Economist's View

"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%.

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.

"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.

"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.

"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. ...

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.

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.

"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!

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:

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.

"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.

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.

"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).

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.

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.

"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.

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.

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.

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.

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.]

Mexican Immigrants are Sending Less Money Back Home

Mexicans are sending less money home:

Fewer Mexican Immigrants Are Sending Money Back Home, Bank Says, by Julia Preston, NY Times: This year a smaller percentage of Mexican immigrants in the United States sent money back to their homeland than in 2006, according to a report ... by the Inter-American Development Bank. ...

Bank officials, pointing to a survey of Mexican immigrants in the report, said the decline reflected a rising sense of insecurity and uncertainty about whether they would stay in the United States. Anticipating a possible move back to Mexico, these immigrants appear to be saving more. “They have decided because of the uncertainty of the future that they need to step back and save a bit,” said Donald F. Terry, general manager of the Multilateral Investment Fund at the bank.

Mr. Terry said the slowdown would affect about 500,000 Mexican homes. “For those families in Mexico, there is going to be economic and social dislocation,” he said.

Over all, the percentage of Mexicans who regularly sent money home fell to 64 percent in the first half of this year, compared with 71 percent for all of last year... The sharpest decline in such transactions — known as remittances — came among Mexicans living in states where they have settled in large numbers only recently, like Georgia, North Carolina and Pennsylvania. In those states, the percentage of Mexicans sending money home fell to 56 percent from January to June, from 80 percent in 2006. ...

Sergio Bendixen, a Miami pollster who conducted the survey, said the percentage of Mexicans considering a return to their country was the highest in the more than two decades he has interviewed Hispanic immigrants.

The immigrants in the survey included American citizens and legal and illegal residents. They identified discrimination as the biggest problem they faced, with 83 percent saying that discrimination against Latin American immigrants in general was growing in the United States.

“Mexican immigrants don’t feel welcome in the U.S. anymore,” Mr. Bendixen said. “They feel they are not wanted here, and their contributions are not appreciated.”

Until this year, money sent home by Mexicans working in the United States had shown spectacular annual growth since 2000, the first year it was systematically recorded by Mexico’s central bank. Last year, these funds totaled $23 billion, making them the country’s second-largest source of foreign income after oil.

But in the first half of 2007, there was no significant increase over the ... first half of 2006, a period that recorded a 23 percent increase over the same months in 2005.

By contrast, the amount of money sent home by immigrants from Central America has continued to grow... Remittances to Mexico have become vital to the economics of the country’s poorest regions, bank officials said. ...

Remittances could fall because less people are employed (even if the saving rate is the same), or because the saving rate increases (even if income is the same). I wish the article had given some sense of how much of the fall in remittances and other payments is due to a fall in employment and income due to the housing crash, and how much is due to the increased desire to save for a potential return trip to Mexico. (The increased desire to save could be due to the housing crash as well since a fall in employment prospects would make return to Mexico more likely. The article cites feeling less welcome as a large factor behind the motivation to return, but this could also be due to a fall in the number of available jobs.)

Jagdish Bhagwati: Treat Illegal Immigrants Decently

Jagdish Bhagwati on illegal immigration:

Treat illegal immigrants decently, by Jagdish Bhagwati, Commentary, Financial Times: ...US immigration reform ... collapsed in the Senate on June 28 and the nation was left more polarised than ever. What went wrong? ...

The main problem ... was that the 1986 Immigration Reform and Control Act had tried similar reforms ... but had failed. Many who opposed the proposed reforms knew this and would not go along..., convinced that history would repeat itself. As John Kenneth Galbraith once said about his foe Milton Friedman: “Milton’s problem is that his policies have been tried.”

The IRCA had a two-pronged strategy. The amnesty would take care of the stock of illegals, estimated at 6m. Only half took advantage of it, leaving an equal number in illegal status... The flows of illegals were to be taken care of through enforcement at three levels: enhanced border enforcement, employer sanctions and raids against illegals who were already in the US.

None of these worked. Borders could not be controlled unless you were willing to be rough. But you could not be, because illegal immigrants are human beings... [T]hose caught were not incarcerated but simply sent across the border and came back again and again till they got through. ...

As for employer sanctions, hardly any legal actions against employers were undertaken. But even if there had been, few judges would have used draconian punishment against those giving employment to the “huddled masses” seeking work. Equally, few Americans could contemplate with equanimity a manifold increase in disruptive raids against illegals that many considered inhumane.

