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Summary & Analysis

The Economics of Immigration

Americans tend to think about the history of immigration mainly in terms of its impact on our culture—in terms of the new languages, customs, religions, and even foods that the newcomers brought with them as they passed through the famous gates of Ellis Island. But what primarily motivated most immigrants to come to America in the first place was not American culture, American politics, or even the hallowed ideals of American freedom. In fact, the strongest force driving every great immigration boom in American history—from colonial times to the present—was an economic force: the United States simply offered better opportunities for economic advancement than the immigrants could find in their homelands.

Push Factor: The Industrial Revolution in Europe

Around 1880, Americans began to notice a dramatic change in the national origins of the immigrants pouring into their country in ever-growing numbers. Before 1880, immigrants had mainly come from Britain, Ireland, or Germany, or (less commonly) from Canada, France, or Scandinavia. After 1880, though, European sources of immigration shifted sharply to the south and east, as Poles, Italians, Jews, and Slavs quickly came to form the bulk of the immigrant population. The ethnic upheaval embodied in this momentous shift generated severe angst among many native-born Americans, usually on cultural grounds; the "new immigrants," many Americans fretted, would prove to be culturally inferior to the "old" and thus incapable of assimilating into American society. (The influential Dillingham Commission Report, a major government research publication issued in 1910, essentially endorsed this view.) But while the "new immigrants" may have spoken different languages, prayed in different houses of worship, worn different styles of clothing, and eaten different types of food than their "old immigrant" predecessors, historians now understand that when it came to the question of why immigrants came to America, there was no difference between "new" and "old" immigrants at all.

The same great macroeconomic forces that had pushed Englishmen and Germans out of their homelands and toward America in the early nineteenth century began operating in Southern and Eastern Europe after 1880. Those forces, in turn, were rooted in one of the most consequential developments in human history: the Industrial Revolution.

The Industrial Revolution utterly transformed traditional agricultural societies, bringing them the prospect of rapid economic and population growth but also destabilizing long-established ways of life. One critical facet of the Industrial Revolution was an accompanying revolution in agricultural production, as the adoption of new crops and technologies allowed farmers to produce more food with fewer workers. This increase in productivity was hugely beneficial, allowing industrializing societies to support larger populations and freeing millions of peasants from a lifetime of hard agricultural labor. At the same time, though, rapidly increasing agricultural productivity created a serious new social problem: what to do with the millions of peasants who suddenly lacked work in farming and needed to find new sources of employment?

The rural upheaval that resulted from this agricultural revolution generated unprecedented flows of labor migration. At first, that migration tended to remain internal to industrializing societies, as peasants unable to find work in the country moved into the rapidly growing towns and cities of Europe in search of work. If jobs in the towns and cities proved hard to come by as well, however, migrants soon began looking for better opportunities overseas. For about half of the 70 million people who sailed away from Europe during the nineteenth century, those opportunities would be pursued in the United States. (Canada, Australia, and several countries in South America also welcomed millions of newcomers.)

"New" and "Old" Immigrants: Not So Different

So what, then, was the difference between the "new" and "old" immigrants? Only timing. The Industrial Revolution began in Britain in the late eighteenth century, then moved on to Germany by the middle of the nineteenth century; unsurprisingly, the immigrant stream to America during that period came overwhelmingly from Northwestern Europe. Only later, in the last decades of the nineteenth century, did the Industrial Revolution progress towards the south and east, loosening the ties that bound millions of Italians and Poles and Slovaks and Russians to the farms and villages of Southern and Eastern Europe, creating the great migrant surge that Americans perceived to be a "new immigration." (The same basic macroeconomic forces continue to operate today, as the recent rapid industrialization of much of Latin America and Asia has driven contemporary patterns of immigration to the United States.)

While most immigration to the United States during late nineteenth and early twentieth centuries was primarily economic in origin, there was one important exception to the rule: the Jews of Eastern Europe, some 3 million of whom migrated to the United States between 1880 and 1924, came not only to pursue greater economic opportunity but also, more urgently, to escape worsening ethnic persecution. Russia's tsarist government sponsored widespread, violently anti-Semitic pogroms against Jewish communities from 1881-1884 and again from 1903-1906, murdering thousands of Jews and convincing many of the survivors that a more secure future could only be found overseas.

Pull Factor: The Lure of American Opportunity

If the macroeconomic effects of the Industrial Revolution largely explain the difficult individual choices of some 70 million Europeans to migrate overseas, what explains the decision made by fully half of them—as many as traveled to every other country on earth combined—to come to the United States? Why did so many choose to pursue an American Dream rather than a Canadian Dream or Argentine Dream or New Zealander Dream?

