Originally Posted by mmacklem
Interesting analysis, one small question though: My understanding from Peri's analysis was that part of the reason that inequality was actually decreased was because the influx of illegal workers added to the economy in two conflicting ways (conflicting in terms of their effect on inequality): they (potentially) brought the cost of labour (read: wages) down, thus (potentially) increasing inequality; while simultaneously increasing demand for goods, and thus creating jobs in the goods-creation/sales areas, which would decrease inequality in terms of helping to create (lower-skilled retail) jobs that would presumably be further up on the 'arch'. The overall effect on inequality then depends on which of these two effects has the more noticeable impact on the overall economy, to which one then resorts to the data you refer to above. His overall conclusion is that the increase in inequality due to drops in wages is less of an effect than the decrease in inequality due to the increase in demand. Do I have that approximately correct?
Actually, this is not Peri's argument. You will find this argument made by others about the effects of immigration. It is a pretty standard "adding up" point. Immigration can simultaneously increase the demand for labor and supply of labor. Therefore the impact of immigration on equality would depend on the relative size of the effect. If demand shifts further than supply, inequality falls and vice versa.
Peri's argument is different, and more subtle. His argument hinges on denying the common view (assumption?) that immigrant labor is a substitute for native born workers. He does this by looking at the relative skill composition of both groups. (see below)