Has Immigration Caused the Income Gaps Since 1774?

Over the past 240 years, the gap between the incomes of the rich and working poor has risen and fallen in sync with a 40-year trailing average of immigration.  This, and the laws of economics, strongly indicate that immigration causes most of the income gap.

Since the early 1970s, real wages of low-skilled workers have fallen.  They would be double current levels if they had kept up with the historic trend rate of worker productivity.  Meanwhile, the real incomes of the 1% of Americans with the highest income have risen at double that trend rate since 1979.

The ratio of this rich income to the low-skilled wage has quadrupled since 1972.  That is a recipe for rebellion.

Something similar happened 145 years ago, when low-skilled wage rates stagnated.  You can see on the graph below that the inflation-adjusted Low-skilled Wage Index (blue line) had stalled by 1870.

[Editor's note: this article should be read in conjunction with the author's sources and notes, which can be found here.]

The golden line above is my “Zero Immigration Trend” line.  It is part of my simple little wage prediction formula, explained below.  The Trend increases at 1.575% per year, the same as the trend of real GDP per worker for the past 200 years.  The “Wage Gap” is the amount wages diverge from the Zero Immigration Trend, expressed as a fraction of the Trend.

Below is a graph of the Wage Gap (blue line).

The red line above is my simple Wage Gap predictor:

Gp = -2.05*sum40t(i*U)/P,

where * denotes multiplication, i is immigration per year, U is the “unskilled factor” of the immigrants, sum40t(i*U) is the sum of the previous 40 years of (i*U) values, and P is the total U.S. population.  The 40-year sum simulates the average work career for immigrants. 

The “unskilled factor” is 1.0 until 1965.  Afterward, it is 1.85, because a greater proportion of the new immigrants are low-skilled and thus compete with natives for low-skilled jobs.  The year 1965 was when Ted Kennedy, that great messiah of poor Americans, spearheaded the passage of the Immigration Act of 1965.  Previous laws heavily favored northern Europeans.  The new act encouraged more immigration of a more diverse mix of races and nationalities. 

The result was an increasing influx of immigrants who were much less educated and skilled compared with native-born Americans.  Government also became lax in preventing illegal immigration of poor low-skilled workers.

For example, immigration of Mexicans increased dramatically after 1965.  According to a study by the Pew Research Center, they formed “the largest wave of immigration in history from a single country to the United States.”  More than 52% were illegal immigrants.  “Some 30% of all current U.S. immigrants were born in Mexico.”

According to the Center for Immigration Studies, 57% of Mexican immigrants lacked a high school education in 2011, compared with 12% of U.S. citizens.  About 56% of Hispanic immigrants were in or near poverty.

My Wage Gap predictor follows the laws of supply and demand for labor and offers a straightforward explanation for the Wage Gap.  It could have been derived 35 years ago with enough accuracy to serve as a useful predictor.  So we can use it today with some confidence. 

The graph below shows four projections to the year 2070, given four possible immigration policies beginning in 2016. 

Cutting immigration and employment of illegals to zero would cause about 10 million illegals to leave the country.  Assume that one million per year leave.  Projected wages would rise to the Zero-immigration Trend line in 28 years.  If we combine the trend rate with the shrinking wage gap, projected wages double in 10 years, and quadruple in 31 years. 

Cutting immigration and illegal jobs to zero but granting amnesty to current illegal workers would make projected wages reach the trend line in 40 years.  Wages would double in 17 years and quadruple in 37 years. 

Either of these scenarios would put the “American Dream” years of the 1960s in the shade.  Ordinary American blue-collar workers would once again amaze the world with their wealth.  Intellectuals would once again whine about how prudish and brutish American culture is becoming as lower-class workers once again shape the culture with their spending power and confidence.

Jetsetters and citizens of the trendiest tourist destinations would once again react with loathing and envy as loud working-class American tourists flood in.  American politicians would again tremble before their powerful unions and special interest associations as the people exert their financial and bargaining power.

Poor blacks would leave the “liberal plantation” of welfare benefits and food stamps.  The exodus from the Great Welfare Cities like Detroit and East St. Louis would be reminiscent of the Great Migration of blacks from Southern sharecropping farms and cotton-picking gangs.  That great black flood, swept up into the Northern industrial cities after immigration, was cut in 1910 and did not stop until the Immigration Act of 1965 made itself felt around 1970.  Almost half of the Southern black population migrated out before it was over. 

According to my theory, the wealth pouring into Beverly Hills and Manhattan would slow dramatically, similar to the ending of the “Gilded Age” of 1870-1910, best satirized by Mark Twain.

The movie Down and Out in Beverly Hills might be the best satire about the current Gilded Age.  Millionaire Dave could hardly communicate with his factory full of Spanish-speaking immigrants, but their cheap labor was pouring easy money into his pockets.  His wife hired a dog psychologist and an Eastern guru while Dave was sneaking into the bed of his illegal immigrant maid.  He beamed with self-righteous pride as he gave a helping hand to an American bum who had more knowledge and talent than him.

If we continue with the status quo, projected wages will drop from 45% to 37% of the Zero Immigration Trend before finally stabilizing after 10 years.  The result would be wonderful for “community organizers.”  They would continue to have plenty of angry people to organize into chasing after the mirage of a socialist paradise.  For the poor people, it would continue to be a living nightmare of shame and frustration.

Meanwhile the aristocracy of the current Gilded Age would continue buying 100-million-dollar penthouses in Manhattan and $100,000 handbags.  They would continue buying politicians to force the crazy ideas of their gurus on us.  They would continue funding “agents of change” like Jesse Jackson and Barack Obama. 

The aristocracy would continue to control the narrative of our history, in which the leaders who cut immigration and gave blue-collar workers the American Dream years are minimized and demonized.  They would continue to buy mass media communicators to tell everyone how wonderful and reasonable all of this insanity is.  And everyone around the gilded aristocrats would continue to praise them and tell them how great and good they are.

There is a way to defeat these oppressors.  It happened once before, a hundred years ago.