Inflation, labor shortages and the migrant crisis captivated the news cycle for much of 2021 and led to hesitant debates about the seriousness of these problems and how best to address them. to resolve. Lately, attention has shifted to whether soaring inflation would erode the real earnings of the average American. That hasn’t stopped some people from sounding the alarm bells about immigrants, either At the border Or on job-based Visa– lest increased competition in the labor market depress the wages of low-skilled American workers.

How real are these concerns to the most vulnerable Americans? Should they be worried about their wallet due to rising inflation, immigration, or either?

Inflation can act as a regressive tax if the rise in prices is focused on basic necessities and workers in weaker bargaining positions are unable to secure wage increases. When inflation was rising about 2% per year before the pandemic, a person earning $ 15 an hour, or $ 30,000 per year, would lose about $ 600 per year without a raise, which is not an insignificant amount for someone who lives paycheck to paycheck.

But 2% inflation growth is no longer our reality. Prices are now on the rise 6.8% since last year, which is the biggest increase in 39 years. If a $ 15 an hour worker did not receive a raise in the past year, his or her actual earnings could drop to as low as $ 2,040.

Some workers have seen their wages increase, but not enough to offset inflation. After accounting for increases in nominal earnings, the Bureau of Labor Statistics estimated that, on average, workers suffered a 1.9 percentage reduction in wages over the past year due to inflation. This means that a worker at $ 15 an hour has likely seen $ 570 disappear from their wallet.

However, the averages can often be misleading. Gas prices have increased by 58.1 percent over the past year, and low-income Americans tend to spend more of their average dollar on gas. Indeed, a Federal Reserve Bank of New York to study found that poor and rural households are particularly affected when gasoline prices soar, and this has been one of the main contributors to “inflation inequality”.

Finally, we must recognize another factor that masks the typical impact of inflation on wages: the shortage of unique labor experienced in the last year, which was partly caused by maintaining unemployment benefits and led to higher than usual pay increases for many workers. Without it, working poor people would be considerably worse off due to rising inflation.

In particular, some inflation is not always a cause for concern, especially if it is regular or temporary, or accompanied by a simultaneous increase in wages. But today, we can still say with certainty that working poor are going to suffer a rough adjustment.

In contrast, most research shows that immigration has a small effect on wages in the short run, whether positive or negative.

To put this in perspective, the highest negative estimate (and one frequently cited by opponents of immigration) finds that the relative wages of U.S.-born workers drop nearly 4% when immigration increases the number of workers in the same skill group by 10% . However, even this high-end estimate is often misinterpreted and misquoted. because it measures the relative impact and not the absolute impact on wages. In other words, it measures the effect of immigration on the wages of one skill group relative to another, and not the impact of immigration on the total amount of money a person actually wins.

Over the past decade, immigration has increased the number of workers with only a high school diploma by 0.14% per year on average. Even if we put aside the issues of using the high-end estimate, it would result in an income drop of about 0.06% per year for U.S.-born workers with the same level of education. For our worker at $ 15 an hour, that equates to an annual pay cut of only $ 18 due to low-skilled immigration. This hardly compares to the real impact of inflation on the same worker.

It is not even clear that we have to make the comparison. The United States experienced a clean exit immigrants without a high school diploma since 2010, meaning that US-born workers who dropped out of high school would actually earn more using this same estimate. Immigration patterns have changed in recent decades, with the arrival of more highly skilled immigrants. research consensus is that highly skilled immigration improves wages and employment prospects for all Americans, with long-term increases in innovative activity and economic growth.

The bottom line is that immigration fears seem exaggerated when we analyze them in real numbers, when high inflation can hurt many low-income earners in the short term. Today, compared to immigration, Americans should be much more concerned about inflation which is eroding their income.


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