Immigration, Growth, Employment, and Wages

I think something important is being missed by some people involved in the immigration debate. For the moment, forget about immigration and simply think about population growth among U.S. citizens. What happens as population grows? The economy grows along with it. New housing developments are put in place, another Safeway, another bank, another 7-11, another set of medical and law offices are built, all sorts of new businesses are started or existing businesses expand. Think about the difference in your own town, if it's grown, over the last few decades. Is there another Subway anywhere? Yes the supply of labor increases as more and more people enter the labor force with population growth, but because there are more businesses, because the town and economy have grown, demand for labor grows as well. Because of that, wages do not necessarily rise or fall as population grows, though relative differences in the supply of labor across skill classes can cause adjustments. Essentially, the new population creates the goods and services it needs to support itself. Remove the new population, and the economy would be smaller and so would the number of jobs.

Immigration is no different. Just because a million people come here and get jobs does not mean that 1 million U.S. citizens lose their jobs. The immigrants both create new goods and services and purchase goods and services, and the economy grows to accommodate the new entrants. This is not a zero sum proposition where one person necessarily displaces another because the economy is static, as more people show up there is more growth. I have a hard time believing that the value of what immigrants create in goods and services is smaller than what they are paid, and therefore that they are a drain on the economy even allowing for some of the money to be sent home. But even if they are paid their marginal products (I doubt they are paid more than that), in what sense are they not contributing to the economy exactly what they are taking out of it? Isn't that one of the defenses of capitalism, that each worker is paid according to what they contribute at the margin?

Immigration is no different than population growth in this sense. Every year population increases, and as that happens the economy replicates itself and grows larger. The same with immigration. As new immigrants enter, new businesses, etc. are created, and there is economic growth through replication of the existing economy. Both the supply and the demand for labor increase and wages do not necessarily fall as overall employment increases, though as noted above large changes in some skill classes, e.g. a large influx of low skill labor, can force markets to adjust by changing prices to encourage labor to move where it is needed more. That is what markets do, adjust prices to direct the flow of resources, and if they are failing at this important job, then government can intervene to fix the problem without building a fence along the border. If we were to gather up every illegal immigrant and send them home tomorrow, both the supply and the demand for labor would fall and that is where, I think, many people err in their thinking about this issue, i.e. they presume that sending an immigrant home necessarily opens up a job for a U.S. citizen. But that fails to consider the demand side of the equation and the loss of jobs due to the fall in the demand for goods and services from reducing the immigrant population.

I doubt those of you opposed to immigration will be swayed be any amount of logic or empirical evidence, you already know the answer, so, as usual, feel free to tell me why I'm wrong. One place to prod might be the losses during the transition to a new equilibrium point after an influx of new labor.

Comments

[cm]

"Isn't that one of the defenses of capitalism, that each worker is paid according to what they contribute at the margin?"

My answer to that is, paraphrasing, "you don't get paid what you deserve, but what you [can] negotiate for". And of course that cuts both ways.

You can only effectively negotiate a good share of your marginal product when passing on the deal is a realistic option. If there are enough potential takers and you have to put food on the table, you can pass on any individual deal, but not on all available deals. It's called the law of supply and demand, another great thing about capitalism.

The labor supply for jobs requiring broadly available skills only thins out noticeably close to the point where the wage does not assure subsistence.

[Trance]

Three points:

I don't think the argument applies to immigrants that are already here, the growth argument would apply to incoming immigrants.

I don't think that by removing the illegal immigrants there will be a shrinking effect. If you remove an immigrant from the economy and create a job for a US citizen then that citizen is more likely to demand goods he would otherwise not afford.

If there is the potential to create more supply, why does that supply have to go to incoming immigrants rather than being exported to other countries (obviously this does not apply to services).

Very fundamentally speaking, notice that ultimately the whole economy is dependent on natural resources and things that can be physically created or changed. Services come after natural resources, if you don't have anything to work on, you can't live on providing services.

The question is: is the rate limiting step of economic growth the volume increase in demand (for goods and services) or is it the short supply of natural resources and things that can be changed?

Adding volume demand for services only bloats the system.

FYI, I'm not against immigration, I'm a foreigner myself.

[Trance]

Just because the population of this Earth increases it does not mean that the ecosystem can take it...

[cm]

In all local companies that I have heard of, boxes and other items to be removed (as opposed to be left alone) by janitors have to be labeled "basura", which I'm being told is the Spanish word for "trash". That was part of my initiation on my first day in the office when the secretary showed me around. I'm not sure whether to conclude from this that a certain command of Spanish is a job requirement for being hired as a janitor.

[jac]

I am not an economist, so I'm a little fuzzy on the basic concepts. (Of course, I do read the Economist's View, so in general my thinking has been honed to a sharp edge.) I'm wondering about the relationship of land values to cheap immigrant labor. Is that implied in the loss of development, or do we now have such a complex economy that the loss of this labor, or alternatively, a slowing of this population growth, would have a negligible effect on land values? If the demographic effect would be negligible in the cities, what about in agricultural areas, say in California's central valley or in the Southeast, which historically have depended on cheap labor to produce high value crops, which then, of course, raise agricultural land values? In brief, could we see a decline in real estate if cheap immigrant labor was cut off? Will I stop ending every sentence with a question mark? Yes.

[dryfly]

Immigration causes 'growth'... so do land fills. We need some of both but within limits.

If a million new 'workers' entering the US is good, is a billion better? How about a couple billion?

And if it is good for them to come via 'legal' methods... is it better to have them come 'illegally'? After all we wouldn't have to waste resources on that inefficient gov't bureaucracy stuff - you know seeing if they have criminal records, disease, etc.

