Home > Economics FAQs Blogs > Regarding unemployment and immigration, why is it that wages will be lower in the short run and higher in the long run due to immigration?
This question pertains to topics in Microeconomics, such as Labour Market, Unemployment, Immigration, and Wages
Labour Market: A labour market is a market where workers offer their skills to employers in exchange for wages. The employers are the buyers of labour services and the employees are the suppliers.
Unemployment: Unemployment is a phenomenon that occurs when a person who is actively searching for employment is unable to find work.Immigration: Immigration is the international movement of people into a destination country of which they are not natives, or where they do not possess citizenship, in order to settle or reside there.
The effect of immigration on wages is a consequence of changes in the supply and demand dynamics of the labour market.
Short-run Impact: In the short run, when a large number of immigrants enter the labour market, the supply of labour increases, shifting the labour supply curve to the right. If the demand for labour remains the same, the increase in supply of labour can lead to a decrease in wages, as employers can source the same labour for a lower wage rate due to increased competition amongst workers.
Long-run Impact: Over the long run, however, the effects may reverse. The immigrants, like the native population, will consume goods and services in the economy. This increases demand for goods and services, which in turn increases the demand for labour to produce these goods and services. As a result, the labour demand curve shifts to the right. If the supply of labour remains constant, this increased demand can raise the wage rate.
UK Labour Market Post-Brexit: In the aftermath of Brexit, the UK saw a drop in EU workers. This led to a decrease in the supply of labour and increased wages in certain sectors in the short run.
United States Immigration Waves: The United States has seen several waves of immigration throughout its history. While initial influxes may have put short-term downward pressure on wages, over time the increased demand for goods and services, driven by these new populations, has helped bolster wage levels.
In essence, immigration can lead to lower wages in the short run due to an increase in labour supply and intensified competition amongst workers. However, in the long run, immigrants contribute to the demand side of the economy, increasing the demand for labour, which can ultimately lead to higher wages. The actual impact can be more complex and influenced by other factors like the skill level of immigrants, government policies, and the state of the economy.
