FIGURE 1.1 Foreign-born fraction of U.S. population. Note: Data for 2000 are estimated. SOURCE: Borjas et al. (1997, Table 1).

Much of the early production of textiles in the United States came about because people went to various places in England, worked in factories, and because they were not permitted to write anything down, memorized the structure of particular machines. They then came to the United States and were able to replicate the capital goods that they saw abroad. The early production in textiles in the United States was one of the main manufacturing activities that enabled the country to grow more quickly and was the direct result of immigrants’ bringing in the ideas.

More recently, there have been comprehensive surveys of startup companies in information technology (IT), especially in the Silicon Valley of California in the 1980s and 1990s. About one-third of startup companies in Silicon Valley between 1995 and 1998 were either started or headed by immigrants from India or China (Saxenian, 2002). In 1998, they headed 2,775 Silicon Valley high-tech firms, employed 58,000 people, and had total sales of $16.8 billion.

When we think about where new and creative ideas come from, reducing the number of immigrants potentially reduces the creative dynamism that generates new products and companies. The situation is more complicated than just simply allowing in more immigrant workers that put pressure on wages. Management flows in capital and in technology can influence much of what firms decide to do.

More immigrants are coming to the United States. The data points in Figure 1.1 are taken from the decennial U.S. population census (Borjas, 1997). The foreign-born fraction of the total U.S. population was at a minimum in 1970, and has been rising steadily since then. About one-tenth of the current U.S. population is foreign born. This trend has been driven, in part, by a change in U.S. immigration policy in the middle 1960s that oriented it toward considerations of family reunification. The figure does not detail the skill mix of the immigrants coming in. There has also been substantial variation in whom the United States is letting in, with respect to both the country and the individual states.

When coming to the United States, immigrants tend to go to the immigrant gateway states of California, Texas, New York, New Jersey, Florida, and Illinois. Between 1995 and 2000, about 60 percent of the 5.6 million foreign-born population who moved to the United States entered the country through these states (U.S. Census Bureau, 2003). The total U.S. population in 2000 was about 281 million, and the foreign-born population was 31.1 million. To understand immigration, it is appropriate to consider California, because California, even among the gateways, stands out as a very attractive destination for immigrants.

The skill level of those coming to the United States is unevenly distributed, with many high-school dropouts at one end and many advanced-degree people at the other end. By 1990, 10 percent of people working in California were immigrant high-school dropouts. The estimate for 2000 is that the figure will be about 15 percent. At the other end of the distribution, California has attracted a disproportionate share of highly skilled people with Ph.D.s, M.D.s, and M.B.A.s.

With all the high-school dropouts coming into California, it would seem that the wages of less-skilled workers in California must have plummeted during the 1990s and on to today. An alternative is that firms, when they are faced with people with different skills coming in, choose to conduct different activities. California has absorbed the influx of people, and some industries have consequently grown in California more than in the rest of the United States. With a more-than-average number of less-skilled and more-skilled workers coming into the state, firms have in fact changed their activities.

Relative to the rest of the United States, the fast-growing industries in California over the 1980s were machinery (such as computers and office products), finance, insurance, real estate, and legal services, all of which are related to the IT boom and involve a high skill set. At the other end of skill intensity, California also had a boom in textiles and apparel. In Los Angeles County in 1980, there was essentially no production of textiles and apparel; by the end of the decade, the county had developed a thriving apparel and textile industry, whose production was second in magnitude only to that of the New York City area. Personal and house-hold services also saw a boom, and most of the employees were immigrants.

The absorption of immigrants is more dynamic than the presumption that immigrants are going to be bad for the native-born workers’ wages. Immigrants can bring in much additional technology and capital. Even if they do not, firms can absorb people through changes in the mix of output in ways that are not necessarily going to put pressure on wages. In fact, if one looks at the economics literature on immigration, it is difficult to find clear downward pressure on native wages averaged across all sectors due to immigration. That is true for the United States and for many other countries.

For example, in the early 1990s, there was a surge of Russians who left with the breakup of the Soviet Union and