Overlooked Success Story

__"U.S. Wage-Inequality Trends and Recent Immigration" by Robert I. Lerman, in The American Economic Review (May 1999), American Economic Assn., 2014 Broadway, Ste. 305, Nashville, Tenn. 37203.__

Economists have been sounding the alarm in recent years about a broad increase in earnings inequality. Though Lerman, an American University economist, has argued that no such increase took place after 1986 (see WQ, Summer 1998, p. 126), there has been little, if any, disagreement that wage inequality increased between 1979 and the mid-1980s. Until now.

Lerman insists that something important has been left out of earlier assessments: the impact of immigration. In 1996, about seven percent of the U.S. labor force consisted of immigrants who had arrived during the previous 16 years, mostly from low-wage countries. To economists gauging income inequality, Lerman argues, things look worse than they should, because these low-income folk don’t show up in their 1979 base year measurements. But they do appear in later measurements, dragging the averages down.

Among non-elderly male workers, however, the median wage rate ($16 an hour in 1979) still declined, albeit by a lesser amount (5.4 percent, instead of 10.4 percent). Even so, the "inequality" ratio for the male workers, rather than increasing by 22.2 percent, dropped by 1.6 percent. According to a 1997 analysis, immigration was responsible for as then much as 55 percent of the relative wage decline experienced by high school dropouts and other low-wage workers.   Lerman’s solution is to estimate the immigrants’ wages in their home countries, add them into the base year (1979) calculations. Instead of falling by 1.4 percent between 1979 and 1996, he finds, the median wage rate for all workers increased by 5.6 percent. And instead of the huge 16.6 percent growth in "inequality," there was a 4.7 percent decrease. (In this measure of inequality, the wage rate for the top 10 percent of earners is compared with the wage rate for the bottom 10 percent.)    But immigrants’ own wages have more than doubled—"more than enough," Lerman says, "to offset relative wage losses of other workers at the low end of the wage spectrum." And when the immigrants’ "rapid wage gains" are taken into account, he concludes, "most of the estimated rise in wage  inequality disappears."