I mean are you saying the door should be thrown open to any & all whenever they want to come? Or are you for some restrictions & limits? If so you aren't different from most of us except in degree.

This immigration argument is a bit of a straw man - both sides exaggerating the other's position.

[MarkedExcess]

Here’s what this diary said to me:

Gosh, I really hate the idea of telling poor people that they can’t come to America for a better life in whatever numbers they want. It just doesn’t fit with my “advanced” morality and world view. It just stinks.

So I’m going to ignore the empirical evidence--that even Paul Krugman has stopped ignoring--and rely on abstract economic wishes, such as:

“I have a hard time believing that the value of what immigrants create in goods and services is smaller than what they are paid.”

Even though I know very well that when we define “paid” to include public health and education benefits and the lost tax revenues caused by the decrease in wages—it’s not even close. But I just don’t care, because it just doesn’t feel right.

And by the way, reducing tax rates really should increase tax revenues. I mean, that makes total sense. So let’s just keep trying...

[Mr. Econotarian]

The long-term value of immigration is undervalued as well. While the immigrant may be low-skilled and not speak English, almost 100% of first generation children learn English (an important skill of itself), and those children will also gain access to the U.S. education system and gain even more skills.

My immigrant ancestor was low-skilled and didn't speak English, but she begot many people with high paying jobs and advanced degrees.

We do benefit more from immigration because it is moving people from low-productivity jobs outside the U.S. to higher productivity jobs in the U.S. Every person we can move up the productivity ladder is someone else who has a greater chance to potentially become an entrepreneur, inventor, or other innovator to make all our lives better. The U.S. has been blessed with many industrial leaders and inventors who were immigrants. I know a low-skilled immigrant who started a restaurant chain, for example.

I don't think this should excuse the US government from pointing out to countries like Mexico how they themselves might become more economically free and less corrupt to grow faster and give their own people more opportunities for enhanced productivity. But one of the best ways we can do that is by setting the example, as we did by allowing in immigrants from Germany, France, Ireland, Italy, etc. Eventually all these countries woke up and fully participated in the free market (until the 80's anyway when they started going backwards with labor over-regulation).

[Mark Thoma]

MarkedExcess:

Hanson is Krugman's student, e.g. DeLong disagreed with Krugman on this. Don't forget the evidence from Card, and the evidence from Krueger, both of which stand in contrast to the Borjas/Hanson view. Even with the Borjas/Hanson view, the welfare statments depend upon how each of us views domestic versus foreign costs/benefits. So I don't think I ignored the evidence, it isn't clear on this point.

I actually started with your position and defended low-skill U.S. workers against immigration, worried about social programs, etc., but as I was sent more evidence over and above the Borjas and Hanson's papers I backed off because I realized I couldn't unambiguously support my initial position. It just isn't clear the costs are there.

[anne]

Yes, yes, yes, but never a word about protection for workers in general. Job security, pay, benefits, safety, protection from discrimination. Suddenly economists are playing Emma Lazarus, but if there is going to be such Statue of Liberty-like concern there must be the same concern for workers whether in terms of job security or pay or benefits....

[anne]

Again, economists feel that a utilitarian argument is all that is needed but from the stance of a displaced or disadvantaged worker general utility gain is not enough. Where is individual equity?

[anne]

Support immigration and trade, globablization in any form, but doing so from the stance of utilitarian philosophy pays no attention to the needs of an individual. As though economics has adopted a philosophical base that rejects humane philosophy from Maimonides to Kant to Stuart Mill to James to Rawls to Amartya Sen and Anthony Appiah.

[anne]

A proper attempt at humane utilitarian thought:

http://www.nytimes.com/2004/09/09/business/worldbusiness/09outsource.html?ex=1252382400&en=75e9cfc07d57793a&ei=5090&partner=rssuserland

September 9, 2004

An Elder Challenges Outsourcing's Orthodoxy
By STEVE LOHR

At 89, Paul A. Samuelson, the Nobel Prize-winning economist and professor emeritus at the Massachusetts Institute of Technology, still seems to have plenty of intellectual edge and the ability to antagonize and amuse.

His dissent from the mainstream economic consensus about outsourcing and globalization will appear later this month in a distinguished journal, cloaked in clever phrases and theoretical equations, but clearly aimed at the orthodoxy within his profession: Alan Greenspan, chairman of the Federal Reserve; N. Gregory Mankiw, chairman of the White House Council of Economic Advisers; and Jagdish N. Bhagwati, a leading international economist and professor at Columbia University.

These heavyweights, among others, are perpetrators of what Mr. Samuelson terms "the popular polemical untruth."

Popular among economists, that is. That untruth, Mr. Samuelson asserts in an article for the Journal of Economic Perspectives, is the assumption that the laws of economics dictate that the American economy will benefit in the long run from all forms of international trade, including the outsourcing abroad of call-center and software programming jobs.

Sure, Mr. Samuelson writes, the mainstream economists acknowledge that some people will gain and others will suffer in the short term, but they quickly add that "the gains of the American winners are big enough to more than compensate for the losers."

That assumption, so widely shared by economists, is "only an innuendo," Mr. Samuelson writes. "For it is dead wrong about necessary surplus of winnings over losings."

Trade, in other words, may not always work to the advantage of the American economy, according to Mr. Samuelson.

In an interview last week, Mr. Samuelson said he wrote the article to "set the record straight" because "the mainstream defenses of globalization were much too simple a statement of the problem." Mr. Samuelson, who calls himself a "centrist Democrat," said his analysis did not come with a recipe of policy steps, and he emphasized that it was not meant as a justification for protectionist measures.

