Immigration's Natural Experiment
The story of the Mariel Boatlift
Most economics studies can’t be run like a clinical trial for a drug. It is impractical to use whole countries to test various economic programs, and futile to attempt to keep everything between countries constant. Economists are almost always forced to measure data across varied countries and economies, using statistics to tease out differences in the results. Almost.
In 1980, economists were granted a true natural experiment on immigration. Fidel Castro, Cuba’s president at the time, was allowing Cubans to finally leave Cuba, a country with widespread poverty and a poor standard of living. Between the months of April and October, 120,000 Cubans emigrated to Miami, increasing Miami’s labor force by 7% over the six month period. These Cubans were very low skilled, and thus would be competing with low-skilled natives (meaning non-foreign born) for jobs.
This is one of the main critiques of immigration—if you have an influx of low skilled workers from developing countries, the increase in supply of their labor will inevitably decrease wages as more people are competing for low skilled jobs and make America’s poor even poorer. This is an understandable fear, but it does not hold up to scrutiny. This is what is called the “lump of labor fallacy,” the idea that there is only a certain amount of “work” that can be done in the economy, and that increasing the labor supply will cut wages in half. This is an easy mistake to make, and one that is made by many people. Jordan Peterson was one of those people, when he said that women joining the labor force effectively ‘cuts wages in half.’ This is absurdly false because someone working a job inherently creates value. If the labor force doubles—from either women entering the labor force or immigration—twice as much value is produced in the economy.
Another way to think about it is that an immigrant who takes a job will have to spend the money they make. They might have to pay rent, buy food, a car, etc. By spending money they increase the demand for goods and services, increasing the demand for labor. So while immigration leads to an increase in the aggregate supply of labor, it leads to a concurrent increase in the aggregate demand for labor.
This theory was proved by economist David Card at UC Berkeley. In The Impact of the Mariel Boatlift on the Miami Labor Market, David Card found that the change in wages for low skilled Miami workers was zero, and that unemployment hadn’t been increased by the increase in immigration. Economists were given a natural experiment on immigration, and the results proved the pro-immigration crowd correct. More immigrants does not decrease wages, and it does not hurt low skilled workers.