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Faculty Viewpoints

Does Immigration Create Jobs?

A series of studies shows that, contrary to much of the rhetoric on the topic, immigration can contribute to economic growth and expansion of the labor market. Yale SOM’s Mushfiq Mobarak talks to Yale Insights about what his research, and others’, shows about the effect of immigration.

A recent study found that about half of unicorns in the U.S. owe their existence to immigrants. In this case, by “unicorn,” we mean highly successful, fast-growing startups—not magical creatures. The study, conducted by the National Foundation for American Policy, determined that 44 out of 87 privately held companies valued at more than $1 billion had at least one immigrant founder. It further estimated that each of these immigrant-founded companies created 760 jobs.

This is just one example of how, contrary to much of the rhetoric on the topic, immigration can contribute to economic growth and expansion of the labor market. Academic studies have found that immigration to the U.S. has little negative effect on employment levels of native workers and that the presence of immigrants is associated with greater economic productivity. Another study found that foreign-born graduate students in science and engineering departments at U.S. universities contribute to innovation and research production.

In an interview with Yale Insights, Professor Mushfiq Mobarak (one of the authors of the last study) discussed the economic logic behind the idea that immigration can be a part of the formula for economic growth.

Q: How well is the impact of immigration on the U.S. economy understood?

The research on the economic impact of immigration is quite clear, but I think there are lots of public misperceptions about the effects on the U.S. economy. When people think about what an immigrant does, the first thing they think about is, “Here’s an immigrant that comes, takes a job, and that’s a job that an American could have otherwise received.” But the actual story is not that simple.

It’s often the case that immigrants take jobs that Americans don’t want, and it’s also often the case that Americans have a set of unique skills—language skills or customer- or client-facing skills—that immigrants cannot easily reproduce. So, what you end up seeing is immigrants sort into jobs that Americans otherwise would not be taking.

The story can get even better than that. In addition to immigrants not being substitutes for American workers, they may even be complements for those workers. One example would be an immigrant who is willing to take a low-paying job, say, at the back of a restaurant washing dishes. That makes the restaurant business more sustainable and viable, and it allows the restaurant owner to hire more American workers to be client-facing, say, as maître d’ or waiters or managers.

It could also be the case that, if immigrants are coming in and taking low-paying fruit-picking work, as they often do in the U.S., that makes a vegetable business or a fruit business more viable, and that creates jobs for Americans downstream.

It’s also the case that a lot of immigrants come in and provide some basic home services and lower those costs. Research shows that in cities that have a higher fraction of immigrant workers, the cost of lawn mowing, babysitting, and other such services are lower. That frees up time for American workers and allows them to take advantage of their college education and go earn a salary outside the home. So, it becomes a win-win both for the worker who is American as well as the worker who is an immigrant.

Q: How has your research contributed to the topic?

I’ve looked at the contribution made by foreign graduate students to the production of innovation in the U.S.

This is important for the economics of immigration because it turns out that a lot of the benefits from immigration stem from high-skill immigrants. Particularly in the U.S., our comparative advantage is in the creation of new products and new markets. Even though the U.S. has a trade deficit in virtually all sectors, that deficit is narrowest in the high-skill sector for high-tech products. It’s also the case that the secondary school system in the U.S. is not at the top levels of the world. If the U.S. is producing all these innovations, but our secondary school system isn’t that great, it must be the case that somebody else is filling that gap.

When you look at the data on who is receiving PhDs in the U.S., it turns out many of them were not native-born. In fact, in engineering departments over half of all PhDs allocated are to people who are not American born. They come and get a PhD; often they stay and either work in industry or academia. And those organizations or firms produce innovations that then benefit the U.S. economy.

I track this by looking at detailed data on who received PhDs in the U.S. between 1950 and 2000, then relating that to the scientific output that comes out of those labs, in the form of publication and citations, but also in the form of patents and patent citations, which is a useful measure of innovation. What you find is both American and foreign-born students are important contributors to the production of innovation in the U.S.

Q: Why do you think the issue has lately become so politically salient?

I think whenever there are economic pressures in a country, that’s when there are pressures to blame something or someone. Often you see that international trade gets blamed or immigrant workers get blamed. When there are fewer pressures, we forget about it for a while. So, it is important for us to get the economics of this right because if we institute restrictions on the free movement of people, and especially the movement of high-skill people, there is a great risk that the economy will slow down.

The U.S., as I said, has a comparative advantage in the production of innovation. So, if we institute barriers to the entry of high-skill foreigners, I think we will lose many of those competitive advantages. But even at the low-skill level, the U.S. economy has been growing much faster than, say, Japan’s economy because there are lots of workers who are willing to take all categories of jobs here.

In Japan, which has had historically much stricter and more stringent immigration policies, there are lots of low-skill jobs that people don’t want to take. Japan had periods of high growth 40, 50 years ago when labor costs were low in the country. As labor costs started increasing, and they weren’t replacing native workers with immigrant workers, Japan slowed down, and it’s actually lost about two decades in growth.

Q: Do you get a sense of how much of the push for stricter limits on immigration is emotional or political as opposed to being based on an economic argument?

I think if you look at the research on the topic of immigration systematically, and you do a meta-analysis of all the hundreds of studies that have been done, it is very difficult to make a logical and economic-based case for putting restrictions on the free movement of labor.

However, it is the case that the emotions run high and the politics become more difficult when there are segments of the economy here who are hurting. So we do need to think a lot more carefully about how the cost and benefits of immigration get distributed across society. If an immigrant comes in, there are some cases where an American worker loses their job, or that puts a downward pressure on the wages of American workers. So they bear the cost. However, overall, the economic research is clear that immigration contributes to overall efficiency in the economy as well as growth.

Now, if those same American workers who are losing their jobs are not seeing the benefits of that growth, then there’s, of course, going to be political pressure to put barriers to immigration.

Q: Is there a model that’s out there that would work better for the U.S.?

We should be open to thinking about immigration policy as a spectrum rather than two discrete points where either we’re completely open or completely closed.

One problem I see right now is that countries like the U.S. or Canada or Germany, when they let immigrants in, those immigrants have a clear path to full citizenship and all the rights that come with citizenship. That may make native populations in those countries very nervous about letting in people from a different culture who speak a different language and come with different beliefs.

Lots of countries have chosen middle-of-the-road policy options. So, for example, you might allow immigrant workers to come and work temporarily, especially in categories of jobs and skill categories where there are excess needs in the economy. Many Asian countries—Singapore, Malaysia—and also countries in the Middle East like Kuwait have immigration policies of that nature. There are much larger stocks of immigrants coming into those countries every year, but they stay temporarily. The day they walk in, they know there is never going to be a clear path to citizenship.

That policy makes the native population of those countries less nervous, politically. I’m not suggesting that the U.S. should follow the immigration policy of Kuwait. You also have concerns about violation of migrant rights in those countries. But the point of thinking of immigration policy as a full spectrum rather than discrete points is that you can choose whatever point in the spectrum you are most comfortable with.

U.S. labor laws and our views of human rights should be applied, and maybe we choose a different point on the spectrum where we care a lot more about migrant rights. But at the same time, that opens up the option for us to let in a lot more people who then contribute to our economy and, in exchange, we also make a larger contribution to the betterment of human life all over the world.

Related: Watch an animation narrated by Mushfiq Mobarak about the economic benefits of immigration.

Department: Faculty Viewpoints