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Monday, November 23, 2009

"Immigration, Wages, and Compositional Amenities"

Why do people oppose immigration? Here's the introduction and part of the conclusion to a recent paper on this topic by David Card, Christian Dustmann, and Ian Preston. The bottom line is that the effects of immigration on wages and taxes -- to the extent that such effects exist -- are of concern, but according to this research it is not the primary objection:

Immigration, Wages, and Compositional Amenities, by David Card, Christian Dustmann, and Ian Preston, NBER Working Paper No. 15521, November 2009 [Open Link]: Introduction Standard economic reasoning suggests that immigration, like trade, creates a surplus that in principle can be redistributed so all natives are better off (Mundell, 1957). In practice the redistributive mechanisms are incomplete so both policies tend to create winners and losers. Even so, public support for increased immigration is far weaker than for expanding trade.[1] While the two policies have symmetric effects on relative factor prices, immigration also changes the composition of the receiving country’s population, imposing externalities on the existing population. Previous studies have focused on the fiscal externalities created by redistributive taxes and benefits (e.g., MaCurdy, Nechyba, and Bhattacharya, 1998; Borjas, 1999, Hanson, Scheve and Slaughter, 2005). A wider class of externalities arise through the fact that people value the ‘compositional amenities’ associated with the characteristics of their neighbors and co-workers. Such preferences are central to understanding discrimination (Becker, 1957) and choices between neighborhoods and schools (e.g., Bayer, Ferreira, and McMillan, 2007) and arguably play an important role in mediating views about immigration.

This paper presents a new method for quantifying the relative importance of compositional amenities in shaping individual attitudes toward immigration. The key to our approach is a series of questions included in the 2002 European Social Survey (ESS) that elicited views on the effects of immigration on specific domains – including impacts on relative wages and the fiscal balance, and a country’s culture life – as well as on the importance of maintaining shared religious beliefs, language, and customs. ...

Our empirical analysis leads to three main conclusions. First, we find that attitudes to immigration – expressed by the answer to a question of whether more or fewer immigrants from certain source countries should be permitted to enter, for example – reflect a combination of concerns over compositional amenities and the direct economic impacts of immigration on wages and taxes. Second, we find that the strength of the concerns that people express over the two channels are positively correlated. This means that studies that focus exclusively on one factor or the other capture a reasonable share of the variation in attitudes for or against increased immigration.[2]

Our third conclusion is that concerns over compositional amenities are substantially more important than concerns over the impacts on wages and taxes.[3] Specifically, variation in concerns over compositional amenities explain 3-5 times more of the individual-specific variation in answers to the question of whether more or fewer immigrants should be permitted to enter than does variation in concerns over wages and taxes. Concerns over compositional amenities are even more important in understanding attitudes toward immigrant groups that are ethnically different, or come from poorer countries. Similarly, differences in concerns over compositional amenities account for about 70% of the gap between high- and low-education respondents over whether more immigrants should be permitted to enter the country.

Interestingly, concerns over the direct economic impacts of immigration explain a much larger share of variation in responses to a summary question of whether immigration is good or bad for the economy. The contrast suggests that respondents make a distinction between the wage and tax effects of immigration and the effects on the composition of the host country, and place substantial weight on the latter in forming overall views about immigration policies. ...

Differences in compositional concerns also explain most of the differences in attitudes between older and younger respondents. The age gap is a particular puzzle for models of immigration preferences that ignore compositional amenities, because many older people are retired, and face a much lower threat of labor market competition than young people.

While our inferences are based on purely observational data, and rely on a restrictive structural model, we present a number of robustness checks and extensions that support our general conclusions about the importance of compositional concerns. ...

    Posted by on Monday, November 23, 2009 at 01:53 PM in Academic Papers, Economics, Immigration | Permalink  TrackBack (0)  Comments (43)

          

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