Questions: Immigration Economics

Question 1

Card's (1990) study of the Mariel boatlift — when 125,000 Cuban refugees suddenly arrived in Miami — found that...

• A. Native wages in Miami fell sharply due to the sudden increase in labor supply
• B. Miami's labor market absorbed the immigrants with little detectable effect on native wages or employment
• C. All Cuban immigrants immediately found high-paying jobs
• D. The Miami labor market collapsed and never recovered

Answer: (B)

Card found that despite a 7% increase in Miami's labor force over a few months, there was no significant decline in wages or employment for native workers, including less-skilled natives and previous immigrants. This was surprising because the standard competitive model predicts wage depression from a large supply shock. The finding suggested that local labor markets are more absorptive than the simple model implies — through demand-side responses, geographic mobility of other workers, and industrial adjustment.

Question 2

The wage impact of immigration is identical for all native workers regardless of their skill level.

• T. True
• F. False

Answer: False

The impact depends on the degree of substitutability between immigrants and natives. Native workers whose skills are close substitutes for immigrants' skills face the most wage pressure. Native workers whose skills are complements to immigrants' skills may actually benefit. Low-skilled native workers face more competition from low-skilled immigrants, while high-skilled natives may benefit from complementary low-skilled immigrant labor (e.g., affordable childcare enabling higher workforce participation). The distributional effects are central — the aggregate effect may be small while specific groups experience significant impacts.

Question 3

What is the 'immigration surplus' and why is it typically small relative to GDP?

Model answer: The immigration surplus is the net gain to the native population from immigration — the increase in total output minus the portion that goes to immigrants themselves as wages. It is small (estimated at 0.1-0.3% of GDP) because while immigrants contribute significantly to output, most of that output accrues to the immigrants themselves as compensation. The surplus arises from the difference between immigrants' marginal product and their wage, which benefits employers and complementary workers. It is a real gain but modest relative to the total economy.

Borjas's calculation shows that the surplus depends on the square of the labor supply increase times the elasticity of labor demand. Even a large immigration flow produces a small surplus because the triangle gain is small relative to the rectangular transfer from native workers (whose wages fall) to employers (who pay lower wages). Immigration's largest economic effect is redistribution — from native workers who compete with immigrants to employers who hire them — rather than aggregate efficiency gain.