Category Archive for: Immigration [Return to Main]

Friday, November 21, 2014

Paul Krugman: Suffer Little Children

It's the decent thing to do:

Suffer Little Children, by Paul Krugman, Commentary, NY Times: The Tenement Museum, on the Lower East Side, is one of my favorite places in New York City. It’s a Civil War-vintage building that housed successive waves of immigrants, and a number of apartments have been restored to look exactly as they did in various eras, from the 1860s to the 1930s... When you tour the museum, you come away with a powerful sense of immigration as a human experience, which — despite plenty of bad times,... was overwhelmingly positive.
I get especially choked up about the Baldizzi apartment from 1934. When I described its layout to my parents, both declared, “I grew up in that apartment!” And today’s immigrants are the same, in aspiration and behavior, as my grandparents were — people seeking a better life, and by and large finding it.
That’s why I enthusiastically support President Obama’s new immigration initiative. It’s a simple matter of human decency.
That’s not to say that I, or most progressives, support open borders. ...
But ... the proposition that we should offer decent treatment to children who are already here — and are already Americans in every sense..., that’s what Mr. Obama’s initiative is about.
Who are we talking about? First, there are more than a million young people ... who came — yes, illegally — as children and have lived here ever since. Second, there are large numbers of children who were born here — which makes them U.S. citizens, with all the same rights you and I have — but whose parents came illegally, and are legally subject to being deported.
What should we do about these people...? ... The truth is that sheer self-interest says that we should do the humane thing. Today’s immigrant children are tomorrow’s workers, taxpayers and neighbors. Condemning them to life in the shadows means that they will have less stable home lives than they should, be denied the opportunity to acquire skills and education, contribute less to the economy, and play a less positive role in society. Failure to act is just self-destructive.
But... What really matters ... is the humanity. My parents were able to have the lives they did because America, despite all the prejudices of the time, was willing to treat them as people. Offering the same kind of treatment to today’s immigrant children is the practical course of action, but it’s also, crucially, the right thing to do. So let’s applaud the president for doing it.

Tuesday, August 12, 2014

Immigration Helps Domestic Workers

Me, at MoneyWatch:

Yes, immigration does help domestic workers: The contentious debate over immigration in both the U.S. and Europe is largely based on the worry that immigration hurts domestic workers, particularly low-skilled workers. But is this actually true? Could this concern over immigration be misplaced? Could it be that immigrants actually help native workers? ...

Friday, August 08, 2014

How Immigration Benefits Natives

This was in today's links. The abstract:

How immigration benefits natives despite labour market imperfections and income redistribution, by Michele Battisti, Gabriel Felbermayr, Giovanni Peri, and Panu Poutvaara, Vox EU: Immigration continues to be a hotly debated topic in most OECD countries. Economic models emphasising the benefits of immigration for natives have typically neglected unemployment and redistribution – precisely the things voters are most concerned about. This column analyses the effects of immigration in a world with labour market rigidities and income redistribution. In two-thirds of the 20 countries analysed, both high-skilled and low-skilled natives would benefit from a small increase in immigration from current levels. The average welfare gains from immigration are 1.25% and 1.00% for high- and low-skilled natives, respectively.

And the conclusion:

Our analysis shows that immigration into imperfectly competitive labour markets need not be worsening labour market outcomes for natives. Instead, it can improve the job creation incentives of firms. Thus, measures that aim at eliminating the immigrant–native wage gap may hurt natives. This positive effect is threatened if immigrants are too often unemployed or if too many of them are unskilled. Policies reducing the rate of job loss for immigrants would therefore help natives. Finally, in contrast to widespread belief, immigrants do not seem to hurt low-skilled natives, even in the more realistic framework developed here. This is because immigration is often balanced between more and less educated, because its job-creation effect can help, and because redistribution towards immigrants is not as large as often suggested in the debate.

Wednesday, June 25, 2014

The Optimal Number of Immigrants

John Cochrane:

The optimal number of immigrants: Hoover's Peregrine asked me to write an essay with the title, "What is the optimal number of immigrants to the U.S?"  (Original version and prettier formatting here. Also a related podcast here.) My answer: Two billion, two million, fifty-two thousand and thirty-five (2,002,052,035). Seriously.
The United States is made up of three and a half million square miles, with 84 people per square mile. The United Kingdom has 650 people per square mile. If we let in two billion people, we’ll have no more population density than the UK.

Why the UK? Well, it seems really pretty country and none too crowded on “Masterpiece Theater.” The Netherlands is also attractive with 1,250 people per square mile, so maybe four billion. Okay, maybe more of the US is uninhabitable desert or tundra, so maybe only one billion. However you cut it, the US still looks severely underpopulated relative to many other pleasant advanced countries.

As you can see by my playful calculation, the title of this essay asks the wrong question. ...

Thursday, May 29, 2014

'How Highly Educated Immigrants Raise Native Wages'

From Vox EU:

How highly educated immigrants raise native wages, by Giovanni Peri, Kevin Shih, and Chad Sparber, Vox EU: Immigration to the US has risen tremendously in recent decades. Though media attention and popular discourse often focus on illegal immigrants or the high foreign-born presence among less-educated workers, the data show that immigrants are drawn from both ends of the education spectrum. At the low end, immigrants grew from 5% of workers with a high school degree or less in 1970 to 20.8% in 2010. At the high end, the figure rose from 7.3% to 18.2% for those with graduate degrees over the same period.1
These trends suggest that it is important for economists and policymakers to understand the effects of highly educated immigrant flows. The canonical economic model, based on demand and supply, holds that, all else equal, an increase in labour supply should cause wages to fall. Thus, immigration should depress wages paid to natives. Evidence for such a downward effect in academic work is mixed. For example, Borjas (2003, 2013) find a negative impact of immigration on wages, while Card (2009) and Ottaviano and Peri (2012) do not. For the canonical model to fail and for immigrants to generate wage gains for natives, it must be the case that all else is not equal in the case of immigration. This is because the labour market is more complex than the market for typical goods. Adjustment mechanisms exist to allow natives and firms to respond to immigration without experiencing lower wages or fewer employment opportunities. Immigrants may also generate positive externalities that benefit native workers. This article provides a brief summary of the recent evidence for these phenomena in the context of the market for workers with a college degree.
Immigrants to the US specialise in STEM
The first step in understanding the peculiarities of the labour market is to recognise that native and foreign labour differ in their underlying characteristics. We do not think that the popular refrain claiming that “the US faces a skills shortage” is a useful way to approach this issue. Rather, we recognise the existence of important differences between natives and immigrants. Figure 1 provides a sense of this by describing the college majors of US bachelor’s degree recipients. Compared to natives, foreign-born workers are disproportionately likely to have obtained a bachelor’s degree in Science, Technology, Engineering, or Mathematics (STEM). 45.5% of college-educated immigrants in the labour force have a STEM degree, whereas only 28% of natives do. Conversely, natives are twice as likely as immigrants to have majored in education (12.2% versus 5.6%) or social sciences (9.5% versus 5%).

Figure 1. Primary degree share by nativity – workers with a bachelor’s degree or more education, 2009–2012

Sparber fig1 29 may

Source: American Community Survey.

These differences are crucial to understanding how natives might respond to college-educated immigrant flows. Figure 1 indicates that immigrants possess a comparative advantage and specialise in STEM. Thus, we might expect that natives respond to inflows of STEM-dominant immigrants by specialising in non-STEM work. Indeed, Peri and Sparber (2011) provide evidence of this phenomenon – inflows of highly educated immigrants cause natives switch to more communication-intensive occupations.
The contribution of STEM to overall productivity
This comparative advantage and specialisation story is not unique to the market for college-educated labour. Peri and Sparber (2009) document similar behaviour among workers with a high school degree or less education. However, the fact that foreign college-educated immigrants tend to specialise in STEM has an additional implication of paramount importance. Economists have long recognised the significance of innovation in generating economic growth, and the role of scientists and engineers in fostering such knowledge production. The process of innovation generates positive spillovers for the economy as a whole. Thus, by increasing the country’s stock of knowledge, foreign-born STEM workers can increase the overall productivity of the economy.
A rather simplistic estimate of the contribution of foreign-born STEM to productivity in the US can be calculated from just two pieces of information. First, Jones (2002) estimates that 50% of US total factor productivity (TFP) growth in recent decades is attributable to scientists and engineers. Second, college-educated STEM workers grew from 2.9% of total employment in 1990 to 3.7% of employment in 2010, and foreign-born workers were responsible for 80% of this growth. By combining immigrants’ contributions to STEM growth with STEM’s contribution to TFP growth, we can deduce that roughly 40% of aggregate productivity growth may be due to foreign-born college-educated STEM workers.
This is an enormous figure and it is based on data at a very high level of aggregation. In Peri, Shih, and Sparber (2014), we assess whether more thorough economic analysis delivers comparable results. Using cross-city panel regressions to estimate wage and employment responses to foreign STEM, we find a rise in foreign STEM by one percentage point of total employment increases real wages of college-educated natives by 7–8 percentage points and those of non-college-educated natives by 3-4 percentage points. We find no statistically significant effects on native employment growth.
Instrumenting for the growth of foreign STEM workers
Causal identification is driven by three regularities. First, the presence of foreign STEM workers varied substantially across US cities in 1980. Second, the H-1B visa program – which has been the method of entry for highly skilled immigrants in the US since its inception in 1990 – produced national level changes in the number of skilled immigrants in the country that can be seen as exogenous from a city-level perspective. Third, new immigrants are attracted to locations where previous immigrant communities have already been established. By interacting 1980 city-level settlements with subsequent national-level policy, we can predict the number of new foreign STEM workers in each city. This H-1B-driven imputation of future foreign STEM workers is a good predictor of the actual increase in both foreign STEM and overall STEM workers in a city over subsequent decades. However it is not correlated, by construction, with the economic conditions in the city during the subsequent decades. It therefore makes an excellent instrument for the actual growth of foreign STEM workers to obtain causal estimates of the impact of STEM growth on the wages and employment of college and non-college-educated native-born workers.2
From the perspective of the canonical supply and demand model, the positive relationship between foreign labour supply and native wages may appear peculiar, but it is reasonable in the context of STEM-driven economic and productivity growth. The analysis in Peri, Shih, and Sparber (2014) uses an aggregate production model at the city level, to derive the productivity effect implied by the estimated wage and employment effects. We find that foreign STEM workers can explain 30% to 60% of US TFP growth between 1990 and 2010 – in line with the simple calculation cited above.
Discussion of results and policy implications
The large and positive wage and productivity effects from foreign-born STEM labour raise two important issues. The first concerns how, in the presence of these gains, studies sometimes find detrimental effects. Borjas (2013), for example, argues that immigration from 1990–2010 may have reduced wages paid to workers with a bachelor’s degree by 3.2%, and for workers with a graduate degree by 4.1%. Similarly, Borjas and Doran (2012) find that the post-1992 inflow of Soviet mathematicians pushed American mathematicians to lower quality institutions and reduced their academic productivity. To understand the conflict between these results and our own, it is important to recognise that our gains arise due to complementarities and positive externalities from innovation. Analyses that ignore occupational adjustment, understate complementarities across skill groups, fail to account for externalities, or analyse markets in which positive spillovers are small, are more likely to miss the gains associated with immigration.
The second is whether foreign STEM workers are truly needed since the US could presumably enact policies to produce its own STEM talent. This is true, but three qualifications are necessary. First, our analysis, as well as that of Kerr and Lincoln (2010), argues that foreign H-1B workers increase innovation and the productivity of US STEM workers without crowding them out. Thus it may be possible to increase both foreign and domestic STEM supply. Second, Hunt and Gauthier-Loiselle (2010) argue that immigrants are more entrepreneurial and innovative than natives, and this may add a further productive complementarity for natives. Third, native STEM development might require extensive and expensive investment, whereas immigration policy could be a more cost-effective way of building the country’s STEM workforce.
The comprehensive immigration reform proposed in the US Senate Bill 744 that would increase the annual number of H-1B visas allotted by 50,000 per year. In the light of the results above, it should be obvious that the provision would produce long-run positive effects on US wages and innovation.
References
Borjas, G J (2003), “The labor demand curve is downward sloping: reexamining the impact of immigration on the labor market”, Quarterly Journal of Economics, 118(4): 1335–1374.
Borjas, G J (2013), “Immigration and the American Worker: A Review of the Academic Literature”, Center for Immigration Studies, April.
Borjas, G J and K B Doran (2012), “The Collapse of the Soviet Union and the Productivity of American Mathematicians”, Quarterly Journal of Economics, 127(3): 1143–1203.
Card, D (2009), “Immigration and Inequality”, The American Economic Review, 99(2): 1–21.
Hunt, J and M Gauthier-Loiselle (2010), “How Much Does Immigration Boost Innovation?”, American Economic Journal: Macroeconomics: 31–56.
Jones, C I (2002), “Sources of US Economic Growth in a World of Ideas”, The American Economic Review, 92(1): 220–239.
Kerr, W R and W F Lincoln (2010), “The supply side of innovation: H-1B visa reforms and US ethnic invention”, Journal of Labor Economics, 28: 473–508.
Ottaviano, G I P and G Peri (2012), “Rethinking the Effect of Immigration on Wages”, Journal of the European Economic Association, 10(1): 152–197.
Peri, G and C Sparber (2009), “Task Specialization, Immigration, and Wages”, American Economic Journal: Applied Economics, 1(3): 135–169.
Peri, G and C Sparber (2011), “Highly-Educated Immigrants and Native Occupational Choice”, Industrial Relations, 50(3).
Peri, Giovanni, Kevin Shih, and Chad Sparber (2014), “Foreign STEM Workers and Native Wages and Employment in U.S. Cities“, NBER Working Papers 20093.
Footnotes
1 Summary statistics are based on Census and American Community Survey (ACS) data.
2 This methodology is not immune to criticism. Persistent city-specific shocks affecting immigration, employment, and wage growth, for example, would challenge the validity of our instrumental variable strategy. However, we perform a series of robustness checks that all point to the same result – foreign-born STEM workers increase wages paid to native-born workers, with larger effects for those with a college degree.