Up to now, he said, the gains to America have outweighed the losses from trade, but that outcome is not necessarily guaranteed in the future.

In his article, Mr. Samuelson begins by noting the unease many Americans feel about their jobs and wages these days, especially as the economies of China and India emerge on the strength of their low wages, increasingly skilled workers and rising technological prowess. "This is a hot issue now, and in the coming decade, it will not go away," he writes.

The essay is Mr. Samuelson's effort to contribute economic nuance to the policy debate over outsourcing and trade. The Journal of Economic Perspectives, a quarterly published by the American Economic Association, has a modest circulation of 21,000 but it is influential in the field.

Indeed, Mr. Bhagwati and two colleagues, Arvind Panagariya, an economics professor at Columbia, and T. N. Srinivasan, a professor of economics at Yale University, have already submitted an article to the journal that is partly a response to Mr. Samuelson. Theirs is titled "The Muddles Over Outsourcing."

The Samuelson critique carries added weight given the stature of the author. "He invented so many of the economic models that everyone uses," noted Timothy Taylor, managing editor of the Journal of Economic Perspectives.

For generations of undergraduates, starting in 1948, the study of economics has meant a Samuelson textbook, now in its 18th edition, with William Nordhaus, a Yale economist, as a co-author since the 12th edition. Because he has taught at M.I.T. for six decades, the elite ranks of the economics profession are filled with Mr. Samuelson's former students, including Mr. Bhagwati and Mr. Mankiw.

According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States. "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes.

But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."

The global spread of lower-cost computing and Internet communications breaks down the old geographic boundaries between labor markets, he noted, and could accelerate the pressure on wages across large swaths of the service economy. "If you don't believe that changes the average wages in America, then you believe in the tooth fairy," Mr. Samuelson said.

His article, Mr. Samuelson added, is not a refutation of David Ricardo's 1817 theory of comparative advantage, the Magna Carta of international economics that says free trade allows economies to benefit from the efficiencies of global specialization. Mr. Samuelson said he was merely "interpreting fully and correctly Ricardoian comparative advantage theory." ...

[John Konop]

Mark,

Your logic is how I made money cleaning up failed business models. I have a secrete , if you do not make money on the first transaction , you cannot make it up in volume.The fastest growing part of the budget is entitlements to working poor.Growth needs to be workers with middle class wages not slave wages.

Would it not be better to have robotics on farms with less high wage workers? Or your model import and flood the market with slave wage tax subsidies workers? It is the same concept with trade.

[Live Wire]

Support for legal immigration and anger at illegal immigration are not mutually exclusive. It's tiring to see the two consistently mislabeled.

The American professional class is hypocritical as they seek economic protections for themselves while supporting policies that grossly erode protections for labor, even to the point of law breaking. How much would that new house have cost if it weren't built with illegal labor? And where would that money saved have gone otherwise?

It seems the wage-earning labor class continues to have their pockets picked by those who should know better.

Anne is right, it is about job security, pay, benefits, safety, protection from discrimination... these are the real issues, not immigration. That's why the amnesty and guest-worker discussions are a complete joke unless these laws are coupled with a significant move in the minimum wage and provisions to actually punish employers for violating the law and hiring illegally. If not, these programs will just be another stake in the heart of American labor, whether immigrant or native-born. Both political parties are paying lip service to the wage-earning class in America and it sickens me.

[anonymous]

So Dr. Thoma, do you feel you can breed your way to prosperity? This is the logical conclusion to your open immigration position, that wealth is related to population size. As Anne has kindly pointed out, the Fins seem to be doing fine. But as Anne forgets, they are doing fine without population growth due to immigration.

[anne]

Yes; we and others can breed and have bred, what fun, our way to prosperity for generations. There is no evidence that technical advance is limited, and indeed we are in the midst of a technical and productivity surge that continues a century of such advance. The question for the time being is only whether we can continue to advance with equity. This is the question confronting China in the midst of a wonderful surge in growth, and the question for America. There is no evident reason we cannot be Finland :)

[anne]

The problem with Finland, however, is reindeer, lots and lots of reindeer breeding, well, like reindeer and preparing for a fight :) We gain however as we recognize other accomplishments and think can they be ours. Breeding, girl eating reindeer; be afraid.

[anne]

Temper Mark Thoma's essay with a turn from collective philosophy, utilitarian philosophy, to the individual centered philosophy of Amartya Sen and we have a powerful equitable argument in the making :) William James would have it that the truth of an idea lies in the way in which implementation will change each of our lives. Maimonides? Last I tried Maimonides it was arguing with a priest over confession.

[John Konop]

anne,

That was a great post by Willam James ! Thank you, I will use that sometime.Mark we may disagree alot, but this is the best blog on economics!

[a]

I have tried to attend a debate hosted by Columbia in April. "Solow, Bhagwati, Krugman Evaluate the Human Cost of Trade, Economic Liberalization".

Did not make it. Here is a report:

http://www.columbia.edu/cu/news/06/05/globalization-discussion.html

and real video link:
http://www.columbia.edu/cu/news/media/06/429_copingGlobal/

[a]

And an excerpt from the report:
==========================
Solow’s mentoring skills were on full display as he began his presentation with what he called “a highly simplified example that will enable you to see the problem clearly -- and at the same time, see it my way.”

The scenario begins with the discovery of a giant pool of labor -- much like the discovery of a natural resource -- in a foreign country. This discovery, Solow said, is probably good for the world and even for the United States, where consumers will enjoy lower prices. But it might not benefit all Americans, he noted. Unskilled workers could find themselves without even low-paying jobs. Of course, the country could redistribute the wealth from those who benefit to those who don’t. “The normal answer given by economists is that there will be winners and losers, but the winners will be able to compensate the losers,” he explained.