Land and Jobs

For much of the nineteenth century, America could offer something that few poor or middling Europeans could ever hope to obtain in their home countries—ownership of land. As the frontier of American settlement pushed steadily westward over the course of the nineteenth century, the new states and territories carved out of the wilderness (or, more accurately, out of former Indian lands) demanded large numbers of settlers to secure American territorial claims and extend American civilization. After the passage of the Homestead Act in 1862, the federal government literally gave away land in the West for free; any pioneer willing to build on an unimproved western land claim was entitled to a 160-acre stake, at no cost, after five years of continuous occupation. While the Homestead Act did not deliberately target European immigrants—Congress had the interests of native-born citizens in mind when it passed the law—news of free land soon spread to Europe, inspiring many immigrants to choose America over other potential destinations. And if the federal government did not deliberately seek to encourage immigration with the lure of free land, many state and territorial governments did. In the immediate aftermath of the Civil War, the states of Wisconsin, Minnesota, and Iowa all dispatched immigration agents to tout their states' virtues in Scandinavia; their successful advertising campaign led to booming populations of Swedish and Norwegian settlers in those states. Later, private railroad companies got into the act, offering free travel to European passengers who committed to buying railroad-owned lands along the tracks. There is no question that the allure of free land played an enormous role in making America a nation of immigrants.

By the late nineteenth century, though, the continent was beginning to fill up. Once-lonely plains were dotted with farmsteads, one-empty pastures remade into sprawling ranches. The United States Census of 1890 made the shocking announcement that there no longer existed an American frontier (which the Census Bureau had defined as a line beyond which population density dropped below two persons per square mile); American settlement had extended fully from sea to shining sea. The closing of the frontier meant the end of a seemingly infinite supply of free land.

Yet immigration rates continued to climb. The lure of American agricultural land was quickly replaced by the lure of American industrial jobs. A tremendous economic boom in the United States in the decades following the Civil War transformed a sleepy agrarian nation into a great industrial behemoth. Rapid economic growth and gains in productivity due to rapid technological advancement created millions of new jobs that required little skill but still paid higher wages than most employment in the less dynamic economies of Europe. By modern standards, the conditions of industrial employment in late nineteenth-century America may well look atrocious; hours were long, work was dangerous, pay was meager, and benefits were nil. Still, despite these very real drawbacks, the work was still better than unemployment or peonage back home in Europe. Thus millions of immigrant laborers came to America, where they provided the bulk of the workforce that built the United States into the world's greatest industrial power.

Foreign-Born Workers in Industrial America

The Dillingham Commission reported in 1910 that, across the 21 industries it had surveyed, 57.9% of all workers were foreign-born. And in the most important sectors of the American economy—the specific industries that stood at the forefront of American economic development—the concentration of immigrant laborers was often even more pronounced. The Transcontinental Railroad—perhaps the most important infrastructure project in American history—was built almost entirely by immigrant labor; the Union Pacific Railroad, laying track westward from Omaha toward the Rockies, hired almost exclusively among Irishmen, while the Central Pacific, building eastward from California across the Sierras, employed almost exclusively Chinese laborers. After 1890, a large majority of miners in Pennsylvania's bituminous coalfields—in the black mines that supplied the vital energy to fuel America's mills and factories—were Italian, Polish, Slovakian, or Hungarian immigrants. By 1915, Eastern European Jews dominated New York City's huge garment trade; more than three-quarters of the city's 300,000 garment workers were estimated to be Jewish immigrants, and most of them toiled in Jewish-owned workshops.

The success of New York's Jewish community in providing not just a majority of the labor but also a majority of the ownership of the city's garment industry revealed the very real economic opportunity of American immigration. Labor conditions may have been harsh and wages may have been relatively low—both were certainly true of New York's garment trade—but it was still possible for hardworking immigrants to get ahead, to save up enough pay to achieve upward mobility. For some immigrants, upward mobility meant opening a small business (like a garment shop, most of which were small operations with a few employees). For others, upward mobility meant saving enough to buy a plot of land in the country, fulfilling an agricultural version of the American Dream even after the age of free land came to an end. And for still others—more than half of all immigrants, in fact—upward mobility meant a triumphant return to their homelands, carrying enough dollars in their pockets to ensure an improved quality of life that would have been impossible to attain if they had never crossed the ocean.