Thursday, January 02, 2014

'Economics and the Immigration Debate'

Simon Wren-Lewis:

Economics and the Immigration debate: As the storm force winds blew, I wondered to what extent the debates on immigration and austerity shared a common feature. In both cases economists might feel like someone trying to walk against high winds: it is hard, perhaps painful, and you seem to be getting nowhere fast. To be less metaphorical, in both cases the economic arguments seem to be irrelevant to the public debate, and the politicians want to go in the opposite direction to the one suggested by the economics.
I have talked a great deal about austerity before, but not about immigration. A typical example of the economic arguments is this NIESR study by Lisenkova, Mérette and Sanchez-Martinez (pdf, blog post), which models the impact of the current UK government’s attempts to reduce net migration. (As this Bruegel post shows, the UK debate is fairly typical.) Although the paper uses an OLG model, and allows for some quite elaborate differences between migrants and natives, the basic results are intuitive. As migrants tend to be younger, reducing migration reduces GDP per capita (by about 2.5% in 2060), because there are less workers for each pensioner. For this and other reasons, migrants make less demands on the state, so a reduction in migration raises government spending per person (e.g. the elderly use the NHS more) which requires higher tax rates.  One interesting result is that although restricting migration raises pre-tax wages (less labour supply), after a time post-tax wages are lower because of the higher tax rate.
In short, migration is beneficial for the economy as a whole, and for households as a whole. For a short summary of other empirical evidence, see this article by Jonathan Portes, or this from the OECD. Yet the political debate presumes the opposite. It is taken as read that migration causes all kinds of harmful effects, and the debate revolves around measures to prevent these. ...
So you see why I think there is a potential parallel with the austerity debate. The evidence suggests that migrants make a net fiscal contribution relative to natives, just as all the evidence suggests that austerity is harmful in a liquidity trap. However the ‘public’ believe otherwise, and (by implication) economists should get real and stop going on about evidence so much.
There is a difference, however. ...

He goes on to explain the difference and why he believes that:

While I find the macroeconomics of austerity interesting (it’s my field), I believe the reasons why the economics is ignored are fairly straightforward and much less interesting. In the case of migration, I think understanding why the economics is ignored is much more of an intellectual challenge.

Friday, November 29, 2013

'The Dallas Fed Rebuffs the Idea that Immigrants are Stealing Jobs from Americans'

Gillian Tett of the FT summarizes research from the Dallas Fed:

...when it comes to immigration – of the legal and illegal kind – the Lone Star Fed is not sitting with the Tea Party core. On the contrary, it has just published a paper – under the provocative title “Gone to Texas” – arguing that immigration is good for the local economy. And it rebuffs the idea that immigrants are stealing jobs from native-born Americans. On the contrary, it insists, they tend to boost growth in a win-win way.
Now, if this conclusion had emerged in a state with few immigrants and plenty of unfilled jobs (think North Dakota), that might be unsurprising. But the picture that Fed researchers paint of Texas is eye-popping. Since 1990, the number of foreign-born people living there has jumped from 1.5 million to 4.3 million...”, and that “among large states, none has experienced a surge like Texas has, with immigrants rising from 9 per cent of the population in 1990 to 16.4 per cent in 2012”.
Some immigrants are highly skilled... But most are not: two-thirds do not have a high-school diploma, two-thirds come from Mexico, and almost half – or 1.8 million people – are illegal...

Here's a link to the report.

Sunday, June 30, 2013

Immigration, Class, & Ideology

I'm still catching up and recovering from recent events, so I'll turn the microphone over to Chris Dillow:

Immigration, Class, & Ideology: ...the effects of immigration take place in a class-divided society. For those in power, the benefits - high profits - are quick and easy. But for those at the bottom end of the labour market, they are less pleasant.

But it needn't be so. Imagine our retailer were a full-blooded worker coop. Workers would then think: "Isn't it great we don't have to that dangerous job now, so we can do nicer jobs and get a share of higher profits". And if redundancies are made, they'll be on better terms. (And of course, in a society not disfigured by class division, unemployment benefits would be higher).

In this sense, it is obvious that immigration - insofar as it does worsen the condition of some workers (which is easily overstated) - is a class issue. Rather than ask: "why are immigrants taking my job?" Dave could equally ask: "why are there class divisions which prevent the benefits of migration flowing to everyone?"

So, why is one question asked when the other isn't? The answer is that capitalist power doesn't just determine who gets what, but also what issues get raised and which don't. As E.E.Schattschneider wrote in 1960:

Some issues are organized into politics while others are organized out. (quoted in Lukes, Power: A Radical View, p20)

In this way, it is immigrants who get scapegoated rather than capitalists.

Friday, June 14, 2013

'The Impact of Immigrants'

From OECD Insights:

The impact of immigrants – it’s not what you think, by Brian Keeley: In the land of tabloid terrors, immigrants loom large. Flick through the pages or online comments of some of the racier newspapers, and you’ll see immigrants being accused of stealing jobs or, if not that, of being workshy and “scrounging benefits”.
Such views may be at the extreme end of the spectrum, but they do seem to reflect a degree of public ambivalence, and even hostility, towards immigrants in a number of OECD countries. Anecdotal evidence is not hard to find. ... Surveys offer further evidence...
New research from the OECD indicates that ... across OECD countries, the amount that immigrants pay to the state in the form of taxes is more or less balanced by what they get back in benefits. Even where immigrants do have an impact on the public purse – a “fiscal impact” – it amounts to more than 0.5% of GDP in only ten OECD countries, and in those it’s more likely to be positive than negative. In sum, says the report, when it comes to their fiscal impact, “immigrants are pretty much like the rest of the population”.
The extent to which this finding holds true across OECD countries is striking, although there are naturally some variations. Where these exist, they largely reflect the nature of the immigrants who arrive in each country. ... Indeed, one objection that’s regularly raised to lower-skilled immigrants is the fear that they will live off state benefits.
But, here again, the OECD report offers some perhaps surprising insights. It indicates that low-skilled migrants – like migrants in general – are neither a major drain nor gain on the public purse. Indeed, low-skilled immigrants are less likely to have a negative impact than equivalent locals.

Sunday, May 05, 2013

'Does Immigration Hurt Support for the Welfare State?'

Does immigration undermine support for social insurance programs?:

Does immigration hurt support for the welfare state?, by Dan Hopkins: ... there is a ... concern about immigration ... that you are more likely to hear from the European left than the American right: that immigration undermines the social welfare state by making voters less supportive of public spending. ...
The striking thing about the United States, though, is that increasing ethnic and racial diversity hasn’t dampened our public investments.
We can study this by looking at U.S. cities. American municipalities vary markedly in their ethnic and racial demographics, and they routinely make decisions about how to allocate scarce dollars. But when we examine cities’ spending patterns in recent decades, we see that growing diversity has done little to change public good provision. Your public library is likely to have seen cutbacks, but it’s probably not because of your neighbors’ backgrounds. ...

He goes onto provide evidence that a 1999 paper by Alberto Alesina, Reza Baqir, and William Easterly that came to the opposite conclusion had causality backwards. Correcting for this, he finds that "Among the 1,000 largest U.S. cities, those that rapidly diversified saw the same changes in their spending on those categories as did cities that did not diversify."

Wednesday, April 03, 2013

'Why the AFL-CIO Is Embracing Immigration Reform'

Robert Reich:

What Immigration Reform Could Mean for American Workers, and Why the AFL-CIO Is Embracing It, by Robert Reich: Their agreement on is very preliminary and hasn’t yet even been blessed by the so-called Gang of Eight Senators working on immigration reform, but the mere fact that AFL-CIO President Richard Trumka and Chamber of Commerce President Thomas J. Donohue agreed on anything is remarkable.  
The question is whether it’s a good deal for American workers. It is...
The unions don’t want foreign workers to take jobs away from Americans or depress American wages, while business groups obviously want the lowest-priced workers they can get their hands on.
So they’ve compromised on a maximum (no more than 20,000 visas in the first year, gradually increasing to no more than 200,000 in the fifth and subsequent years), with the actual number in any year depending on labor market conditions... Priority would be given to occupations where American workers were in short supply.  
The foreign workers would have to receive wages at least as high as the typical (“prevailing”) American wage in that occupation, or as high as the prospective employer pays his American workers with similar experience — whichever is higher.
The unions hope these safeguards will prevent American workers from losing ground to foreign guest-workers.
But employers hope the guest-worker program will also prevent low-wage Americans from getting a raise. As soon as any increase in demand might begin to push their wages higher, employers can claim a “labor shortage” — allowing in more guest workers, who will cause wages to drop back down again.   
So why would the AFL-CIO agree to any new visas at all?
Presumably because some 11 million undocumented workers are already here, doing much of this work. The only way these undocumented workers can ever become organized – and not undercut attempts to unionize legal workers — is if the undocumented workers also become legal. ...

Saturday, March 16, 2013

'A Profession With an Egalitarian Core'

Tyler Cowen:
A Profession With an Egalitarian Core: ...A distressingly large portion of the debate in many countries analyzes the effects of higher immigration on domestic citizens alone and seeks to restrict immigration to protect a national culture or existing economic interests. The obvious but too-often-underemphasized reality is that ... immigration could create tens of trillions of dollars in economic value, as captured by the migrants themselves in the form of higher wages in their new countries and by those who hire the migrants or consume the products of their labor. ...
In any case, there is an overriding moral issue. Imagine that it is your professional duty to report a cost-benefit analysis of liberalizing immigration policy. You wouldn’t dream of producing a study that counted “men only” or “whites only,” at least not without specific, clearly stated reasons for dividing the data.

So why report cost-benefit results only for United States citizens or residents, as is sometimes done in analyses of both international trade and migration? The nation-state is a good practical institution, but it does not provide the final moral delineation of which people count and which do not. ...

Economics evolved as a more moral and more egalitarian approach to policy than prevailed in its surrounding milieu. Let’s cherish and extend that heritage. The real contributions of economics to human welfare might turn out to be very different from what most people — even most economists — expect.