In today’s political climate, however, that answer isn’t satisfactory, Solow said. America, he argued, is engaged in a “veritable orgy of regressive redistribution” that involves “giving the powerful more power and the wealthy more wealth.”

Having posed the problem, he joked, “I’m now going to turn to Professor Bhagwati for the solution.”

But Bhagwati, too, was “pessimistic about how much redistribution we can accomplish,” observing that even President Clinton had “dismantled the welfare state as we knew it.” Perhaps, he said, we should set our sights lower -- recognizing that while “we may not be able to help the first generation of workers affected by globalization, we may be able to help their children.”

While admitting to being a “tortured soul” on the subject of globalization, Krugman said that he nevertheless sees the phenomenon as the world’s best hope for eliminating poverty. “Several hundred million Chinese leaping into the modern world is a good thing,” he asserted.

But globalization also has its downside -- and not just in the United States. “We had believed free trade made societies more equal,” he said, “but in Latin America, the whole picture has been deeply disappointing.” In Mexico, he continued, “trade liberalization has been associated with increased inequality.”

With mention of Mexico, the focus of the discussion shifted to immigration. Importing cheap labor is not the same as importing cheap products, said Krugman. “The U.S. has an obligation to the people it brings here, if it is to remain true to its values.”

All three professors oppose the protectionist measures that some politicians advocate as a way of saving jobs in America’s domestic industries, including not only tariffs but restrictions on importing goods from countries with poor environmental records.

During the discussion period, MBA student John Nolan counter-argued that, given the “race to the bottom” that occurs when countries try to produce goods at the lowest possible cost, “I fail to understand why some degree of protectionism is a bad thing.”

Krugman replied by describing the economic benefits to developing countries of industries that can’t meet strict environmental rules. “We don’t want to be in the position of saying to other countries, ‘We’re going to require you to remain undeveloped if you can’t manage to meet our standards.’”
=======================

[John Konop]

a,

That post did a great job outlining the argument.We cannot solve the problem until we are honest about the situation.A,Anne you both are doing a great job of opening up the real issue. Thanks jk

[John Konop]

Mark,

I am not an economist but I have run several successful businesses. Let me explain the math from the real world.

WAGES ARE FLAT TO DOWN since 1980

GAS cost up over 300%

College cost up over 300%

Healthcare cost up over 300%

Housing cost up over 300%

Childcare cost up over 300%

By the way are you getting the trend,so I do not have to keep listing the inflation numbers you guys under report.

Mark in all due respect, anyone who has ever built budget for a business could tell you the basics of what you are missing. Mark if your pay from 1980 wages declined while everything went up by over 300% ,you got a problem .

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6466&exhibition=7&u=99|5|...

Scarlet Tanager Taking a Bath
New York City--Central Park, Azalea Pond.

John Konop is a dear :)

[save_the_rustbelt]

"demand for labor grows as well."

Problem is, the mix of jobs being created is very deficient, too much on the low end.

[Jeffrey Miller]

"Immigration is no different than population growth in this sense."

Yes that's right. So one question is this: since the economic opportunities for an individual in the U.S. are roughly the same if the population of the U.S. is 100 million, or 300 million, or a billion, are there other reasons for preferring one population level over another?

Is there an optimal population?

Your previous post suggested one reason for preferring a lower population density: less congestion.

Another is ecological carrying capacity. It's obvious that fewer people have a smaller impact on the environment than more people.

So one question is, is it legitimate for a country to have a population policy that tries to encourage an optimal population? One argument against such a policy is that over-population is a global problem. On the other hand you could say that the citizens of the U.S. do not control the population policies of other countries. Since there are local environmental issues (e.g. scarcity of water in the west) as well as global ones, you might argue that a country should at least be able to set policies that discourage over-population, and it's attendant problems, locally, i.e. at the national level.

[a]

Population control, sounds familiar, :).
If only immigration problem is framed as population control, and then you might have different solution, especially if the solution is not to discriminate people of different races or originalities...

[a]

And surprising and not surprising, Paul Graham delivered a speech about the Start-Up culture in Solicon Valluy in Xtech (see the original website at http://xtech06.usefulinc.com/): and summarized by other blogs, his "top ten the advantages in the start-up space" are (and number 1 is immigration, folks!!!):

1. Allows immigration
2. Isn't a poor country
3. Not a police state
4. High quality universities
5. You can fire people
6. Attitudes that don't associate 'working' with being employed
7. Not anal about business regulations
8. Huge domestic market
9. High levels of funding
10. People comfortable with career switching

[John Konop]

a,

Once again great post!

[anne]

Written about individuality by a student of William James:

http://www.bartleby.com/114/12.html

W.E.B. Du Bois (1868–1963).
The Souls of Black Folk. 1903.

The nineteenth was the first century of human sympathy,—the age when half wonderingly we began to descry in others that transfigured spark of divinity which we call Myself; when clodhoppers and peasants, and tramps and thieves, and millionaires and—sometimes—Negroes, became throbbing souls whose warm pulsing life touched us so nearly that we half gasped with surprise, crying, "Thou too! Hast Thou seen Sorrow and the dull waters of Hopelessness? Hast Thou known Life?" And then all helplessly we peered into those Other-worlds, and wailed, "O World of Worlds, how shall man make you one?"

[anne]

William James was a pragmatist, but do not take this to mean doing whatever will work. Rather that the truth of an idea, the truth in what we may do, lies in the way in which implementation will change each of our lives.