Immigrant Business

If immigrants' most important contribution to American economic growth from the Civil War through the Great Depression was the labor they provided to the great industrial enterprises of the day, the entrepreneurial ventures of immigrant businessmen also made their mark on the American economy. The iconic story of an immigrant's triumph in American business is that of Andrew Carnegie, the Scotsman who arrived in the United States in 1848 as a penniless teenager and ended up becoming one of the world's richest and most powerful men after making a fortune in the steel industry. While Carnegie's story—literally a tale of rags to riches—was tough for anyone to match, plenty of other immigrants enjoyed substantial successes of their own. Shortly after the turn of the twentieth century, a handful of Jewish immigrants were among the first to recognize the potential in a new-fangled form of entertainment called the motion picture; foreign-born entrepreneurs of modest origins like Samuel Goldwyn, Louis Mayer, and Harry Warner moved to Los Angeles and founded major film studios that still dominate the industry today (MGM and Warner Brothers), quickly building themselves up into titans of Hollywood. About the same time, a savvy entrepreneur named A.P. Gianinni founded a tiny immigrant bank to serve his fellow countrymen in San Francisco's North Beach Italian enclave; by the 1920s, he had extended the bank's reach far beyond its original ethnic constituency. Today, Gianinni's little Italian bank still exists, having survived many mergers over the course a century in business to become one of the largest financial institutions in the United States—the Bank of America.

The empire-building successes of Andrew Carnegie, the Hollywood studio dons, and A.P. Gianinni were certainly atypical. Far more common were modestly successful small businesses founded by immigrants and dedicated to serving the specific needs of the ethnic communities in which they were located. In the 1910s and '20s, for example, Chicago was home to a stunning array of small ethnic banking institutions—the Northwestern Trust and Savings (Polish), the State Savings and Commercial Bank (Jewish), the Papanek-Kovac State Bank (Slovak), the Bank of Napoli (Italian), the Depositor's State Bank (Czech), etc. As historian Lizabeth Cohen has noted, these small ethnic banks became crucial community institutions, places where immigrants could deposit their money with people they knew and trusted, where "they could speak their foreign tongue, send money to relatives abroad with ease, and... get help buying a home." This ethnic business model was not limited to banking; in the early years of the twentieth century, immigrants would have done almost all their shopping at businesses owned by their countrymen—groceries, tailors, hardware stores, and even cinemas and dancehalls catered to particular nationalities. Such narrowly ethnic small businesses thrived throughout the great age of immigration that lasted into the 1920s, but eventually faded away as American chain businesses expanded, popular culture became more homogenizing, and—most crucially—the immigrants and their children assimilated more fully into American society.

Immigrants' Impacts on American Labor

From 1880 through 1920, nearly 20 million immigrants poured into the United States, the vast majority of them seeking (and finding) work in American industries. What effect did this enormous influx of mostly low-skilled, low-wage labor have on the economic prospects of people who already lived here?

The answer is frustratingly uncertain. The truth is that the kind of detailed economic data needed to make a definitive judgment simply do not exist for the time period; still, historians and economists—though often disagreeing with each other on points of interpretation—have been able to reach certain broad conclusions.

First, almost all historians and economists agree that immigration benefited the American economy as a whole, leading to faster growth rates through the late nineteenth and early twentieth centuries than would have been experienced without it. This is mainly due to the fact that most immigrants were of working age; immigrant communities had lower proportions of children and the elderly—who contribute little to economic growth—than did the native-born population. Scholars continue to disagree, however, on whether the macroeconomic benefits of immigration were of great magnitude or whether they were more modest.

A large majority of immigrant workers—between two-thirds and three-quarters by the turn of the century—were unskilled laborers. This meant that they typically sought some of the most menial, lowest paying jobs available in the American economy. Their presence in great numbers clearly lowered the prevailing wages for such low-skilled work, meaning that native-born American workers with a similar lack of workplace skill certainly suffered a drop in wages due to immigration. There is a contentious debate among academics over the question of whether more highly skilled craftsmen also suffered a loss in income due to competition from unskilled industrial workers—whether, for example, an independent cobbler endured lower pay because the presence of unskilled immigrant laborers made it possible for an competitor to open a shoe factory. It seems likely that such negative impacts did occur, but only at specific times and in particular industries.

At the same time, by boosting overall growth and lowering the cost of consumer goods, the cheap labor provided by immigrant workers helped to raise the incomes of middle-class white-collar workers and lowered the cost of living across American society as a whole.

In the end, then, immigration's impact on the American economy was mostly but not entirely positive—good for overall growth, great for the wellbeing of the growing middle class, but sometimes damaging to the wages of working-class unskilled laborers.

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