I can understand why it might have been advantageous from an evolutionary perspective for nature to make us care most about those who are closest to us.

It seems like there are two ways to get beyond this tribalism. The first is to expand the definition of the tribe to include everyone. According to the column, and to economic theory and evidence more generally, open borders don't just benefit immigrants, they help everyone. Since immigrants benefit us all, the definition of the tribe should be expanded to include them. The second, which is also in the column, is to argue it's a moral issue. We can and should grow beyond the tribal instincts that lead to war and other problems, forget about borders of all types as a distinction for measuring costs and benefits of immigration, and treat everyone the same.

Under the first approach, we care about people based upon what they can do to help us. Under the second, which I prefer, we care about people simply because they are people.

Tuesday, February 05, 2013

'Are Immigrants Taking Your Job?'

Catherine Rampell:

Are Immigrants Taking Your Job? A Primer, by Catherine Rampell: Immigration reform is back on the table, reviving debates about whether immigration is good or bad for American-born workers.
There are a lot of competing studies (and pundits) out there, but the general takeaway from conservative and liberal economists is that immigration is good for Americans’ living standards over the long run. That’s because immigrants raise the wages of native-born workers (and also lower the cost of immigrant-dense services like child care and cleaning). ... [I]mmigrants and native-born workers are generally complements, rather than perfect substitutes... As a result, immigration creates new job opportunities for the native-born... There is some disagreement about whether the wage benefits of immigration are evenly distributed among all workers, though. ...

Then what are people afraid of?:

Tendency to fear is strong political influence, EurekAlert: It's no secret that fear is a mechanism often used in political campaigns to steer public opinion on hot-button issues like immigration and war. But not everyone is equally predisposed to be influenced by such a strategy, according to new research ... published in the American Journal of Political Science.
By examining the different ways that fear manifests itself in individuals and its correlation to political attitudes, the researchers found that people who have a greater genetic liability to experience higher levels of social fear tend to be more supportive of anti-immigration and pro-segregation policies. Thus far, research examining the link between fear and political attitudes has seldom accounted for trait-based fear, with transitory state-based fear being a more common focus area. ...
The research indicates a strong correlation between social fear and anti-immigration, pro-segregation attitudes. While those individuals with higher levels of social fear exhibited the strongest negative out-group attitudes, even the lowest amount of social phobia was related to substantially less positive out-group attitudes.
"It's not that conservative people are more fearful, it's that fearful people are more conservative. People who are scared of novelty, uncertainty, people they don't know, and things they don't understand, are more supportive of policies that provide them with a sense of surety and security," McDermott said. ...

[RBSF summary of work on immigration.]

Tuesday, April 10, 2012

Net Number Of Undocumented Immigrants From Mexico Hits Zero

Net undocumented immigration is now zero:

Number Of Undocumented Immigrants From Mexico Who Are Entering and Leaving U.S. Hits Net Zero, by Amanda Peterson Beadle, ThinkProgress: According to Mexican census data, 1 million undocumented immigrants returned to Mexico from the U.S. between 2005 and 2010 — more than three times the number who said they had returned from 2000 to 2004. The majority of these immigrants are returning to their homes for good, leading to a massive shift in Mexico, which has relied on billions in remittances as a form of social welfare. And the changing immigration patterns has led to “net zero” migration:

At the macroeconomic level, Douglas Massey, founder of the Mexican Migration Project at Princeton University, has documented what he calls “net zero” migration. The population of undocumented immigrants in the US fell from 12 million to approximately 11 million during the height of the financial crisis (2008-09), he says. And since then, Mexicans without documents aren’t migrating at rates to replace the loss, creating a net zero balance for the first time in 50 years.

...The shift began as a result of the weak U.S. economy, but experts say anti-immigrant state laws, tougher U.S. border enforcement, and border violence are contributing factors as well.

Wednesday, December 14, 2011

"The Impact of Immigration on Native Poverty"

Immigration is not the cause of poverty:

The Impact of Immigration on Native Poverty through Labor Market Competition, by Giovanni Peri, NBER Working Paper No. 17570, November 2011: In this paper I first analyze the wage effects of immigrants on native workers in the US economy and its top immigrant-receiving states and metropolitan areas. Then I quantify the consequences of these wage effects on the poverty rates of native families. The goal is to establish whether the labor market effects of immigrants have significantly affected the percentage of "poor" families among U.S.-born individuals. I consider the decade 2000-2009 during which poverty rates increased significantly in the U.S. As a reference, I also analyze the decade 1990-2000. To calculate the wage impact of immigrants I adopt a simple general equilibrium model of productive interactions, regulated by the elasticity of substitution across schooling groups, age groups and between US and foreign-born workers. Considering the inflow of immigrants by age, schooling and location I evaluate their impact in local markets (cities and states) assuming no mobility of natives and on the US market as a whole allowing for native internal mobility. Our findings show that for all plausible parameter values there is essentially no effect of immigration on native poverty at the national level. At the local level, only considering the most extreme estimates and only in some localities, we find non-trivial effects of immigration on poverty. In general, however, even the local effects of immigration bear very little correlation with the observed changes in poverty rates and they explain a negligible fraction of them.

Thursday, June 09, 2011

The Geography of Immigrant Skills

There has been a long and passionate debate about the economic value of immigration (here's a summary of the debate). Whatever the answers, the evidence suggests that the economic contribution has been increasing in recent years. This is from a new Brookings Institution study:

Brookings1

Brookings2

Despite public perception of immigrants as being poorly educated, the high-skilled U.S. immigrant population today outnumbers the low-skilled population (see chart, "Immigrant Skill Levels, 1994-2010," below). Forty-four of the nation’s 100 largest metropolitan areas are high-skill immigrant destinations, in which college-educated immigrants outnumber immigrants without high school diplomas by at least 25 percent. [More here.]

Thursday, April 28, 2011

"The Rhetoric of Closed Borders"

This attempts to answer the question "Why are there so many illegal migrants?":

The rhetoric of closed borders, by Giovanni Facchini and Cecilia Testa, Vox EU: Illegal immigration is widespread. In 2008, approximately 12 million immigrants lived unlawfully in the US, and large numbers of undocumented foreigners resided also in other advanced destination countries (Fasani 2009, Triandafyllidou 2010).

Understandably, illegal immigration has become a very prominent issue in the policy debate and a major challenge in the design of policies pursuing the control of the flows of migrants.

Let’s be clear on one thing. Illegal immigration can exist only insofar as countries restrict (according to some criterion) the number of migrants that they are willing to accept. If national borders were open, there would be no notion of illegal alien as such. This leads us naturally to two questions:

  • Why do governments try to close (at least to some extent) their borders?
  • And why do they fail to keep them “closed”? 

The first point can be easily understood by considering the redistributive effects of immigration. Despite an overall welfare gain for the receiving country, the benefits of migration tend to be unevenly distributed. The crudest representation of the costs and benefits of migration for the receiving country (leaving aside the obvious important benefits for the migrants themselves) boils down to a very simple arithmetic. The downward pressure migration puts on wages means larger profits for firms’ owners employing “cheaper work” and lower wages for the workforce employed in such firms.

The crux of migration policy is striking a balance between these opposing interests: the fears of the numerous individuals (often the majority) who stand out to lose from migration (Facchini and Mayda 2008), against the pressures of organized pressure groups representing the firms who benefit from foreign work. This ultimately leads to a widespread use of restrictions to the free mobility of labor in order to achieve a desired migration target.

Continue reading ""The Rhetoric of Closed Borders"" »

Friday, March 25, 2011

The Triangle Shirtwaist Company Fire

The Triangle Shirtwaist Company Fire led to "new concepts of social responsibility and labor regulation":

Commemorating the Triangle Fire, by Laura Freschi, AidWatch: Today is the 100th anniversary of the Triangle Shirtwaist Company Fire. 146 people, mainly immigrant women, some as young as 14 years old, died when a fire broke out on the top three floors of a garment factory at the corner of Greene and Washington Place, just off Washington Square Park in New York City. ...
Ironically, the Triangle building was considered a model of modern safety standards, compared to the dark and crowded working conditions of tenement apartment sweatshops common at the time. Triangle was a “fireproof” building, with freight elevators, high ceilings and windows that allowed light onto the factory floor.
The fire that began at 4:30 pm 100 years ago today started on the 8th floor and spread quickly upwards, igniting machine oil and flammable piles of cotton scraps and shirtwaists on the factory floor. The workers rushed to escape but found the main stairs chained shut (the bosses didn’t want them taking breaks or stealing shirts and routinely searched them before they could leave the building.) While some made it out via the single freight elevator, others were pushed to their deaths in the elevator shaft. The flimsy fire escape came unmoored from the building in the heat, killing many more.
Firemen could do little to help... The women trapped on the 9th floor began to jump out the windows... Thousands of New Yorkers out for a Saturday stroll though Washington Square Park witnessed the horrible scene.
The factory owners on the top floor escaped out the roof and onto an adjacent building. They stood trial for criminal manslaughter but were acquitted; the jury wasn’t convinced that the owners knew the exit doors were locked.
Still, the consequences of the fire were far-reaching. Public outrage led to more than 30 new laws passed within two years, creating new standards for minimum wages and maximum hours, encouraging collective bargaining, and addressing all the safety failures at the Triangle Factory.
The Triangle Factory building now houses the NYU Chemistry and Biology Departments. A plaque from the International Ladies Garment Workers Union reads:
On this site, 146 workers lost their lives in the Triangle Shirtwaist company fire on March 25, 1911. Out of their martyrdom came new concepts of social responsibility and labor regulation that have helped make American working conditions the finest in the world.
The fire was a terrible tragedy. But today we can be thankful for 100 years of development and public safety regulation that prevent workplace disasters like this one in New York City.

Wednesday, March 23, 2011

Topics That Are Sure To Attract Lots of Comments

Here are 20 that come to mind:

Free trade is good.

Economics is a science.

Climate change is real and it's caused by humans.

The Fed deserves a pat on the back.

Immigration is good.

Reagan and Bush were right all along.

Iraq, Afghanistan, Egypt, Libya.

Libertarians.

Social Security.

Trade with China benefits low income households.

There's no need to worry about the national debt.

Unions help.

Healthcare is better in Europe.

Bike lanes impede the free movement of cars.

Sweatshops are better than nothing.

Nobody could have predicted the bubble.

Tax cuts are the answer to almost everything.

Gold is not the answer to anything.

We need big banks.

The rich deserve their incomes.

Saturday, October 30, 2010

"How Immigrants Create More Jobs"

Tyler Cowen:

How Immigrants Create More Jobs, by Tyler Cowen, Commentary, NY Times: In the campaign season now drawing to a close, immigration and globalization have often been described as economic threats. The truth, however, is more complex.
Over all, it turns out that the continuing arrival of immigrants ... is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore. ...
The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States... In other words, immigrants may be competing more with offshored workers than with other laborers in America. ...
Debates on immigration and labor markets reflect some common human cognitive failings — namely, that we are quicker to vilify groups of different “others” than we are to blame impersonal forces.
Consider the fears that foreign competition, offshoring and immigration have destroyed large numbers of American jobs. In reality, more workers have probably been displaced by machines... Yet we know that machines and computers do the economy far more good than harm and that they create more jobs than they destroy.
Nonetheless, we find it hard to transfer this attitude to our dealings with immigrants, no matter how logically similar “cost-saving machines” and “cost-saving foreign labor” may be in their economic effects. ...
As a nation, we ... should be looking to immigration as a creative force in our economic favor. Allowing in more immigrants, skilled and unskilled, wouldn’t just create jobs. It could increase tax revenue, help finance Social Security, bring new home buyers and improve the business environment.
The world economy will most likely grow more open, and we should be prepared to compete. That means recognizing the benefits — including the employment benefits — that immigrants bring to this country.

Thursday, September 09, 2010

"Illegal immigration: What's the real cost to taxpayers?"

