over the 1990-2006 period can be credited with a 2.9 percent increase in real wages for the average U.S. worker.
• The adjustment process, however, is not immediate. When immigration occurs during a downturn, the economy does not appear to respond as quickly as it would during economic expansions and there is evidence of modest negative impacts on employment and average income in the short run. These impacts dissipate over periods of up to seven years.
• During periods of economic growth, by contrast, new immigration creates jobs in sufficient numbers to leave native employment unharmed even in the short run. This holds true even for less-educated workers. Immigration during economic expansions has no measurable, short-term negative effect on income per worker.

“Adjustments to employment, productivity and income are more difficult during downturns,” Peri said. “This suggests that the United States would benefit most from an immigration system that better adjusts to economic conditions, allowing legal immigrant inflows to be more responsive to the economic cycle.”

In the report, Peri suggests allowing employers’ demand for work visas to play a stronger role in determining the number of visas issued annually, and that a share of the visas be allocated to less-skilled workers, particularly those who perform primarily manual jobs that native workers increasingly are much less interested in filling.

“This report offers further evidence yet of the need for the immigration system to become significantly more responsive to the U.S. economy’s constantly evolving labor market needs, so that the benefits of immigration can be captured more fully and any negative effects neutralized,” said MPI President Demetrios Papademetriou. “Establishing an independent executive-branch agency that would make regular recommendations to the president and Congress for adjusting employment-based immigration levels would inject a greatly needed degree of flexibility into the current rigid immigration system.”

MPI first articulated the concept for a Standing Commission on Labor Markets, Economic Competitiveness, and Immigration in 2006, and further fleshed out the proposal in a 2009 report, Harnessing the Advantages of Immigration for a 21st-Century Economy: A Standing Commission on Labor Markets, Economic Competitiveness, and Immigration.

The Peri report is available at www.migrationpolicy.org/pubs/Peri-June2010.pdf.