[John Konop]

A,Anne,

Keep it up , both of you are helping me with research.I will post this information on my website with your permission.Thanks jk

[knzn]

Jeffrey, If you’re going to reason about optimal population with respect to the immigration issue, you also need to consider dependency ratios. Once you do so, I think it becomes obvious that immigration (at least, a marginal increase in immigration from current levels) is good for the US, provided that most of the immigrants are young (as I think they are, typically). As our population ages and health care costs rise, we are desperately going to need more working-age people to pay for (and provide) the health care of our Medicare recipients.

anne, Thank you for the Samuelson link. I chased down Samuelson’s paper at
http://emlab.berkeley.edu/users/webfac/cbrown/e153_sp06/SamuelsonTradePaper.pdf
I haven’t read it closely yet, but it seems to be saying that, as LDC’s improve their technology, we lose our ability to exploit their deficiencies, so in that sense, globalization becomes bad for the US.

[camille roy]

Thanks for the articles above, I have read them and I agree they give our debate more substance. Re this comment:
Importing cheap labor is not the same as importing cheap products, said Krugman. “The U.S. has an obligation to the people it brings here, if it is to remain true to its values.”

The 'American values' Krugman is referencing here only acquire substance if the result of applying those values contributes to the orgy of redistribution of wealth upwards that our society is engaged in right now. In other words, we are importing people because their cheap wages support the increasing economic inequality of this nation. That, in fact, is our chief 'value'. I would argue that the first priority must be challenging and stopping this process, and the challenges must come both at the level of values and the level of policy.

That means, stop importing people if it results in increasing inequality in this country, or if it contributes to the economic collapse of native born poor communities in this country (which I believe I have seen with my own eyes, here in the Bay Area, wrt the black community).

I am NOT against immigrants or Mexico or policies which foster development in the 3rd World. I think we should reverse those parts of NAFTA which have thrown millions of Mexican farmers out of work (NAFTA provisions which were rec'd by economists, btw).

I also think we should actually fund infrastructure projects and provide rewards for decreases in corruption, etc in Mexico. In the long run development in Mexico will help this problem. We can't even start with that discussion unless there is an honest look at how NAFTA failed.

[Jeffrey Miller]

knzn, I agree that there are many factors that should be considered in deciding what an "optimal" population for a country might be. The dependency ratio that you mention is one of them, although I would not perhaps give it as much weight as you do. With the annual increase in productivity, I'm not sure that we'll be short of workers in 30 years. Also, saying we should let in lot's of young people to change the dependency ratio now seems a little like a Ponzi scheme - what happens when they get old? Adopting this policy would lead to constant and large population growth which is not sustainable.

It's certain that if people sat down and seriously thought about what the optimal population of a country should be, they'd come up with very different answers.

But even if that is the case, I'm not persuaded that we as a country, and we as an international community, shouldn't be thinking long and hard about how many people the earth can support indefinitely at the level of affluence that everyone wants. I'm reasonably sure that the answer would be less people than we have now.

I don't have a firm opinion on the immigration issue because I'm torn between the point of view that on the one hand, overpopulation is a global problem, and on the other hand, by the point of view that as citizens of this country, can really only directly influence the population of the U.S., by restricting immigration, promoting birth control etc.

[John Konop]

Knzn,

We have the opposite problem. The health insurance model is based on people when they are young pay in and use less services. As you get older you use more services yet pay less relative to what you take. If the young workers do not pay into the system the model blows up.This is what is happening with our current immigration policy. That is why I proposed mandatory pay health insurance for everyone working in our country. A similar concept to The Massachusetts plan.

That is why as A and Anne point out you have to look at the human side not just numbers on a spread sheet. The quality of the jobs is more important than quantity.Many in business confuse gross and net.More is not necessary better.A,Anne are correct this should not be based on restriction by race.Yet I would argue importing needed skill workers are better for your economy then importing poverty. Thanks jk

[John Konop]

camille roy,

You are right NAFTA is a big part of the problem.

Multi-national corporation paid off both parties to put together a deal guaranteed to increase slave labor at the expense of the American middle class. The agreement hurt small business people and workers as well in Mexico.One of the key elements is if we had trade disputes it goes to an international court in which Mexico had two votes and we have one. Big business new they could violate all labor,environmental and ethical standards in corrupt countries like Mexico. As we lowered the standards in Mexico and created child slave working conditions , the people of Mexico came here to escape the horrible conditions. The winners Corporate profits up , wages are down.

[a]

Thanks to both Anne and kznz for bringing Samuelson's paper into attention; I quickly read it and can't help posting his conclusion in the Epilogue here (note that he is not supporting protectionism, he just pointed out that it is more complex, and there are act1 and act2's of globalization):

==============================
Epilogue
Acts I and II have demonstrated that sometimes free trade globalization can convert a technical change abroad into a benefit for both regions; but sometimes
a productivity gain in one country can benefit that country alone, while permanently hurting the other country by reducing the gains from trade that are possible between the two countries.4 All of this constitutes long-run Schumpeterian effects, quite aside from and different from transitory short-run harms traceable to shortrun adjustment costs or to temporary rents from patents and from eroding monopolies on knowledge.

It does not follow from my corrections and emendations that nations should or should not introduce selective protectionisms. Even where a genuine harm is dealt
out by the roulette wheel of evolving comparative advantage in a world of free trade, what a democracy tries to do in self defense may often amount to gratuitously shooting itself in the foot. A pragmatic and scientifically more correct brief for globalization might go as follows.