Here's a follow-up to the post on immigration and Social Security:

Illegal immigration: What's the real cost to taxpayers?, by Edward Schumacher-Matos, Commentary, Washington Post: In 1909, at the height of the last great immigration wave, when immigrants reached a peak of almost 15 percent of the U.S. population, they made up about half of all public welfare recipients. ... In the country's 30 largest cities, meanwhile, more than half of all public school students were the children of immigrants. ...
This history is forgotten in the angry debate over the cost to taxpayers of unauthorized immigrants and their children today. My recent column reporting that unauthorized immigrants were making unexpectedly large contributions to Social Security, for example, led to denunciations that I was being misleading by not looking at the total fiscal picture.
The truth is that unauthorized immigrants are probably a net burden on taxpayers in the short term, but only if you consider education as a cost and not as an investment in the nation's future, as it was seen a century ago. ...
Any fiscal look ... has to be placed in the context of overall economic contribution. Economists overwhelmingly agree that the unauthorized contribute to the nation's economic growth..., though wages for unskilled workers suffer. None of this is to say that we should allow illegal immigration. As Milton Friedman once noted, you can't have open borders and hope to maintain generous government benefits for your citizens. ...
But you ask: What is the fiscal balance, anyway? No one knows..., no definitive study has been done. ... The most insightful study remains one done by the National Research Council in 1997. ... The study found that an immigrant high school dropout -- which characterizes nearly half of today's unauthorized people -- received $89,000 more in services than he paid in taxes in his life. But an immigrant with at least some college -- a quarter of today's unauthorized -- gave $105,000 more than he got. For the high school graduates left, those who arrived during their teens or earlier were slightly profitable for the government, while the children of those who arrived later paid off the small deficit of their parents. ...
A tough federal law passed in 1996 has since cut almost all benefits to unauthorized immigrants. Even the Center for Immigration Studies, which advocates forcing out immigrants here illegally, acknowledged that the average undocumented household in 2002 received fully 46 percent less in federal benefits than an American one. But this likely would go up with legalization.
So, the main question may be: Are they deserving? Look around you at the people whose European-born ancestors were on the dole and overcrowding schools a century ago. You decide.

Monday, August 30, 2010

FRBSF Economic Letter: The Effect of Immigrants on U.S. Employment and Productivity

What effect does immigration have on U.S. job markets? "Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity. Consistent with previous research, there is no evidence that these effects take place at the expense of jobs for workers born in the United States":

The Effect of Immigrants on U.S. Employment and Productivity, by  Giovanni Peri, FRBSF Economic Letter: Immigration in recent decades has significantly increased the presence of foreign-born workers in the United States. The impact of these immigrants on the U.S. economy is hotly debated. Some stories in the popular press suggest that immigrants diminish the job opportunities of workers born in the United States. Others portray immigrants as filling essential jobs that are shunned by other workers. Economists who have analyzed local labor markets have mostly failed to find large effects of immigrants on employment and wages of U.S.-born workers (see Borjas 2006; Card 2001, 2007, 2009; and Card and Lewis 2007).

This Economic Letter summarizes recent research by Peri (2009) and Peri and Sparber (2009) examining the impact of immigrants on the broader U.S. economy. These studies systematically analyze how immigrants affect total output, income per worker, and employment in the short and long run. Consistent with previous research, the analysis finds no significant effect of immigration on net job growth for U.S.-born workers in these time horizons. This suggests that the economy absorbs immigrants by expanding job opportunities rather than by displacing workers born in the United States. Second, at the state level, the presence of immigrants is associated with increased output per worker. This effect emerges in the medium to long run as businesses adjust their physical capital, that is, equipment and structures, to take advantage of the labor supplied by new immigrants. However, in the short run, when businesses have not fully adjusted their productive capacity, immigrants reduce the capital intensity of the economy. Finally, immigration is associated with an increase in average hours per worker and a reduction in skills per worker as measured by the share of college-educated workers in a state. These two effects have opposite and roughly equal effect on labor productivity.

Continue reading "FRBSF Economic Letter: The Effect of Immigrants on U.S. Employment and Productivity" »

Wednesday, May 26, 2010

"The Economics of Immigration Are Not What You Think"

With immigration issues coming to the forefront once again, it's a good time to review the evidence on its effects:

The Economics of Immigration Are Not What You Think, by Robert J. Shapiro, NDN [CC]: Waves of new immigrants often spark economic anxiety and cultural discomfort, as well as occasional violence and wide-net crackdowns, on the Arizona model. Even here, a nation comprised almost entirely of immigrants and their descendents, we’ve seen these reactions not only in recent times but also a century ago, when waves of poor immigrants from Europe arrived here. With a hundred years’ distance, however, we can now see that those early waves of immigration were generally associated not with economic dislocation and national decline, but with extraordinary economic boom times and America’s emergence as the world’s leading economy. And for much the same reasons as a century ago, recent evidence indicates that the economic effects of the current waves of immigration are also largely positive. 
The New Policy Institute (NPI) asked me to review all of the available data and economic studies of recent U.S. immigration. With my colleague Jiwon Vellucci, we found, to start, that more than one-third of recent immigrants come from Europe and Asia, while less than 57 percent have come from Mexico and other Latin American nations. The popular portrait of recent immigrants is off-point in other respects as well. While more immigrants than native-born Americans lack high school diplomas, equivalent shares of both groups have college or post-college degrees. That finding should make it unsurprising that 28 percent of U.S. immigrants work as managers or professionals, including 38 percent of those who have become naturalized citizens or the same share as native-born Americans. 
Many Americans would probably acknowledge that their concerns about immigration lie principally with those who are undocumented. No one likes being reminded that the world’s most powerful nation hasn’t figured out how to effectively police its own borders. But the data also show that these undocumented people, who account for 30 percent of all recent immigrants, embody some traditional values much more than native-born Americans. For example, while undocumented male immigrants are generally low-skilled, they also have the country’s highest labor participation rate: Among working-age men, 94 percent of undocumented immigrants work or actively are seeking work, compared to 83 percent of the native born. One critical reason is that undocumented immigrants are more likely to support traditional families with children: 47 percent of undocumented immigrants today are part of couples with children, compared to just 21 percent of native-born Americans.
The evidence regarding the impact of immigration on wages also turns up some surprising results. First, there’s simply no evidence that the recent waves of immigration have slowed the wage progress of average, native-born American workers. Overall, in fact, the studies show that immigration has increased the average wage of Americans modestly in the short-run, and by more over the long-term as capital investment rises to take account of the larger number of workers. Behind those results, however, lie winners and losers – although in both cases, the effects are modest. Among workers, the winners are generally higher-skilled Americans: For example, when a factory or hotel hires more low-skilled workers, demand also increases for the higher-skilled people who manage those workers or carry out other professional tasks for an enterprise that’s grown larger. 
The losers are generally the lower-skilled workers who have to compete for jobs with recent immigrants. But studies also show that immigration reform might well take care of most of those effects. Following the 1986 immigration reforms, for example, previously-undocumented immigrants experienced big pay boosts – as much as 15 or 20 percent –  and immigrants who already had legal status saw hefty wage gains, too. But the reforms also led to higher wages for lower-skilled native-born Americans. One reason is that undocumented people who gain legal status can move more freely to places with greater demand for their skills, reducing their competition with native-born people with similar skills. More important, their new legal status confers certain protections such as minimum wage and overtime rules. Today, about one-fourth of low-skilled workers in large American cities are paid less than the minimum wage, including 16 percent of native-born workers, 26 percent of legal immigrants, and 38 percent of undocumented workers. Ending the ability of unscrupulous employers to recruit people to work for less than the minimum wage would not only raise the incomes of those currently paid less than the minimum wage. It also would ease downward pressures on the wages of other lower-skilled Americans, which comes from the below-minimum wage workers. This process is something we have refered to as "closing the 'trap-door' under the minimum wage."
Looking again at immigrants generally, recent research also shows a strong entrepreneurial streak, with immigrants being 30 percent more likely than native-born Americans to start their own businesses. Nor are immigrants the fiscal drain that’s commonly supposed, at least not in the long term. In California and a few other states, immigrants today do entail a net, fiscal burden, principally reflecting the costs of public education for their children. But studies that use dynamic models to take account of the lifetime earnings of immigrants – most of whom arrive here post-school age and without elderly parents to claim Social Security and Medicare – show substantial net fiscal gains at the federal, state, and local levels.
Political disputes are rarely settled by facts. Nevertheless, it’s reassuring to see that the humane and progressive approach to immigration is also a policy likely to produce good economic results for almost everyone.

Saturday, April 10, 2010

Reich: Why More Immigrants Are An Answer to the Coming Boomer Entitlement Mess

I'm guessing that not everyone will agree with this:

Why More Immigrants Are An Answer to the Coming Boomer Entitlement Mess, by Robert Reich I was born in 1946, just when the boomer wave began. ... Sixty years later, we boomers have a lot to be worried about because most of us plan to retire in a few years and Social Security and Medicare are on the way to going bust. I should know because I used to be a trustee of the Social Security and Medicare trust funds. Those of you who are younger than we early boomers have even more to be worried about because if those funds go bust they won’t be there when you’re ready to retire.
It’s already starting to happen. This year Social Security will pay out more in benefits than it receives in payroll taxes. ... And it adds new urgency to reforming Social Security — a task the president’s commission on the nation’s debt is focusing on.
So what’s the answer?
Fed Chair Ben Bernanke this week listed the choices. “To avoid large and unsustainable budget deficits,” he said in a speech on Wednesday, “the nation must choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”
Bernanke ... leaves out one other possible remedy that should be included in that combination: Immigration.
You see, the biggest reason Social Security is in trouble, and Medicare as well, is because America is aging so fast. It’s not just that so many boomers are retiring. It’s also that seniors are living longer. And families are having fewer children.
Add it all up and the number of people who are working relative to the number who are retired keeps shrinking. ...
This is where immigration comes in. Most immigrants are young because the impoverished countries they come from are demographically the opposite of rich countries. Rather than aging populations, their populations are bursting with young people.
Yes, I know: There aren’t enough jobs right now even for Americans who want and need them. But once the American economy recovers, there will be. Take a long-term view and most new immigrants to the U.S. will be working for many decades.
Get it? One logical way to deal with the crisis of funding Social Security and Medicare is to have more workers per retiree, and the simplest way to do that is to allow more immigrants into the United States.
Immigration reform and entitlement reform have a lot to do with one another.

I didn't expect this from Reich - he should know better than to blame the problem on demographics (e.g. see the graph here on the demographic issues, and here for the relative size of the Social Security and health care cost problems, e.g. "The fiscal gap does not arise, as many believe, primarily from the coming retirement of the baby boomers. Rather, the rate at which health-care costs grow will be the primary determinant of the nation's long-term budget picture."). I don't oppose more immigration, but trying to sell it to the public through scare tactics about social security is not the way to make the case.

Monday, March 29, 2010

"Immigration and the Welfare State"

Jeff Miron says "we should liberalize immigration because it will restrain the welfare state":

Immigration and the Welfare State, by Jeffrey Miron: Jason Riley has a nice column in today’s WSJ about the interaction between welfare and immigration policies. He correctly notes that immigrants to the U.S. do not come mainly for the welfare benefits, but he worries this could change as welfare policies, like Obamacare, expand.

I share Riley’s opposition to Obamacare, as well as his support for legal immigration. My one disagreement is his endorsement of the Friedman view on the relation between the welfare state and immigration:

In countries such as France, Italy and the Netherlands, excessively generous public benefits have lured poor migrants who tend to be heavy users of welfare and less likely than natives to join the work force. Milton Friedman famously remarked, “you can’t have free immigration and a welfare state.” There is a tipping point, even if the U.S. has yet to reach it.

Riley and Friedman may be right, but my hunch is that they have the sequencing backwards: we should liberalize immigration because it will restrain the welfare state. The European examples that Riley cites might seem to argue against this view, but these countries still restrict immigration significantly. My claim is that major expansions in legal immigration would cause substantially diminished support for generous welfare spending.

On the run, so I'll have to let you take this on in comments...

