Man picking apples

Ahmed Rahman Examines How Technology & Lower-Skilled Immigrant Workers Impact Wage Distributions

Study observes how the interactions between technological growth and specialization patterns between native and immigrant workers affect wages earned by native workers.

Story by

Mary Ellen Alu

When the Bureau of Labor Statistics released its latest job projections for the year 2026, it suggested a growing economic divide—future job opportunities increasingly being concentrated at polar ends, in high-skilled, high-wage jobs and low-skilled, low-wage jobs.

Though not a new phenomenon in either the United States or Europe, job polarization is expected to increasingly define the U.S. economy, with middle-wage jobs that don’t require a college education continuing to shrink or disappear, thanks in part to technical automation.  

“The polarization story is basically, look, while technology these days tends to make us all productive—generally it’s a positive—some people are getting hurt by this,” says Ahmed S. Rahman, associate professor of economics. “And the people who are getting hurt are the people who are actually losing their mid-level jobs, these jobs that were sort of semi-skilled, and they are getting pushed down the skill ladder as opposed to generally going up. Their earnings are potentially adversely affected.”

American flag

Rahman's study examines what happens to the earnings and employment of U.S. workers when different types of technologies evolve, and what happens as foreign workers attracted to the opportunities created by technologies migrate to the United States.

While these job market changes have been intensely studied, the labor supply side of the story has not gotten as much attention, even as sustained inflows of low-skilled immigrants, or foreign-born workers, present a major shift in the U.S. labor market’s skill supply. Research on the effects of different forms of technological changes on immigration and job specialization between native-born and foreign-born workers has been limited.

A new study by Rahman, along with fellow economists Gaetano Basso, of the Bank of Italy, and Giovanni Peri, professor and chair of the Department of Economics at the University of California, Davis, is the first to observe how the interactions between technological growth and specialization patterns between native and immigrant workers affect wages earned by native workers.

In the study, “Computerization and Immigration: Theory and Evidence from the United States,” the economists focused on two primary questions: What happens to the earnings and employment of U.S. workers when different types of technologies evolve? And what happens to these things as foreign workers, who are attracted to the opportunities created by technologies, migrate to the United States?

Among their findings: that low-skilled immigrants coming to the United States were attracted by the technological advancements taking place here, filling manual and service jobs that became more plentiful in thriving economies. Also, they found that U.S. labor markets that were more likely to adopt computing technologies—and that saw the most increase in productivity as a result—were attracting low-skilled immigrants at higher rates.

“One thing one might say is, ‘well that’s a consequence of success, actually,” says Rahman, acknowledging that immigration and border security remain hot-button political issues. “It’s a consequence of the success of a growing economy. We like technology. We see some of the negative byproducts of that technology, but most of us will agree that this is what progress looks like. And so, one of the consequences, for a given border security or given immigration policy, you end up with more, or greater, demand to come to this country.”

In the study, the economists also suggest that an openness to immigration reduces job and wage polarization for native workers affected by technological changes on the job. 

“As automation has depressed routine-job demand and pushed workers from intermediate wage jobs to low-paid manual jobs, immigration has pushed in the opposite direction by increasing the relative demand for routine jobs performed by natives,” they wrote. “Such an attenuating factor may have helped reverse the tendency of less skilled natives to move to lower paid manual jobs.”

Through a series of simulations, or solutions to mathematical equations representing the U.S. economy, the economists show that the flow of low-skilled immigrants to a region can lead native workers in mid-level, routine jobs to upgrade their education and skills, thus boosting their productivity in the workforce and their overall welfare. They say the simulation exercises reinforce their empirical findings, including that technological progress without migration generates labor market polarization and that immigration raises the total earnings of routine native workers.

As part of their empirical analyses, Rahman and his colleagues examined 30 years of labor market data, from 1980 to 2010, from a variety of sources and across some 720 commuting areas. To measure technological advancement, they looked at a combination of the industries that use computers and the growth of those industries, creating maps that showed where computerization “really took off” across the country. Then, they measured migrant flows to see if they are attracted to, and alter some of the effects of, computerization.

Barbershop with many heads

Rahman and his colleagues determined that native employment and wage polarization are less pronounced in U.S. labor markets that had more access to immigrants, partly because immigrants drawn to growth areas fill many of the low-wage manual jobs, pushing native workers to higher achievements and higher wages among the wage distribution spectrum. 

In their analyses, Rahman and his colleagues examined local labor markets with differing potential for attracting immigrants. They looked at the past inflow of immigrants prior to 1980 and the presence of local networks of foreign-born people, which can ease new immigrants’ arrival. They also looked at whether the intensity of technological advancements had produced the same level of polarization among natives across different markets.

In regions of higher computer usage, the economists indeed found a polarization among native workers themselves—more held higher-end and lower-end jobs, fewer were semi-skilled.  

“They’re bifurcating in a sense, but these are also the places that migrants tend to flow into,” Rahman says. “And what’s interesting, it’s actually mostly unskilled [immigrants] who are coming into these areas that have the higher usage of computers. It does make sense, because they complement what the semi-skilled and high-skilled workers are doing.”

In a key finding, Rahman and his colleagues determined that native employment and wage polarization are less pronounced in U.S. labor markets that had more access to immigrants. 

