A few days ago I was having a discussion about high-skill immigration with some people who should know better. It suddenly struck me that even though everyone favors more high-skill immigration, there is a lot of confusion about why one should be in favor of it.
Suppose all workers are alike. (This is not a trivial assumption, but the argument pretty much carries through if we allowed workers to be different; it’s just harder to explain. I’m also going to focus on the productivity effects of high-skill immigration and ignore the important fiscal impact on the welfare state).
In the textbook model of the labor market (read: supply and demand), immigrants enter the country, and the wage falls in the short run. It is this wage drop that generates the “immigration surplus”–the increase in the size of the economic pie accruing to natives. Over time, the economy adjusts–firms expand, for example–and the wage goes back to what it was in the pre-immigration era (assuming constant returns to scale), and the immigration surplus dwindles down to zero.
Note I said nothing about whether workers are low-skill or high-skill. Regardless, the wage of competing workers falls in the short run, the economy adjusts over time, the wage goes back to what it used to be, and the immigration surplus disappears.
In order for high-skill immigration to be beneficial in the long run, we need to deviate from this textbook model. The deviation that will do the trick is that high-skill immigrants generate “productivity spillovers.” In other words, “we” natives learn stuff from them, becoming more productive in the process. It is this rubbing off of what high-skill immigrants possess that makes high-skill immigration beneficial.
Is there evidence proving the existence of such spillovers? In some cases of high-skill immigration: Yes. In other cases: No. Over the next few posts, I will summarize what I think is the strongest evidence in favor of such spillovers, and why that evidence may not really say all that much about the impact of the type of high-skill immigration we have in mind when we talk about changes in immigration policy.