Wednesday, December 30, 2009

''Virtual Immigration'' Continues to Rise

Sudeep Reddy summarizes a report from the Dallas Fed on "Labor Market Globalization in the Recession and Beyond":

'Virtual' Immigration Continued Rising During Recession, by Sudeep Reddy, Real Time Economics: The global economic downturn spurred declines in physical immigration — the movement of people across borders — in 2008 and 2009. But a new Federal Reserve Bank of Dallas report says “virtual” immigration — moving the work rather than the workers — continued to grow.
“Most likely, the difference stems from the jobs the two types of immigrants typically do,” authors Michael Cox, Richard Alm and Justyna Dymerska write in the Dallas Fed’s Economic Letter. “Physical immigrants work in construction and other highly cyclical industries. Virtual immigrants are more likely to work in the services economy. It has traditionally been less sensitive than goods to cyclical fluctuations, largely because services aren’t subject to the kind of inventory bulges that make goods production unstable.”
Still, virtual immigration increased at a slower pace during the downturn. ... For instance, India’s exports in software and IT services are forecast to continue expanding. But the projected growth rate of 17% for 2009 is less than half the pace of the prior four years. ...

Here are some charts from the report (click on figures for larger versions):

Chart4 

Chart5

Chart6

Chart7

Thursday, December 03, 2009

"The Economics and Policy of Illegal Immigration in the United States"

Gordon Hanson on illegal immigration:

The Economics and Policy of Illegal Immigration in the United States, by Gordon H. Hanson: Executive Summary Policymakers across the political spectrum share a belief that high levels of illegal immigration are an indictment of the current immigration policy regime. An estimated 12 million unauthorized immigrants live in the United States, and the past decade saw an average of 500,000 illegal entrants per year. Until recently, the presence of unauthorized immigrants was unofficially tolerated. But since 2001, policymakers have poured huge resources into securing US borders, ports, and airports; and since 2006, a growing range of policies has targeted unauthorized immigrants within the country and their employers.

Notwithstanding these efforts, no agreement has materialized on a system to replace the status quo and, in particular, to divert illegal flows to legal ones. Policy inaction is a result not only of a partisan divide in Washington, but also of the underlying economic reality that despite its faults, illegal immigration has been hugely beneficial to many US employers, often providing benefits that the current legal immigration system does not.

Continue reading ""The Economics and Policy of Illegal Immigration in the United States"" »

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. ...

Thursday, May 28, 2009

"Housing Starts, Remittances and Macroeconomic Developments"

Federico Mandelman of the Atlanta Fed:

Housing starts, remittances and macroeconomic developments, by Federico Mandelman: Recent evidence collected by the Dallas Fed's Pia Orrenius suggests that apprehensions of undocumented workers attempting to cross the U.S.–Mexican border are a good predictor of the overall American job market. Simply put, if one wanted to predict job market conditions in July of a given year, one should examine immigrant apprehensions in January. Orrenius finds that more immigrants attempt to cross the border from Mexico (and more of them are caught doing so) when immigrants believe the U.S. economy would offer more jobs in the near future.

One area of the economy that relied heavily on immigrant labor was housing. The following chart plots monthly U.S. housing starts (lagged five months) and remittances to Mexico. ... I use remittances as a proxy for migrant Mexican labor.

Continue reading ""Housing Starts, Remittances and Macroeconomic Developments"" »

Tuesday, February 03, 2009

"Immigration and Inequality"

David Card:

Immigration and Inequality, by David Card, NBER WP No. 14683, January 2009 [open link]: Abstract Immigration is often viewed as a proximate cause of the rising wage gap between high- and low-skilled workers. Nevertheless, there is controversy over the appropriate framework for measuring the presumed effect, and over the magnitudes involved. This paper offers an overview and synthesis of existing knowledge on the relationship between immigration and inequality, focusing on evidence from cross-city comparisons in the U.S. Although some researchers have argued that a cross-city research design is inherently flawed, I show that evidence from cross-city comparisons is remarkably consistent with recent findings from aggregate time series data. Both designs provide support for three key conclusions: (1) workers with below high school education are perfect substitutes for those with a high school education; (2) "high school equivalent" and "college equivalent" workers are imperfect substitutes; (3) within education groups, immigrants and natives are imperfect substitutes. Together these results imply that the impacts of recent immigrant inflows on the relative wages of U.S. natives are small. The effects on overall wage inequality (including natives and immigrants) are larger, reflecting the concentration of immigrants in the tails of the skill distribution and higher residual inequality among immigrants than natives. Even so, immigration accounts for a small share (5%) of the increase in U.S. wage inequality between 1980 and 2000.

We'll see the same close the doors response to immigration we are seeing with trade, and there are short-run and long-run considerations to responding in this way similar to those discussed here.

Saturday, January 17, 2009

Borjas: Advice on Immigration

George Borjas with his advice for the incoming administration:

Some Advice for President Obama, by George Borjas: Immigration, both legal and illegal, was the silent issue in the presidential campaign--despite the rapidly deteriorating economic conditions. I suspect that the worsening labor market will force President Obama to wrestle with the immigration issue sooner rather than later. It'll be hard to justify a system that lets in nearly 1.5 million new immigrants each year at a time when millions of Americans are losing their jobs.

The editors at the New York Post asked me if I had any constructive advice to give our new president about how one could approach the problem. Here is an excerpt:

Our economic woes also create an opportunity - for they will encourage many illegals to return home, potentially removing a red flag that has made rational policymaking politically impossible.

The failure of the Bush "comprehensive immigration reform" shows us that many Americans are unwilling to provide amnesty (under any name) to 12 million illegals, especially when the border remains porous and we would simply have to consider yet another amnesty a few years down the road. A real solution is one that resolves the issue for the long term - several decades, at the least.

How does the downturn make it easier to address this issue? Simply put, illegal immigration is highly responsive to economic conditions - when times are bad, fewer come (and more return home).

President Obama can take a very simple step to complement this "natural" reduction: speed up the widespread adoption of the E-Verify program. This program lets employers compare the records of their new hires with more than 500 million records held by the Department of Homeland Security and the Social Security Administration.

A simple scan - no more complex than scanning your bank card at the grocery store - would quickly tell employers if their new hire is authorized to work.

Many employers will object - especially those who prefer to hide behind claims that they don't know if any given worker is illegal. Nor does expanding E-Verify provide the "showy" symbol that some politicians prefer - like building a taller and stronger fence on the Mexican border. But any fence, no matter how tall and strong, is bound to be ineffective. Around 40 percent of illegal immigrants don't enter through that border.

Instead, E-Verify detects illegal immigrants at the place where such detection is costliest to them - as they try to get a job. It also makes employers more accountable for their actions. It should greatly slow down the number of illegals entering the country.

With those tensions reduced, Americans would be much more willing to revisit the issue of what to do with the illegals already here. And a little patience and benign neglect can have a large payoff in this matter.

A widespread amnesty may not be needed in just a few years. The deep recession and stricter enforcement will encourage many illegal immigrants to return.

Meanwhile, millions of those who remain will sprout deep roots by marrying and having children (who will be US citizens by birth). These family ties will make many illegal immigrants eligible for legal status within existing law.

And in a world with greatly reduced illegal immigration, it would be easier to enact minor changes in current law to speed up the granting of permanent visas to relatives of citizens.

The economy also presents a unique opportunity for reforming legal immigration. Most of the legal immigrants enter the country without regard to how their skills match our labor-market needs. The lack of any skill filters - combined with the high volume of low-skill illegal immigration - aggravates the economic hardships faced by disadvantaged Americans.

We can both improve the status of our low-skill workforce and substantially increase the economic benefits to the nation from immigration by adopting a system that encourages the entry of high-skill immigrants. Surely, in time of economic duress, it's wise to fashion immigration policy in a way that is most beneficial to the country.

One little-noticed provision in the failed Bush proposal was the introduction of what is called a "point system" - which awards points to applicants with particular skills, and grants visas only to those who exceed a threshold level of points...Used wisely, immigration policy can be a tool that can help Americans even during difficult times. The new president has a historic opportunity to set the system right.

Thursday, August 14, 2008

Immigration, Social Security, and Housing Markets

Dean Baker reports:

Census Bureau Trashes Social Security Trustees Immigration Assumptions, Beat the Press: [Census Bureau Trashes Social Security Trustees Immigration Assumptions] could have been the headline of an article reporting on a new set of projections for immigration from the Census Bureau. According to the article, immigration will rise from its current rate of 1.3 million a year to more than 2 million a year by the middle of the century.

By contrast, the Social Security trustees intermediate scenario assumes that immigration will fall from its current rate to just over 1 million a year by the middle of the century. Even the low cost scenario assumes immigration of only 1.3 million a year by the middle of the century.

A more rapid pace of immigration improves the financial situation of Social Security. If the Census projections prove correct, then close to 30 percent of the projected Social Security shortfall would be eliminated. ...

Speaking of immigration:

Greenspan's Greater Foreign Fool Theory, by Paul Kedrosky: While I agree that it makes sense for the U.S. to increase immigration of skilled workers, I laughed out loud at ex-Fed chair Alan Greenspan's other rationale letting more people into the U.S.:

"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants." The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. is increasing at an annual rate of about 800,000, of whom about one-third are immigrants. "Perhaps 150,000 of those are loosely classified as skilled," he says. "A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices."

Awesome. Why wait around for sovereign wealth funds to bail the U.S. out when you can simply invite foreigners in and suggest they buy real estate? Alan's soo-oooo clever. [via WSJ]

Wednesday, July 23, 2008

"Immigration and National Wages: Clarifying the Theory and the Empirics"

Gianmarco I.P. Ottaviano and Giovanni Peri on immigration and wages:

Immigration and National Wages: Clarifying the Theory and the Empirics, Gianmarco I.P. Ottaviano, Giovanni Peri. NBER WP No. 14188,
Issued in July 2008
[open link]: Abstract This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.

Saturday, May 24, 2008

Illegal Immigrants Sent to Prison

The administration takes immigration enforcement to a new level:

270 Illegal Immigrants Sent to Prison in Federal Push, by Julia Preston, NY Times: In temporary courtrooms at a fairgrounds here, 270 illegal immigrants were sentenced this week to five months in prison for working at a meatpacking plant with false documents.

The prosecutions, which ended Friday, signal a sharp escalation in the Bush administration’s crackdown on illegal workers, with prosecutors bringing tough federal criminal charges against most of the immigrants arrested... Until now, unauthorized workers have generally been detained by immigration officials for civil violations and rapidly deported. ...

The unusually swift proceedings, in which 297 immigrants pleaded guilty and were sentenced in four days, were criticized by criminal defense lawyers, who warned of violations of due process. ...

The illegal immigrants, most from Guatemala, filed into the courtrooms in groups of 10, their hands and feet shackled. One by one, they entered guilty pleas through a Spanish interpreter... Moments later, they moved to another courtroom for sentencing. ... Most immigrants agreed to immediate deportation after they serve five months in prison.

The hearings took place on the grounds of the National Cattle Congress in Waterloo, in mobile trailers and in a dance hall modified with black curtains, beginning at 8 a.m. and continuing several nights until 10. On Wednesday alone, 94 immigrants pleaded guilty and were sentenced...

The large number of criminal cases was remarkable because immigration violations generally fall under civil statutes. Until now, relatively few immigrants caught in raids have been charged with federal crimes like identity theft or document fraud.

“To my knowledge, the magnitude of these indictments is completely unprecedented,” said Juliet Stumpf, an immigration law professor... “It’s the reliance on criminal process here as part of an immigration enforcement action that takes this out of the ordinary, a startling intensification of the criminalization of immigration law.” ...

Kathleen Campbell Walker, president of the American Immigration Lawyers Association, said that intricate issues could arise in some cases, for example where immigrants had children and spouses who were legal residents or United States citizens. Those issues “could not be even cursorily addressed in the time frame being forced upon these individuals and their overburdened counsel.”

Linda R. Reade, the chief judge who approved the emergency court setup, said she was confident there had been no rush to justice. In an interview, Judge Reade said prosecutors had organized the immigrants’ detention to make it easy for their lawyers to meet with them. The prosecutors, she said, “have tried to be fair in their charging.”

The immigration lawyers, Judge Reade said, “do not understand the federal criminal process as it relates to immigration charges.”