If the past and the future bring both Type A inventions that hurt your country and Type B inventions that help—and when both add to world real net national product welfare—then free trade may turn out pragmatically to be
still best for each region in comparison with lobbyist-induced tariffs and quotas which involve both perversion of democracy and nonsubtle deadweight
distortion losses. In 1900 free traders proclaimed, “Tariffs are the Mother of trusts.” In this millennium a more pregnant truth may be: “Tariffs are the breeder of economic arteriosclerosis.”
....
==================================

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6484&u=99|2|...

Baltimore Oriole Bathing
New York City--Central Park, The Ramble.

Interesting comments and posts. John, please do not hesitate to use any of my comments that are useful :)

[a]

SAme here, John. By posting comments on this site, I am giving up my copyright, :).

[Lord]

Immigration is no different than population growth in this sense.

Yes, but why do we feel we need to increase the population more than the residents here now do? If we feel population growth is too low, why do we not chose to encourage and stimulate local population growth?

Yes, a larger population means a larger economy, but how does that improve my situation? How does it make me any better off? Land prices increase due to more congestion, but why does that make me wealthier and not just monetarily richer due to the neglect of very real non-monetary costs?

Immigration is not good or bad in itself, but vast uncontrolled immigration is bad because those who profit from it are not those who bear the costs.

[save_the_rustbelt]

If we assume that immigration is good for the economy...

Does it necessarily follow that 75% of our immigrants should come from Mexico and Central America, or should we be seeking immigrants from diverse countries (yes, the 75% may be a little high, it is difficult to gage numbers of illegals)?

[Lord]

Economists have myopia when it comes to measuring costs. If it doesn't come with a price tag, it must be free. What are the costs of more pollution? What are the costs of more congestion? What are the costs of more social stress and less cohesion? Immigration can have benefits as well, but not if costs are uncontrolled.

[DJM]

......encourage and stimulate local population growth?

Ahhh let me see, I think one of the reasons there are smaller families is just the fact that the cost of child care, health care, education, and well, the cost of everything (!) is so high that there is no one to stay home raising the kids anymore.....which is also caused by the demise of the extended family in this country.
Just a thought.

[knzn]

Jeffrey, John, I agree with your respective points that (1) the world population is growing too quickly and (2) we should be importing more people with skills. However, the problems of the US today are specific, that we have actuarially bankrupt public support for the elderly (particularly with respect to medical care) and that we are not accumulating capital very quickly. When it comes to supporting the elderly, legal immigrants, even those without skills, pay more into the system than they take out, and the US overall does not have a particular problem with crowding. (There is competition for natural resources, but the potential immigrants are competing with us in that respect even if they don’t come to the US.) It seems to me that increasing immigration is a more prudent solution to the US problem today than banking on greater-than-typically-forecast increases in productivity and/or smaller-than-typically-forecast increases in health care costs. In the very long run, Jeffrey, you are right that immigration is a Ponzi scheme, but I am quite hopeful that in the very long run, we will get our act together with respect to capital accumulation.

[Blissex]

«they presume that sending an immigrant home necessarily opens up a job for a U.S. citizen. But that fails to consider the demand side of the equation and the loss of jobs due to the fall in the demand for goods and services from reducing the immigrant population.»

This is very disappointing and very close to dissembling: because this is applicable only in conditions of full employment, and if there is no substitution possible between capital and labour.

Also, the reduction in demand may not be very important if it raises the wages of native workers who can then afford to purchase more stuff.

Anyhow the prevarication in your argument is that it is one about the total size of GDP, not the size of GDP per head, and especially not about the distribution of GDP per head.

Less population/immigrants may mean a lower total GDP, but this may still be with higher GDP per head, actually it will usually mean so if the immigrants were adding less value than the average citizen, and it may mean a greater improvement in GDP per head for most workers, as their terms of trade improve.

Let's for a moment imagine the absurdity of sending home something like 20% of the USA workforce.

This presumably would have the same effect as the Black Plague, and many economic historians have remarked how wages improved after the Black Plague, and how asset prices became lower (the relative scarcity of assets and labour having changed a lot).

Sure, the Black Plague reduced total GDP, but greatly increased the well being of most of the survivors (while greatly lowering that of its victims), while reducing the relative wealth of the asset rich among the survivors.

Again, for the me the argument in favour of immigration is moral, not economic; the economic advantages of immigration are not uniformly distributed, but benefit immigrants and asset owners.

[Blissex]

I must protest again about the level of dissembling and prevarication in this article.

Consider again for example:

«For the moment, forget about immigration and simply think about population growth among U.S. citizens. What happens as population grows? The economy grows along with it. [ ... ] Essentially, the new population creates the goods and services it needs to support itself.

Remove the new population, and the economy would be smaller and so would the number of jobs.
Immigration is no different.»

These statements seem to me disingenuous to the point of intellectual dishonesty.

The disingenuousness is that that what matters is the size of the effects: the pie grows, but more or less proportionally?

Would doubling the population of the USA in say five years double GDP in five years (or ever)? Or rather less? Wouldn't also the share of GDP going to labour shrink (double whammy), and that going to rent and profit grow?

Sure, immigrations adds value, at least at subsistence level, «creates the goods and services it needs to support itself» but that is not the issue, it is a rather disingenuous strawman.

Does GDP grow at least as much as the increase in population? Thats the big issue. The smaller issue as always is whether no matter what the increase it, who captures most of it?

The other point is that it matters greatly whether an increase in population happens as an increase in the fertility of citizens or an increase in the number of immigrants (legal or not) because:

* Citizens can vote and donate to campaigns.
* Citizens would often have at least the prospect of inheriting some assets from their parents, immigrants would have no assets.
* Citizens would have a more supportive background and have more leverage in bargaining their salaries.
* The increase in citizens would not be almost exclusively an increase in the underclass, as for an increase via immigration.

