Recent Immigration Could Not Have Reduced Inflation Significantly

Many commentators have argued that the recent surge in legal and illegal immigration is causing inflation to cool by reducing wages.

Ironically, this is a complete reversal of their position before inflation spiked, which was that immigration had little or no impact on wages.

The reason may be that, mathematically, the effect of recent immigration on prices must be very small.

As discussed in our prior post on immigration and inflation, the typical assumption is that each 1 percent increase in the supply of workers reduces wages by 0.3 percent, which is called the elasticity of wages.

The "Farming, fishing, and forestry" category, where recent immigration increased the number of workers the most, accounts for just 0.29 percent of all wages paid in the U.S. If we weigh each occupation by its share of all wages and salary paid, then the increase in the supply of labor caused by recent immigration would reduce consumer prices by 0.32 percent, which is even less than the 0.37 percent estimated above.

Despite the caveats, when we look at the data, the idea that recent immigration had a significant impact on inflation by reducing wages does not really make sense.

The recent increase in the total labor supply is too small, and the areas of the economy where immigration increased the supply of workers most are too low-paying, to have a large impact on prices. 

https://cis.org/Camarota/Recent-Immigration-Could-Not-Have-Reduced-Inflation-Significantly