That last part confuses me. How was the process fair if immigration lawyers don't understand it? The Judge seems to be arguing that the process was fair because prosecutors adjusted their charges to compensate for the fact that immigration lawyers don't understand federal procedures. If so, I don't get that argument.

But the main question is, as George Borjas notes, why did the administration choose to pursue this now? They haven't hesitated to politicize the Justice Department to suit their needs, so does this help Bush's reputation or McCain's chances of winning the election?

Update: I probably should have included this part - these issues have come up in comments:

No charges have been brought against managers or owners at Agriprocessors, but there were indications that prosecutors were also preparing a case against the company. In pleading guilty, immigrants had to agree to cooperate with any investigation.

Chaim Abrahams, a representative of Agriprocessors, said in a statement that he could not comment about specific accusations but that the company was cooperating with the government.

Aaron Rubashkin, the owner of Agriprocessors, announced Friday that he had begun a search to replace his son Sholom as the chief executive of the company. Agriprocessors is the country’s largest producer of kosher meat, sold under brands like Aaron’s Best. ... Normally it employs about 800 workers, and in recent years the majority of them have come from rural Guatemala.

Since 2004, the plant has faced repeated sanctions for environmental and worker safety violations. It was the focus of a 2006 exposé in The Jewish Daily Forward and a commission of inquiry that year by Conservative Jewish leaders.

Friday, May 23, 2008

"The Effect of Minimum Wages on Immigrants’ Employment and Earnings"

Here's more on the effects of the minimum wage:

The Effect of Minimum Wages on Immigrants’ Employment and Earnings, by Pia M. Orrenius and Madeline Zavodny, FRB Dallas: Abstract This study examines how minimum wage laws affect the employment and earnings of low-skilled immigrants and natives in the U.S. Minimum wage increases might have larger effects among low-skilled immigrants than among natives because, on average, immigrants earn less than natives due to lower levels of education, limited English skills, and less social capital. Results based on data from the Current Population Survey for the years 1994-2005 do not indicate that minimum wages have adverse employment effects among adult immigrants or natives who did not complete high school. However, low-skilled immigrants may have been discouraged from settling in states that set wage floors substantially above the federal minimum.

Continue reading ""The Effect of Minimum Wages on Immigrants’ Employment and Earnings"" »

Monday, May 12, 2008

"Why Legal Barriers are Not Critical to Deterring Immigrants"

Fences or not, most people choose not to immigrate:

Why legal barriers are not critical to deterring immigrants, by Drew Keeling, Vox EU: Policymakers addressing immigration frequently concentrate on using laws and regulations to influence the selection of immigrants and deter unwanted arrivals. But policymakers and scholars may be overemphasising legal mechanisms at the expensive of economic fundamentals.

Consider an historical period when legal mechanisms played little role in determining the volume of immigration flows. Despite minimal legal restrictions, annual migration rates across the North Atlantic in the nineteenth and early twentieth century rarely exceeded 1-2% of the population. This is not much higher than rates of international migration today.

For decades, scholars have believed that transportation costs severely limited long distance movement during the earlier open-border era. With international travel much cheaper today, strict legal barriers have thus been regarded as essential in keeping migration from rising far above already controversially high levels. But in recent research, I find that the great transatlantic migration of Europeans a century ago was not strongly constrained by the costs of travel.[1] Most people, most of the time, simply prefer to stay put rather than relocate abroad.

The cost of immigration a century ago Globalisation one hundred years ago bears many similarities to globalisation today. Then, as now, a disproportionate volume of the world’s economic activity occurred within the relatively more developed North Atlantic region.[2]

Free trade and free movement of goods, services, finance and information helped economic growth and international convergence persist for many decades until the outbreak of the First World War. One salient difference between that world and ours is that, a century ago, borders were also widely open to mass movements of labour.[3]

The ability to observe more closely the underlying processes of mass migration, unobscured by visa requirements, quotas, and work permit restrictions, has made the “Great Migration” of a century ago a favourite of migration scholars. Until recently, however, there has been very little systematic examination of the travel industry, which brought millions of Europeans overseas to foreign entry stations such as New York’s Ellis Island.

In my research, I develop a continuous long-term record of transatlantic passenger fares between 1885-1914, using shipping records from the Cunard Line’s Liverpool to New York route. During this time, North Atlantic migration volumes tended to fall when fares dropped. This happened during economic recessions in North America when migration declined markedly and shipping companies found it difficult to maintain fare levels.

Continue reading ""Why Legal Barriers are Not Critical to Deterring Immigrants"" »

Sunday, May 11, 2008

"Controversies about the Rise of American Inequality: A Survey"

Robert Gordon and Ian Dew-Becker survey "seven aspects of rising inequality":

Controversies about the Rise of American Inequality: A Survey, by Robert J. Gordon and Ian Dew-Becker,  NBER WP 13982, April 2008 [Open Link to Paper]: Abstract This paper provides a comprehensive survey of seven aspects of rising inequality that are usually discussed separately: changes in labor's share of income; inequality at the bottom of the income distribution, including labor mobility; skill-biased technical change; inequality among high incomes; consumption inequality; geographical inequality; and international differences in the income distribution, particularly at the top. We conclude that changes in labor's share play no role in rising inequality of labor income; by one measure labor's income share was almost the same in 2007 as in 1950. Within the bottom 90 percent as documented by CPS data, movements in the 50-10 ratio are consistent with a role of decreased union density for men and of a decrease in the real minimum wage for women, particularly in 1980-86. There is little evidence on the effects of imports, and an ambiguous literature on immigration which implies a small overall impact on the wages of the average native American, a significant downward effect on high-school dropouts, and potentially a large impact on previous immigrants working in occupations in which immigrants specialize. The literature on skill-biased technical change (SBTC) has been valuably enriched by a finer grid of skills, switching from a two-dimension to a three- or five-dimensional breakdown of skills. We endorse the three-way "polarization" hypothesis that seems a plausible way of explaining differentials in wage changes and also in outsourcing. To explain increased skewness at the top, we introduce a three-way distinction between market-driven superstars where audience magnification allows a performance to reach one or ten million people, a second market-driven segment consisting of occupations like lawyers and investment bankers, and a third segment consisting of top corporate officers. Our review of the CEO debate places equal emphasis on the market in showering capital gains through stock options and an arbitrary management power hypothesis based on numerous non-market aspects of executive pay. Data on consumption inequality are too fragile to reach firm conclusions. We introduce two new issues, disparities in the growth of price indexes and also of life expectancy between the rich and the poor. We conclude with a perspective on international differences that blends institutional and market-driven explanations. ...

Ineq

9. Conclusion ...We argued in section 2 that there have been no interesting changes in labor’s share of national income over the last two decades, once a consistent cyclical chronology is applied. Over the full period 1950–2006 labor’s share has risen, not fallen, but once the labor portion of proprietor’s income is added in, labor’s share has been almost exactly flat for more than 50 years. Further, we point out that labor’s share in national income is not related to the current debate about increased inequality. If the labor income of the highest-paid workers increased enough, we could observe simultaneously an increase in labor’s share and a decline in the real income of the median worker.

Section 3 documents the evolution since the late 1970s of the 90-50-10 ratios from CPS data for men, for women, and for both together. Our most important finding is that all discussions of income by percentile below the 90th must distinguish carefully between men and women. We were surprised to learn that the 90-10 income ratio for women has increased by fully double the increase for men. While the 90-50 ratio for both men and women increased slowly and steadily from 1979 to 2005, the 50-10 ratio showed a sharp jump in 1979–86 that was twice as large for women as for men. Then the 50-10 ratio remained on a high plateau for women about 20 percent above its 1979 value, while for men the 50-10 ratio gradually slipped back to its 1979 value.

In examining causes for these changes, we focus in section 4 on five elements, the decline of unionization, the increase of trade, the increase of immigration, the decline in the real minimum wage, and the drop in top-bracket income tax rates.

Continue reading ""Controversies about the Rise of American Inequality: A Survey"" »

Friday, May 02, 2008

Offshoring and Immigrant Employment

Are offshoring and immigration "signs of economic vitality and manufacturing strength," or signs of economic "weakness"?:

Offshoring and immigrant employment: Signs of strength, by Giuseppe Bertola, Vox EU: Technological advances have resulted in the global fragmentation of production processes: thanks to information, telecommunication, and transportation technologies, firms make finished products that combine inputs from many locations. Often, the final good is the result of blueprints and marketing plans prepared in rich countries combined with nuts and bolts assembled in poor countries. Such “offshoring” of labour-intensive production tasks has much in common with immigration: both are profitable because labour is relatively well paid in the region from which firms delocate or to which immigrants come.

With immigration, manufacturing plants stay put and foreign workers arrive to replace local workers in production jobs, but well paid jobs in other taks may become available to locals. With offshoring, foreigners stay put and manufacturing plants move, but some manufacturing, planning, and headquarters activities remain in the home economy. If immigration were impossible and headquarters were physically inseparable from production plants, all manufacturing would have to leave countries where labour is expensive.

Continue reading "Offshoring and Immigrant Employment" »

Tuesday, March 25, 2008

"Immigration and Social Security"

From Kevin Drum:

Immigration and Social Security, by Kevin Drum: Paul Krugman points out that in the 2008 report of the Social Security Trustees released today the "actuarial balance" of the system is better than it's been since 1993. ... But how much better? ... [L]ast year the trustees estimated that Social Security had an overall 75-year deficit of 1.95% of taxable payroll. ...This year it's 1.70%. That's a pretty substantial improvement. What caused it? ...

[I]mmigrants. To be specific, better estimates of the taxes and benefits received by illegal immigrants — or, as the trustees refer to them, "other-immigrants":

In previous reports, the other-immigrant population was projected using assumed ... numbers... For this year's report, the ... numbers ... are projected by explicitly modeling other immigrants and other emigrants...

Translation: instead of just pulling a net number out of a hat, the trustees built a model... And guess what?

  • Illegal immigrants tend to skew young. This benefits the system.
  • Young people have more children than older people. This benefits the system.
  • Some illegal immigrants pay taxes for a few years and then leave. This benefits the system.

Bottom line: "This year's report results in [...] a substantial increase in the number of working-age individuals contributing payroll taxes, but a relatively smaller increase in the number of retirement-age individuals receiving benefits in the latter half of the long-range period." Give or take a bit, it turns out that this shores up the Social Security system to the tune of around $13 billion per year. Thanks, illegal immigrants!

Sunday, March 09, 2008

Borjas, Grogger, and Hanson: Immigrant and Native Complementarity

George Borjas, Jeffrey Grogger, and Gordon Hanson have a new paper, and it's not good news for the Ottaviano and Peri result that immigration can cause native wages to increase due to strong complementarities between native and immigrant labor:

Immigrant-Native Complementarity Revisited, by George Borjas: I’ve often been asked what I think about the Ottaviano-Peri finding that there are strong complementarities between comparably skilled immigrants and natives—complementarities that lead them to conclude that immigration raises wages for many natives.

I’ve always been a little skeptical of the Ottaviano-Peri evidence. ... Here’s the abstract to our new paper:

Continue reading "Borjas, Grogger, and Hanson: Immigrant and Native Complementarity" »

Friday, December 21, 2007

Immigration Reform and Guest Workers

From Free Exchange,  a discussion of immigration reform and guest worker programs:

Visitation rights, by Free Exchange: However one feels about the politics of immigration, there can be no question that giving migrants from poor nations the ability to work in rich countries constitutes a massive upward mobility event and a significant source of aid to developing nations. It would therefore be a welcome turn of events if developed nations could find a politically acceptable way to accommodate such labour movements. ...

In next month's issue of Reason, Kerry Howley makes an important contribution to the discussion in constructing a compelling case for the adoption of a guest worker programme. Using Singapore's system as a case study, she helpfully notes the advantages and drawbacks of temporary residence visas in a piece that comes across primarily as a challenge to pro-immigrant groups on the left, who tend to oppose guest worker programmes as inimical to the American ideal and a poor substitute for a general liberalisation of border policies.