In other words, on average the offspring of citizens are insiders in a much greater degree than newly arrived immigrants, and that matters a great deal to the outcome, in particular its distributional aspects.

What outrages me about dissembling and prevarication as to the impact of immigration is that there by waving a ''don't worry'' wand it hides the costs, and would result in strife later as the costs become evident.

[knzn]

Blissex, I don’t think the pre-capitalist plague is a good comparison. Increasing population does clearly benefit the owners of assets that are not easily reproducible, like land. Today, the most important assets (capital) can be reproduced fairly easily, and the market for capital is international. A higher population in the US (vs. the rest of the world) would simply shift investment toward the US. Compared to most countries in the world (including Mexico, I think), the US has plenty of land relative to its population; immigration to the US slightly benefits US landowners at the expense of foreign landowners, but the supply is probably a bit more elastic in the US, so on a world level, it might redistribute away from landowners. The market for natural resources is also international, so immigration shouldn’t affect it.

The question whether immigration increases GDP proportionally to the population growth is beside the point. The question is whether immigrants contribute more than they take out (thereby leaving some surplus for natives), and the evidence (as well as theory) indicates that they do.

Moreover, the full employment issue is irrelevant if policymakers are consistent and effective in setting and pursuing their inflation and employment goals. If you kick out the immigrants, the resulting inflationary pressure will cause the Fed to tighten more aggressively and kill the new domestic jobs that opened up. If anything, I’m guessing that kicking out immigrants will worsen the Phillips curve tradeoff and result in a net loss of jobs.

[Blissex]

«Increasing population does clearly benefit the owners of assets that are not easily reproducible, like land.»

It benefits all asset owners, not just those of non easily reproducible assets. If you own a patent, more customers make the patent more valuable. Also, a lot more assets than land are not easily reproducible, like brands or Yale degrees.

An increase in population makes labour more abundant and thus assets relatively scarcer, even if not absolutely scarcer.

«The question whether immigration increases GDP proportionally to the population growth is beside the point.»

Sure tell that to the labourer whose bargaining power and terms of trade have been reduced because of that.

«The question is whether immigrants contribute more than they take out (thereby leaving some surplus for natives), and the evidence (as well as theory) indicates that they do.»

But this is just a stupid strawman: of course immigrants pay their way, else companies would not hire them and they would not come.

Also, it matters a great deal which natives get the surplus.

Imagine a scenario like this: there are 100 natives working for one company each taking home a salary of $20,000 a year, and generating $40,000 in sales each, for a total company turnover of $4,000,000, and $2,000,000 difference between that and the labour costs.

50 immigrants arrive, who were earning $4,000 a year each in their country; now the company can both expand output and sales, to $6,000,000 but since there are now more job seekers the salary of each of the 150 total workers is reduced to $18,000 a year, giving the company a $3,300,000 difference between labour costs and sales.

Who has won? Well, the immigrants now make $900,000 instead of $200,000; the company now has a margin of $3,300,000 instead of $2,000,000.

But who loses? Well, the original 100 workers terms of trade have worsened, and they now make $1,800,000 instead of $2,000,000.

Their losses are much smaller than the overall gains, largely because now the 50 immigrants add a lot more value than in their country, but most of that extra value added is captured by the company.

There is no doubt here that the workers have taken less than they have put in, and that there is a surplus, but also that the native workers have lost.

I am all in favour of course of this happening, but I think that trying to argue that what matters is the overall increase in turnover is at best disingenuous.

[Blissex]

OK, omitted a vital details here: the assumption that adding 50 workers linearly increases production is of course wishful thinking. More likely there will be diminishing returns, so the post-immigration story may look more like:

''now the company can both expand output and sales, but the additional 50 workers don't produce an extra $40,000 of output each, but only $30,000, so output grows to $5,500,000,000 but since there are now more job seekers and the average and marginal output per worker has gone down the salary of each of the 150 total workers is reduced to $16,000 a year, giving the company a $3,100,000 difference between labour costs and sales.''

This is how labour arbitrage works -- sure, increasing the supply of labour (and with workers very willing to compete on price) does increase output, and those workers will consume less resources than the value they add, but somebody got to lose.

Native workers only win in the case where immigrants arrive in a market where there is unsatisfied demand for workers, or capital is very abundant relative to labour, which happened in the early century of the american republic, or after the Black Death in Europe.

Capital can also be made abundant relative to labour by technological progress, but that happens only over the long term.

Another way to put the immigration story is that it is a way to match relative abundance of labour in one country with relative abundance of capital in another, by moving the workers to the latter; this makes capital more intensely used, and more valuable.

[John Konop]

Blissex,

Great post !

[knzn]

Blissex, You are still missing the fact that, in today’s world, capital (and all other assets besides land) can cross borders very easily. True, you can’t move a factory easily, but since the world capital stock is growing rapidly, you can easily choose to build your new factories in one place rather than another. Chinese people who remained in China have done a lot more to reduce the bargaining power of American workers than have people who immigrated to the U.S., either legally or illegally. I agree with your point that we need to consider the distributional effects of immigration, but I think those effects are really fairly small in a world where capital and product markets are already heavily internationalized.

[Blissex]

«Blissex, You are still missing the fact that, in today’s world, capital (and all other assets
besides land) can cross borders very easily.»

Well, I am not missing it, indeed I was leading up to precisely this point when I was saying «a way to match relative abundance of labour in one country with relative abundance of capital in another, by moving the workers to the latter» because the obvious alternative is to do viceversa, in other words offshoring.