Part of the reason, they say, is that immigrants drawn to growth areas fill many of the low-wage manual jobs, and thus, push native workers to higher achievements and higher wages among the wage distribution spectrum. 

“Many natives benefit [from immigration],” says Rahman. “If you’re high-skilled, this is a good thing for you because the low-skilled immigrants help you, help even more as technology improves, and therefore your wages are going to go up. If you’re mid-skilled and you get to keep your mid-skilled jobs, that’s also good for you. As long as you have that security of keeping that position, then the computerization actually makes you more productive.” 

Native workers and low-skilled, foreign-born workers complement each other, Rahman says. 

As technologies grow, native workers need to use those technologies, while others need to buy the products that natives are producing. Further, households may find they need to hire au pairs or nannies to help them tend to their children. Expanding companies may need more workers to perform janitorial services in their buildings. Young professionals may demand greater services such as restaurant meals and evening shows. All these can be provided more cheaply by migrant workers.

“We still need people to take care of our children if we have two-income households,” Rahman says. “We still need people to pick produce from the fields, and do a variety of different things that are not automatable. When you have people flow in and do those things, it allows the native workers to do what they are relatively good at,” which is technology, he says.

“If the immigrants don’t come in, then it’s going to be the natives who will be compelled to do the au pair services and the picking of the produce. And it doesn’t seem like natives are particularly keen on doing that. And what we’re saying, also, is, it doesn’t make sense [for them to do those jobs] because that’s not where their comparative advantage is.” 

Rahman acknowledged, however, that lower-skilled native workers could be hurt by immigration, because of increased competition for limited jobs. 

“So we know that there are going to be winners and losers, just like anything, trade, immigration, there’s winners and losers,” he says. “The real question is, is it possible that the winners out-win more than the losers, so that if there’s a policy of redistribution [tax policies], we can all come out winners? And the answer is yes, the answer that we come up with based on, we think, very plausible numbers, and we do a lot of tests on this, is, yes.” 

The findings may have important implications for U.S. policy.

“Our model indicates that while immigrants are attracted by technological advances and may compete with natives in manual intensive occupations, their general equilibrium effects on the economy is that of attenuating job and wage polarization for natives,” the economists write. “This is because they complement native skills, have larger elasticity of response to demand of manual jobs and because they increase demand for goods produced.”

Policies aimed at reducing immigration, especially of low-skilled workers, can have the unintended consequences of exacerbating job and wage polarization and weakening capital accumulation, Rahman and his colleagues say. They write: “Such policies often allege to assist middle-class Americans; they may do precisely the opposite.”

Cadets in chairs

Rahman studied first-years at the U.S. Naval Academy to determine if peers can help or hurt an individual's performance in college.

Bad Company?

Can your peers help or hurt your performance?

That’s a question that Ahmed S. Rahman seeks to answer in “Bad Company: Reconciling Negative Peer Effects in College Achievement,” published in the European Economic Review.  

Rahman, whose work focuses on the human capital story, took on the challenge by studying first-years at the U.S. Naval Academy, where dorms and classes are randomly assigned. Rahman, who looked at 22 years of data, co-authored the study with Professor Ryan R. Brady and Associate Professor Michael Insler, both of the U.S. Naval Academy.

“That first year, dorm-mates are all together, doing everything,” says Rahman. “They march together, they play varsity or intramural sports together. They do leadership workshops together. They even eat together, sitting in the same tables during noon meal formation.

“The very first thing that many might imagine is, given that random assortment, what can we say about the possibility of someone getting linked with someone of a different ability or different characteristics?” he asks. “Are there positive peer spillovers? 

“If I’m an average student, or I come from a background with average characteristics, and my roommate or my dorm-mates seem to have these preternatural gifts—they excel at academics, math, verbal, whatever it is—does that make me better?”

Yes—and no, the economists say.

Initially, Rahman and his colleagues found that in large social settings or living quarters, such as dorms, high-ability peers could negatively affect the academic performance of other first-years. 

That seemed contrary, Rahman says, “so we’re scratching our heads and trying to figure out what’s going on here?” They wondered, could the context of the dorms be affecting outcomes? 

In further analyses, the economists found that in the classroom, high-ability peers tend to bolster academic performance among other classmates.

“The study highlights, when it comes to peer spillovers, context matters a lot,” says Rahman. “In fluid social settings, differences among people tend to create clusters of sub-groups, so that those of similar traits interact more within each cluster. This creates the perverse effect of lowering the productivity of an average person with the introduction of a high-ability person.” 

But, he says, “if the interaction is more narrowly defined, task-based—‘okay, you study this and I’ll study this and then we’ll come together and work’—then actually I’m incentivized to work with the best, the smartest person that I possibly can.”

The study has implications beyond education, Rahman says. 

In the business arena, he says, managers who want their employees to interact socially outside of work as part of team-building exercises can find that productivity actually drops. To maximize productivity, he says, managers must strike the right balance between work and life. 

“Our results can guide policy interventions meant to harness peer effects,” the economists write. “Cognizance about potential complications of peer group assignment is critical. Increasing peer quality can foster beneficial collaboration in common tasks in close-knit, small peer groups, but the specific design of ‘optimal peer groups’ for positive educational outcomes is indeed complicated and remains an avenue for future research.”

This story originally appeared as "Immigration & Polarization" in the 2019 Lehigh Research Review

Story by

Mary Ellen Alu

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