Certainly there's something to that. The potential gains to invited labourers should appeal to liberal sensibilities... Ms Howley ... recognises the potential for abuse--both of the programme's terms and of workers themselves--in such a system, but she argues convincingly that these difficulties can be overcome through appropriate regulation of the process... Just as important, she makes the point that an easier path into the American labour market should facilitate the return of immigrant labourers to their home country, as they needn't fear being shut out for good upon exiting.

Reading Ms Howley, one begins to bristle at the pettiness of liberal guest worker critics, who place their moral qualms regarding the corrupting influence of a large population of "second-class citizens" above concerns for the material well-being of poor labourers. This, however, is ... not an accurate description of the state of anti-immigration sentiment on the talk-show right. Rather, one hears again and again of the growing use of Spanish, the questionable loyalties of incoming migrants, and the negative effects they have on "traditional" American neighbourhoods. The most outspoken nativists, like Republican presidential candidate Tom Tancredo, call for reductions in legal immigration as well as illegal.

The conflict at the bottom of immigration disagreements, then, is not primarily economic, but cultural. Immigration opponents on the right detest the otherness of the immigrant, and a guest worker programme does nothing to eliminate that sentiment. In the end, immigration reform did not fail in America due to liberal quandaries on the ethics of guest worker programs; it failed because the Republican Party took a hard right turn on the issue. It seems odd to assume Republican intransigence and argue that Democratic politicians should pursue a guest-worker middle ground, when the real angst on the right is not over the status of the immigrants but their very presence.

Ms Howley does point out that the American public, in general, is amenable to a guest worker program. In general, polling on the issue indicates that a hardline position on immigration is a loser for Republican candidates. All the same, it is the position which has come to dominate the agenda of the national party. ... As it stands, I think liberal politicians are justified in worrying that a willingness to entertain a second-class role for immigrant labour may only empower the ugliest elements of the nativist movement.

A guest worker programme also leaves some of the most troublesome policy problems unaddressed. What, for example, should we do about the millions of undocumented workers already in the country? Are we willing to issue enough temporary visas to satisfy the demand for work in America? Otherwise, we can expect the flow of undocumented workers to continue... Is it conceivable that Americans could tolerate the strict, even ruthless rigorousness with which Singapore polices its guest worker program? And if guest workers come, work hard, and wish to stay, then what? ...

Given the large and growing immigrant population in this country, and a demonstrated willingness among immigrant groups to stand up for their interests, the debate over a guest worker program may soon enough be moot. In 2006, Republican candidates running on a restrictionist platform performed dismally... Ultimately, it seems probable that the Republicans will do the compromising, or the losing, or perhaps both.

From an economic standpoint, as I believe Ms Howley would agree, a guest worker programme is the second best-outcome. Constraints on labour mobility reduce the efficiency of resource allocations and impede development, while forcing governments to spend billions policing lines in the desert. If a guest worker programme is also politically second best--if Democrats can increase their majorities by letting Republicans hang themselves with a restrictionist rope--then the best advice may well be to wait until next year and see if we cannot do better than second best.

Monday, December 17, 2007

"What's the Difference between Bloggers and Illegal Immigrants?"

Andrew Leonard responds to George Borjas:

What's the difference between bloggers and illegal immigrants?, by Andrew Leonard: Of all the bonafide economists who blog regularly, Harvard's George Borjas gets the award for Most Single-minded Focus. Borjas' issue is immigration, especially illegal immigration. If you're looking for academic support for the thesis that immigration depresses the wages of native-born American workers, he's your man. He's also concerned about the cultural impact of Mexican immigrants (legal or illegal) who he thinks are not as likely to assimilate with mainstream America as has every other previous wave of immigrants to the United States. He's very consistent...

But it's hard to know what to make of one recent entry comparing bloggers to illegal immigrants.

Continue reading ""What's the Difference between Bloggers and Illegal Immigrants?"" »

Friday, December 07, 2007

Legal vs. Illegal Immigration Isn't the Real Issue

Michael Kinsley on immigration:

Kidding Ourselves About Immigration, by Michael Kinsley, Commentary, Time: What you are supposed to say about immigration--what most of the presidential candidates say, what the radio talk jocks say--is that you are not against immigration. Not at all. You salute the hard work and noble aspirations of those who are lining up at American consulates around the world. But that is legal immigration. What you oppose is illegal immigration.

This formula is not very helpful. We all oppose breaking the law, or we ought to. Saying that you oppose illegal immigration is like saying you oppose illegal drug use or illegal speeding. Of course you do, or should. The question is whether you think the law draws the line in the right place. Should using marijuana be illegal? Should the speed limit be raised--or lowered? The fact that you believe in obeying the law reveals nothing about what you think the law ought to be, or why.

Another question: Why are you so upset about this particular form of lawbreaking? After all, there are lots of laws, not all of them enforced with vigor. The suspicion naturally arises that the illegality is not what bothers you. What bothers you is the immigration. ... So in the end, this is not really a debate about illegal immigration. This is a debate about immigration. ... [...more...]

Update: Andrew Samwick disagrees with Kinsley. Update: knzn disagrees with Andrew.

Monday, December 03, 2007

"Successful Assimilation of Immigrants"

There is a belief that some groups of immigrants do not assimilate as easily as other groups, and hence, it is argued, they threaten to undermine "the very fabric of our societies." This paper uses one of the latest examples of this fear, Muslims in Britain (the particular group changes over time and across countries), to argue that this belief is not supported by the evidence:

Successful assimilation of immigrants, by Esther Duflo, Vox EU: Immigration stirs up strong enough fears to justify questionable measures of protection against it – from arrests at the doors of French schools to the border wall that separates the USA from Mexico.

Economic research suggests that the intensity of these reactions seems completely disproportionate to immigration’s real economic impact on the local population. David Card has shown that even massive waves of immigration (like the arrival of Cuban boat people on the coasts of Florida) don’t result in lower salaries or fewer jobs for local people in the US.[1] In a recent survey article, he concluded that the “new immigration” assimilates just as well as previous waves had, and that the wages and employment prospects of natives are not any lower in cities that received more migrants[2]. Furthermore, Patricia Cortes also showed that an increase in the number of immigrants causes a price-drop in the sectors where they’re concentrated (i.e., the service and food industries, and child care); this benefits the local population.[3]

Economic reasons don’t seem to provide a sufficient explanation for the persistent distrust of immigrants among the native population. It seems that in part, this distrust can be attributed to the feeling that each new wave of immigrants is unique and cannot assimilate, and that the very fabric of our societies is threatened by the presence of these strangers. Just as 19th century Italian immigrants angered the French proletariat with their outward display of religion (they were disparagingly nicknamed “the christos” by the French working class), today many predict that the new wave of Latino-American immigration is essentially unable to assimilate, because it is too distant from “traditional” American values (i.e., Anglo-Saxon and Protestant values). According to Samuel Huntington, one of the most prominent political scientists in the US, this fundamental incapacity to adapt exemplifies the “shock of civilizations”: the great conflicts of the twenty first century will take place along religious lines, amongst eight great “religions” of the world.[4]

In Europe, Muslim immigration is today’s prime example of this “shock of cultures”. Every suburban riot and every bus burned is taken as an example that children of Muslim immigrants don’t consider themselves British or French. If the French played cricket, Muslim youth would certainly fail Tebbit’s “cricket test” (the British minister infamously asked which side Britain’s Asian immigrants would support in a Pakistani-English match).

Continue reading ""Successful Assimilation of Immigrants"" »

Tuesday, November 20, 2007

Are Immigrants Good for Cities?

Giovanni Peri reviews research on how immigration impacts cities. The research shows that "the less-educated [are] relatively unaffected by immigration while highly-educated and houseowners gain from it":

Immigration and cities, by Giovanni Peri, Vox EU: Immigration is one of the new century’s ‘hot button’ issues. Whether it is Romanians in Milan or Mexicans in Los Angeles, the concern and the debate has intensified. Political campaigns are fought and won on the issue in several nations and it has shifted party politics in many others. Most of the concern and political backlash focuses on the large and increasing presence of immigrants in cities – especially low-education immigrants.

This is easy to understand from the facts. In the US and Europe, immigration is disproportionately directed to cities, especially large metropolitan areas. In the recent decade immigrant arrivals – currently around 1.25 million people per year – accounted for 40% of the US population growth and for 50-75% of the growth of its largest metropolitan areas. For instance, 27% of people residing in London are foreign-born, as well as 28% of people in New York and 17% in Paris, vis-à-vis much lower national averages (respectively equal to 9%, 12.1% and 10% for the UK, the US and France).

Percentage of Immigrants in Top US cities
  Population in millions Percentage of foreign-born
Overall US 299.3 12.1
Top 17 metropolitan areas 105.1 26.9
New York 18.8 27
Los Angeles 12.9 35
Chicago 9.6 15
Dallas 6.0 17.4
Philadelphia 5.8 7.9
Houston 5.5 19.8
Miami 5.4 36
Washington, DC 5.3 21.3

Source: U.S. Bureau of Census, July, 2006.

What are the real effects of immigration on wages, rents and local prices faced by the natives? Does immigration drive out the native population? In theory it can work either way. In a static Walrasian world with homogeneous workers, an inflow of workers tends to depress wages, drive up rents and push out natives. However if variety of skills, complementarities in production and agglomeration economies are important, immigration could raise productivity of natives; immigration can drive urban growth which then makes the cities more economically attractive. The matter cannot be settled by logic. Facts are needed.

Recent research One recent strand of research uses data from US cities and states to explore issues such as the response of natives to immigrants and the impact of immigration on the local economy. Recent research by David Card[1] and others is identifying important regularities that point to a positive productivity effect of immigrants on natives overall, and to an increase of average housing value in high immigration cities. These average effects, however, are accompanied by an important distributional component. Highly educated natives enjoyed the largest benefits while the less educated did not gain (but did not lose much either) from immigration to their cities. In a series of recent papers coauthored with Gianmarco Ottaviano[2], I use US data to analyze the impact of immigration on wages, rents and local prices faced by native workers accounting also for the response of natives to immigrants in the form of relocation.

Crowding out natives? From a pure accounting perspective, immigrants were responsible for about 50% of the population growth of the top 100 US metropolitan areas during the 1990s. However, if the inflow of immigrants caused an outflow of native workers (towards areas with low immigration), it would simply change the composition of a city but would not produce net population growth. Analyzing the response of native population to immigrant population across cities, we find instead that large inflows of immigrants over the period 1970-2005 were not associated with any reduction of native population growth. In fact, in most cases, large immigration flows were associated to larger population and employment growth for natives as well. A part of this positive correlation is due to the fact that booming cities attracted natives and immigrants alike. However, we also isolated an immigrant-specific 'pull factor' in each city, in the form of enclaves of earlier immigrants that preferentially attracted co-nationals in period of large outmigration from the country of origin. Even these 'pull-driven' inflows of immigrants were not related at all to outflows of natives, which disproves the theory of crowding out.

Effects on wages and house prices A second result emerges from the cross-city analysis and it is similarly robust and significant. The average wage of native workers and the average housing price increased significantly more in cities with large immigration flows than in cities with low immigration flows over the period 1970-2005. While part of this effect is also explained by the 'booming city' theory, isolating the immigrant-specific pull-driven variation we still find that a 1% increase in the share of foreign-born increased the average native wages by around 0.3-0.4%, and the average house prices (and rents) by 1%. These positive average effects, however, are accompanied by distributional effects. Analyzing the impact by education group we find that native workers with no high school diploma experienced a small reduction in wages and small increase in their rents as a consequence of immigration, while those with college education experienced a significant wage and rent increase.

Peri
Click to enlarge

Our explanation of the positive wage effects relies on an important mechanism that seems to be operating in cities as well as in the US economy as a whole, and is based on the fact that the skill composition of immigrants is complementary to that of natives. Foreign-born individuals in the US are over-represented among workers with low skills (no degree) and among those with very high skills (graduate degrees particularly in science and technology). On the other hand, foreign-born are under-represented among workers with high-school and some college education. Most American workers, therefore (70% of which have high school or some college education), do not compete with immigrants for similar jobs but benefit from their complementary productive tasks. Moreover, even at similar levels of education native and immigrant workers tend to specialize in different occupations.

