High growth in lowest wage categories and immigrant economics

Immigrants with low wages may have on balance benefited from the pandemic through workforce market disruption and consequent competitive bidding for workers. Here is the evidence, interesting tied to labor market disruption.  One needs to consider how this phenomenon may have encouraged more persons with low formal education to enter the U.S.

First, According to Bureau of Labor Statistics, in 2021, 19.1 percent of foreign-born labor force age 25 and over that had not completed high school. This is much higher than the figure for native-born labor force which is 3.5 percent. I think these workers dominate with lowest 10% of workers in wage, or simply stated “low wage” workers. The jobs filled by low wage immigrant workers will tend to be those for which English proficiency and tacit knowledge of American consumer culture are not needed.  Unauthorized workers are further restricted by verification policies practiced seriously by many public and some private employers.

The effect on the COVID pandemic on these low wage workers were two fold. First, there were massive layoffs in key industries where they work: According to Bureau of Labor Statistics, the lowest 10 percent of workers by wage work: food preparation and serving related, personal care and service, building and grounds cleaning and maintenance. (Farm employment did not appear to be adversely affected.)

Second, the workers when they went back to work had higher wage gains than workers at higher income categories.

According to the Economic Policy Institute, Between 2019 and 2022, The lowest 10th-percentile real hourly wage grew 9.0% over the three-year period, compared to 2.4% among middle-wage workers and 4.9% among (top) 90% percentile workers.

Why did this happen – both the high wage growth AND the relatively high growth?

Why did this happen? According to the EPI, “The sudden loss of millions of low-wage jobs at the start of the pandemic significantly reduced the frictions that tie workers to particular jobs—that is, the barriers that in normal times keep workers from searching for better employment opportunities. These barriers include, for example, the lack of time or other resources to engage in a job search or a lack of awareness of better opportunities. In the pandemic recovery, this phenomenon opened up opportunities and led to increases in hires and quits (“churn”) in the low-wage labor market. This increased churn—on top of a tightening labor market and the need to incentivize workers to take “front-line” jobs with pandemic exposure—increased low-wage workers’ leverage, which led to faster wage growth.”

According to David Autor and colleagues, “Labor market tightness, following the height of the COVID-19 pandemic led to an unexpected compression in the US wage distribution that reflects, in part, an increase in labor market competition. Rapid relative wage growth at the bottom of the distribution reduced to college wage premium. Wedge compression was accompanied by rapid nominal wage growth and rising job to job separations, especially among young non-college-age high school, or less workers.”

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