This essay is based on the working paper “The Effect of Immigration on Inequality in the Next Generation” by Mark Borgschulte, Heepyung Cho, Darren Lubotsky, and Jonathan Rothbaum.
Immigration Reduces How Much Economic Advantage Parents Transmit to Their Children
The view of America as the land of opportunity has been challenged by recent research showing the strong correlations in economic outcomes between parents and children in the United States relative to those in other wealthy countries. This correlation, a measure of intergenerational mobility, differs markedly across local areas in the United States, raising questions about its determinants. In our paper, we estimate how the large influx of mostly low-skill immigrants in the second half of the twentieth century shaped the relationship between native-born parents’ and children’s economic outcomes.
We find that cities in the United States that have received a larger share of immigrants than others have seen a reduction in the importance of parental income in determining the outcomes of their (adult) children.
New Data Bring New Evidence to Literature on the Effects of Immigration
Immigration is among the most polemic social, political, and economic phenomena in the United States. We broaden the existing analyses of the economic effects of immigration to study the long-run and intergenerational effects. A long literature in labor economics examines the contemporaneous response of labor markets to immigration. These studies generally find small effects of immigration on wage levels and wage inequality, though this literature is contentious and some scholars, such as George Borjas, have argued that immigration has more substantive effects on contemporaneous wage levels than has been historically documented. Our project makes the point that the narrow focus on contemporaneous effects misses many important effects of immigration on the US-born. These effects play out over decades and have largely not been studied.
Our research is made possible by new data linkages that bring together birth records, IRS tax filings, and census survey data for nearly the entire population of children born in the United States between 1977 and 1985, including their parents’ earnings and their own educational attainment, marriage, fertility, migration, and income as an adult. Using this data, we estimate the relationship between parent and child incomes from tax filings and then determine how this relationship differs across cities (measured as census commuting zones) that received more or fewer immigrants in the 1980s. We also examine intermediate outcomes, such as educational attainment and migration, to understand why economic mobility responds as it does.
Our Main Findings
• We find no effect of immigration on average adult incomes of the cohorts born around 1980 who during their youth lived in cities that received an influx of immigrants. The absence of an average effect reflects both an increase in adult income among children from low-income households and a decrease among children from high-income households. Taken together, immigration has increased intergenerational mobility in the United States.
• Differences in the effect of immigration across demographic groups are small. Immigration raises the income of Black Americans slightly more than that of White Americans, while reductions in income are moderately larger for women from the high-income families.
• Our conclusion that immigration lessens the correlation in incomes across generations is not sensitive to using alternative measures of income, such as including self-employment and non-labor income, or total household income. Our conclusions are also not sensitive to the particular control variables we use, including local housing prices.
Intergenerational Mobility Effects Are Well Explained by Changes in Education (and not Employment, Migration, Marriage, or Fertility)
In addition to intergenerational income, we examine a range of intermediate outcomes to understand the mechanisms that can explain the results on intergenerational mobility. Of the intermediate outcomes we consider, education accounts for most of the effects. Children born to native, low-income families are much more likely to graduate from high school in cities that received more immigrants. The labor market returns to education and high school graduation are well-studied, and these educational responses, i.e., completing high school at higher rates in the face of increased competition for jobs, can account for almost all the gains in adult income. Among children from high-income families, we find a decrease in college completion that explains most of their income losses.
We also examine other intermediate outcomes, finding they have less scope to explain our main findings. Employment among the native born declines as a result of more immigration, especially for women from high-income families. These responses are, however, counterbalanced by higher incomes for those who work. Patterns of migration to other cities within the United States shift, but the responses are small and cannot explain the main findings. Marriage rates rise with no change in fertility; neither accounts for an important share of the effects on adult income and intergenerational mobility.
Policy Implications
Over the coming decades, economic and demographic forces will continue to create strong incentives for migration from the poor to the wealthy areas of the world. Understanding the effects of this immigration remains an important area of research with the goal of informing policy. Our research finds that immigration lowers intergenerational inequality and has created more equal adult incomes among the US cohort born around 1980. In particular, we find that educational responses of natives are crucial in explaining the improved outcomes among children from low-income families. Thus, a core policy-relevant finding is that immigration creates greater long-run benefits when native-born children have educational opportunities that allow them to adjust to the changing economic environment.
Mark Borgschulte is an associate professor of economics at the University of Illinois at Urbana-Champaign.
This essay is part of the Immigration Research Brief Series. Research briefs highlight economic effects of immigration and enhance our understanding of today’s immigration systems.