For instance, in related research[3] I found that among less educated workers, immigrants specialize in manual intensive tasks such as cooking, driving and building while natives specialize in language-intensive tasks such as dispatching, supervising and coordinating. The productivity of supervisors, clerks and accountants benefits from the productive services of construction workers, hand packers and janitors in their company. Similarly at high levels of education foreign-born specialize in analytical-mathematical tasks and natives in managerial-language intensive tasks. Again, lawyers’ productivity benefits from the competence of their computer and information technology assistants. Such skill differences translate into limited competition in the labour market and rather complementarities, inducing higher demand (and productivity) for native skills in economies where the supply of immigrants increases. As these complementarities work within as well as across education groups, there is a benefit for natives overall in producing in an economy with immigrants (the positive average wage effects). However the largest benefits are for those with intermediate and high education that do not compete at all for jobs with the large group of less educated immigrants.

On the other hand, this higher productivity of natives overall and the increased city population generates upward pressure on housing prices and rents. These effects, in the long run, induce more house building, so that their impact on house prices should not be large. This is true for housing of less educated workers who live in less desirable locations whose supply is very large. However, more educated individuals, who concentrate in highly desirable urban locations (e.g. Manhattan, Santa Monica or Downtown San Francisco), face a space constraint and experience increasing house values even in the long run.

Interestingly, our quantitative estimates imply an almost exact wash between the increase in average wages and that in average rents, at least on average, so that the real local wage, corrected for local prices is left essentially unchanged[4]. This can be interpreted as an effect of native’s mobility as they 'arbitrage away' real wage differences by moving across cities. The productive effect of immigrants ultimately accrues to house-owners who see the value of their houses increase.

Other effects The positive average wage effect combined with a somewhat adverse distributional effect and a positive house price effect (mostly for highly educated) leaves the less-educated relatively unaffected by immigration while highly-educated and houseowners gain from it. Where, therefore, does the vastly negative reaction to immigration come from? Two important channels, relative to local public good provision, are left out of our analysis. First, fiscal cost of immigrants at the local level may be relevant, especially if they use public goods (such as hospitals and schools) more than natives do and, because of their income, they contribute less in local taxes. Second, people seem to attribute positive value to living in ethnically homogeneous neighborhoods and to sending children to school with better-educated high-income families. Moreover, there may be important peer effects in education and learning. Opinion polls suggest that people may care significantly about these aspects of immigration.

Bottom line Our research shows that market-mediated economic effects of immigrations are mostly positive for natives. However, in order to affect policies it is also crucial to understand better the welfare-related effects and the peer effects that may explain most of the negative attitude towards immigrants.

Footnotes

1 David Card (2007) “How Immigration Affect U.S. Cities” CReAM Discussion paper #11/07, June 2007.
2 G.I.P. Ottaviano and G. Peri (2007) “The Effects of Immigration on U.S. wages and rents: a general equilibrium Approach” CEPR Discussion Paper # 6551; G.I.P. Ottaviano and G. Peri (2006) “The Economic Value of Cultural Diversity: Evidence from U.S. cities” Journal of Economic Geography, Vol. 6, Issue 1, Pages 9-44; and G.I.P. Ottaviano and G. Peri (2005) “Cities and Cultures” Journal of Urban Economics, Volume 58, Issue 2, Pages 304-307.
3 G. Peri and C. Sparber (2007) “Task Specialization, Comparative Advantages, and the Effects of Immigration on Wages” NBER Working Paper, # 13389, September 2007.
4 As reported above an increase in the share of immigrants by 1% increases rents by 1% and wages by 0.3-0.4%. As housing cost account for about 30% of total family expenditure the change in the local price index due to immigration is 0.3*1%=0.3% which is similar to the change in wages.

Tuesday, November 06, 2007

"Do Immigrants Raise or Lower Wages?"

Some of you seem to be itching to talk about immigration. Here's your chance. Tim Harford looks at new evidence on immigration and wages:

Do immigrants raise or lower wages?, by Tim Harford: The idea that "immigrants take our jobs" has always been ridiculous to economists, or anyone who thinks seriously about how an economy works. (If a million people migrate to the UK, who is going to sell them food and clothes, build them houses, teach their children? When the population is larger there is more demand for workers.)

However, the idea that immigrants lower the wages of native workers is not at all ridiculous. ... The economist George Borjas (now blogging) argues that low-skilled migrants to the US help to depress the wages of low-skilled natives. That is reasonable. But it may be wrong. The mix of new skills may complement the existing demography well; it may also encourage new capital investment. It is fair to say that economists do not really agree.

The latest contribution is from Gianmarco Ottaviano and Giovanni Peri, arguing that immigration raises native wages and (less surprisingly) rents:

In this paper we document a strong positive correlation of immigration flows with changes in average wages and average house rents for native residents across U.S. states... the correlations are compatible with a causal interpretation from immigration to wages and rents of natives.

The paper is here.

Friday, September 21, 2007

FRBSF: Changes in Income Inequality across the U.S

Tali Regev and Daniel Wilson of the San Francisco Fed look at whether offshoring, skill-based technical change, and immigration are associated with changes in regional income inequality in the U.S. in recent years. Their results "do lend tentative support to these theories":

Changes in Income Inequality across the U.S., by Tali Regev and Daniel Wilson, Economic Letter, FRBSF: Over the past four decades, overall income inequality has increased in the U.S. One particularly striking feature of the data is that the income gap has widened most between the top and the middle of the distribution, while it has remained relatively stable between the middle and the bottom. The causal forces behind the increase in inequality have been a topic of much debate among the public, the media, and policymakers (see, for example, Yellen 2006), as well as a rich field of research for economists.

Underlying these inequality trends are considerable differences across regions. Relating these differences to regional characteristics could help identify the sources of national growth in inequality; yet, surprisingly little research has done so. One exception, though now somewhat dated, is Topel (1994), who looked at the nine major regions of the U.S. and explored how the cross-regional variation in the demand for and supply of skilled labor, immigration, female labor force participation, and technical change can explain the regional variation in the growth of income inequality.

In this Economic Letter, we follow in that spirit, examining income trends at the county level between 1990 and 2000. Basing our analysis on leading theories of the growing gap between the top and middle of the distribution as well as the stable gap between the middle and the bottom, we explore whether county differences in skill levels, immigration levels, and vulnerability to offshoring—that is, relocating domestic operations overseas—appear to be associated with these trends. Our results do lend tentative support to these theories.

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Wednesday, September 05, 2007

Poverty and Immigration

Robert Samuelson says lack of progress on poverty is caused by immigration:

Importing Poverty, by Robert J. Samuelson, Commentary, Washington Post: The government last week released its annual statistical report on poverty and household income. .. The stubborn persistence of poverty, at least as measured by the government, is increasingly a problem associated with immigration. As more poor Hispanics enter the country, poverty goes up. ...

The standard story is that poverty is stuck; superficially, the statistics support that. The poverty rate measures the share of Americans below the official poverty line... Look again at the numbers. In 2006, there were 36.5 million people in poverty. ... In 1990, the population was smaller, and there were 33.6 million people in poverty... The increase from 1990 to 2006 was 2.9 million people... Hispanics accounted for all of the gain. ... From 1990 to 2006, the number of poor Hispanics increased 3.2 million...

Only an act of willful denial can separate immigration and poverty. The increase among Hispanics must be concentrated among immigrants, legal and illegal, as well as their American-born children. ...

Why is it important to get this story straight? One reason is truthfulness. ... A second reason is that immigration affects government policy. .. By default, our present policy is to import poor people. This imposes strains on local schools, public services and health care.

We need an immigration policy that makes sense. My oft-stated belief is that legal immigration should favor the high-skilled over the low-skilled. ... At the same time, we should clamp down on new illegal immigration through tougher border controls and employer sanctions.

Whatever one's views, any sensible debate requires accurate information. ...

Free Exchange says yes, we do need accurate information, but you didn't provide it:

Poverty on the op-ed page, by Free Exchange: ...Today ... Robert Samuelson, ... trots out statistics to make a case against immigration. Mr Samuelson argues that we have made progress against poverty, but that progress is obscured by a flood of poor hispanic immigrants.

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Monday, August 27, 2007

David Card on Immigration and U.S. Cities

David Card on "How Immigration Affects U.S. Cities". Here is the abstract, introduction, and conclusion:

How Immigration Affects U.S. Cities, by David Card, June 2007 [via]: Abstract In the past 25 years immigration has re-emerged as a driving force in the size and composition of U.S. cities. This paper describes the effects of immigration on overall population growth and the skill composition of cities, focusing on the connection between immigrant inflows and the relative number of less-skilled workers in the local population. The labor market impacts of immigrant arrivals can be offset by outflows of natives and earlier generations of immigrants. Empirically, however, these offsetting flows are small, so most cities with higher rates of immigration have experienced overall population growth and a rising share of the less-skilled. These supply shifts are associated with a modest widening of the wage gap between more- and less-skilled natives, coupled with a positive effect on average native wages. Beyond the labor market, immigrant arrivals also affect rents and housing prices, government revenues and expenses, and the composition of neighborhoods and schools. The effect on rents is the same magnitude as the effect on average wages, implying that the average “rent burden” (the ratio of rents to incomes) is roughly constant. The local fiscal effects of increased immigration also appear to be relatively small. The neighborhood and school externalities posed by the presence of low-income and minority families may be larger, and may be a key factor in understanding native reactions to immigration.

Introduction The U.S. is once again becoming a country of immigrants. Immigrant arrivals – currently running about 1.25 million people per year – account for 40% of population growth nationally, and a much larger share in some regions.[1] The effects of these inflows are controversial, in part because of their sheer size and in part because of their composition. Something like 35-40% of new arrivals are undocumented immigrants from Mexico and Central America with low education and limited English skills (Passel, 2005). Although another quarter of immigrants – from countries like India and China – are highly skilled, critics of current immigration policy often emphasize the presumed negative effects of lower-skilled people in the overall economy (e.g., Rector, Kim and Watkins, 2007). Moreover, even the most highly skilled immigrants are predominately non-white, contributing to the growing presence of visible minorities in the U.S. population.

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Thursday, August 23, 2007

Does Immigration Cause Lower Prices?

According to this paper that is forthcoming in the Journal of Political Economy, "a one percentage point increase in the ratio of immigrants to natives in a city decreases prices by 0.5 percentage points on average":

Study: Immigration can lower prices of consumer products, EurakAlert: An important new study examines how immigration influences the prices of consumer goods. The study, forthcoming in the Journal of Political Economy, challenges the predictions of the perfectly competitive model – that an increase in demand leads to higher prices. Instead, the study finds that immigration can lower the prices of food, clothing, furniture, and appliances and have a significant moderating effect on inflation.

Immigration to Israel from the Former Soviet Union (FSU) increased dramatically in 1990, growing from about 1,500 immigrants a month in October 1989 to about 35,000 a month in December 1990.

Using the large variation in the number of new immigrants across Israeli cities (e.g., some Arab towns reported no new immigrants from the FSU), Saul Lach (Hebrew University of Jerusalem and the Centre for Economic Policy Research), compared the relative size of the FSU immigrant population with monthly, store-level prices for 915 products. These products were sold in more than 1,800 retail stores in 52 Israeli cities during 1990.

Controlling not only for native population size and overall city size, as larger cities may have more competitive markets, but also for the effects of religious holidays on prices during a certain month, Lach finds that a one percentage point increase in the ratio of immigrants to natives in a city decreases prices by 0.5 percentage points on average.

In other words, prices in a city with an average proportion of new immigrants were 2.6 percent lower in December 1990 than in cities where no immigrants settled.

While the effect was consistent for almost all product categories, Lach found that the immigration effect was significantly stronger for products for which FSU immigrants constituted a larger share of the market, such as pork and vodka.

As Lach argues, newly arrived immigrants may be more price sensitive because of lower income and lack of brand loyalty. Immigrants, who may initially be unemployed, may also have more time to compare prices, and stores will tend to lower their prices to attract these new customers. [Saul Lach. “Immigration and Prices,” Journal of Political Economy, 115:4.]