But we were discussing immigration, not offshoring, and in particular what I saw as a flawed, dissembling argument for overselling immigration (of the ''win-win'' sort, nobody loses, GDP goes up and thats all good).

Indeed if I were to argue the economic case for immigration (as opposed to the moral one) then: at least immigration is a lot better than offshoring, at least for the workers of the country with the (relative) abundance of capital. For the workers of the country with the (relative) abundance of workers of course offshoring is a lot better.

The main reason is that people employed in one country spend most of their income in that country, and that investing capital in one country provides a permanent boon to the productivity of that country.

For american workers in general it would be much better if all those garment and electronics sweatshops had been created in Tennessee, even if staffed entirely by desperate chinese immigrants, rather than in Guangdong.

«[ ... ] Chinese people who remained in China have done a lot more to reduce the bargaining power of American workers than have people who immigrated to the U.S., either legally or illegally.»

Indeed, but mostly because then american companies have invested enormous amounts of capital to boost China's capital stock, and because those chinese workers spend their wages in China.

However in the immigration vs. offshoring story there are several important wrinkles: one of the more important is that they are based on very different premises and have very different impacts, even if immigration is broadly preferable:

* Offshoring is in a sense more expensive than immigration for businesses, because they have to invest time and capital to setup offshoring, while they can just wait for immigrants to turn up, which is a lot easierfor them (and a lot more expensive and harder for the immigrants). Also, politically, foreign workers in their own country can have a lot more political clout (watch out for those Indians) than immigrant workers in a foreign country. This means that offshoring is in some ways more self-limiting than immigration.

* Immigration usually impacts a very different category of workers than offshoring, that is there is really not that much trade-off between offshoring and immigration; in other words reducing immigration does not automatically increased offshoring. The reason is that quite naturally offshoring is mostly about work whose results that can be shipped long distance either physically or electronically, while immigration is mostly about work that has to be done locally. Most of the occupations where immigrants today displace native workers could not be performed in offshore factories.

The overall trend here is that both workers and capital (and not just goods as previously) have become a lot more mobile over the past several decades, and this is leading to large readjustments in the relative bargaining powers of labour and capital in different countries.

In countries like the USA with a relative glut of capital (especially after the Federal Reserve has been creating tons of free money over the past decade) capital becomes scarcer by being offshored, at the same time as its remaining relative abundance drives labour to immigrate.

(Conversely in countries like China or India with a relative scarcity of capital offshoring greatly strengthens the bargaining power of labour)

So there is no question that workers in the USA are getting the worse of it as their terms of trade worsen (double whammy: capital exports and labour imports), but the real question is what can they do to improve their bargaining position or at least limit the speed and extent of its worsening.

As to this ''let's bend over'' is rarely a brilliant negotiating position, even if some disingenuous apologists say ''you are gonna get it, so at least enjoy it'' :-)

[John Konop]

KNZN,

You talk way to much in global terms. As a horse trader you learn the devil is in the details.Multi-national companies are using countries like communist China as a dumping ground to get around human rights ,environmental laws and slave wages.They buy off politicians to look the other way on trade deals. You forget ,Adam Smith said monopolies destroy free enterprise.

Read about the details in the deal, and then comment.

Norwood Pushes Bipartisan House Effort Seeking U.S. Withdrawal from WTO



(Washington, DC) - The United States has a once-every five year opportunity to throw off failed trade policies if Congress approves withdrawal of the United States from the World Trade Organization (WTO), says U.S. Representative Charlie Norwood (R-GA). Norwood today urged members of the House to exercise their Congressional option to repeal U.S. membership in the WTO through passage of H.J. Res. 27.

"We were told in 1994 that our participation in this agreement would aid our economy and country," says Norwood. "I did not believe it then, and my worst fears have been realized. This monstrosity of a trade agreement has been a key contributor to record U.S. trade deficits, the loss of millions of good-paying factory jobs, an undermining of U.S. sovereignty, and is now threatening the very existence of the American middle class. It has served one group only - the global traders. It is time we replaced it with a new trade policy that serves the American people, instead of a select few on Wall Street."

The WTO agreement passed by the 103rd Congress in 1994 allows Congress an automatic option for repeal every five years following the President's status report to Congress on the effects of the agreement. The President delivered his report on March 1 of this year, and Congress has a prescribed time limit to act or the agreement continues in force.

Norwood was not yet serving in Congress when the original agreement was approved, and says while he would have opposed it, those who voted for it that year should be excused if they vote the right way now. "Every year, regardless of who's in the White House, we have these trade deals rammed down our throats with the same empty promise - that they will 'open foreign markets to U.S. goods'. Some of the fellows here in '94 might have actually believed that, so we can't judge them. But now that we have seen first-hand the devastation these junk agreements have brought on our working families, there's no excuse for another bad vote."

Norwood says it is time middle-class Americans started fighting at the polls to take back their country from the global elitists who have thus far successfully pitted the working classes of WTO member nations against each other. "Take a careful look at who votes for and against this repeal, and keep that in mind in November 2006. If we don't start electing House and Senate members who will enact trade policies for the benefit of the American people instead of the traders, we're not going to have an economy left to trade with."

[John Konop]

Knzn,

The reason we have the race to the bottom economic policy is due to poor trade deals driven by monopoly style corporation that buy off the political system. We are importing cheaper legal and illegal immigrations to compete with blind eye trade agreements that promote slave labor. I am not sure I effectively explained the cause effect relationship. That is why you cannot isolate trade from immigration policy in this issue.