So, the IRCA predictably did not eliminate the problem. By the time the new reforms were being proposed, the stock of illegals had in fact doubled to an estimated 12m ..., with a yearly absorption of 300,000 illegal workers in the labour force.

The only significant change proposed from the failed IRCA approach was that Mr Bush had asked for a temporary guest-worker programme. The idea was that it would siphon off most of the illegals into a legal channel. But by the time it had been moulded and mauled through successive compromises, it could not be expected to do much...

But all is not lost. Once passions aroused by the proposed reforms have cooled, Americans should be ready to see that a way must be found to treat illegals with the decency and respect that humanity requires, while respecting equally the innate American sense that laws matter. ... Perhaps a different and more realistic approach might get us what we could not achieve with uncompromising proposals.

In particular, why not build on the unappreciated fact that the illegals are not today the underclass with few rights that they were for many years? ... With vastly increased ethnic minority populations, especially Hispanic, the illegals enjoy a higher comfort level than at the time of the IRCA. ... There are numerous non-governmental organisations, such as the National Council of La Raza and civil rights groups such as the American Civil Liberties Union, that give the illegals a substantial sense of protection.

If asking for full citizenship through the amnesty is currently impossible, we can work instead to raise this comfort level to something much closer to what citizenship brings, without asking for full citizenship. Cities such as New Haven have begun to do this. It never makes sense for the best to be the enemy of the good.

Here's more on the reference to New Haven:

New Haven opts to validate its illegal residents, csmonitor.com: At a time when a rising number of states and cities are cracking down on illegal immigrants, New Haven, Conn., is reaching out to them with a unique perk: an ID card.

Besides serving as identification for bank services and if police ask for ID, the card can be used at municipal locations such as libraries, beaches, and parks – and as a debit card for city parking meters and at 15 downtown shops.

Cities – and critics – ... are watching closely as New Haven prepares to hand out its first batch of cards July 24. The idea: integrate illegal immigrants into the community, protect them from crime that can happen because of a lack of documentation, and encourage them to be more willing to report crimes to police. Reaction to the first-of-a-kind program has been swift and sharp, illustrating the wide divide in US public opinion over the issue. ...

In New Haven, the main motivation for the ID cards was public safety, says Kica Matos, the city's community services administrator and a main initiator of the program. One reason the illegal immigrant community doesn't trust the police and doesn't come forward to report crimes is that police invariably ask to see ID. ...

The card isn't just for illegal immigrants, either, Matos says. It was designed to be useful for all residents, she adds, so it wouldn't be regarded as a "scarlet U" for "undocumented."

The city has fielded calls from governments and immigrant-rights groups in New York, San Francisco, and Washington State, she says. "There's a lot of buzz around the card, but they're waiting for us to get our program rolling."

George Borjas on Immigration and the Minimun Wage: "Am I the Only One Who Finds the Contradictory Inferences Disturbing?"

George Borjas is puzzled:

The Minimum Wage And Immigration: A Puzzle, by George Borjas: The federal minimum wage is rising today for the first time in a decade, from $5.15 to $5.85 an hour. And this reminds me of an important puzzle in labor economics that remains unresolved ... between the studies that examine the impact of a rising minimum wage on employment and those that examine the impact of immigration on wages.

Many studies in each of these literatures calculate correlations between wages and employment across cities or geographic regions. The minimum wage studies, for instance, relate changes in employment across states to changes in the minimum wage across states. The immigration studies relate changes in wages across regions to immigration-induced changes in supply. ...

The ... two sets of studies draw completely contradictory inferences from the data. On the one hand, the minimum wage literature often finds that a regression of employment on wages reveals a near-zero coefficient on the wage, and this is interpreted as saying that changes in the minimum wage have little effect on employment. On the other hand, the immigration literature often finds that a regression of wages on employment reveals a near-zero coefficient on employment, and this is interpreted as saying that immigration has little effect on the wage.

In the minimum wage literature, the inference is that the labor demand curve is almost vertical (or very inelastic), while in the immigration literature, the inference is that the labor demand curve is almost horizontal (or very elastic).

Let me rephrase the puzzle another way. If one were to believe the zero-effect result in the minimum wage literature, one would be forced to conclude that immigration must have huge adverse effects on the wage of native workers (at least in the short run). But if one were to believe the zero-effect result in the immigration literature, one would then have to conclude that minimum wage increases would have huge disemployment effects.

The only thing in common between the two sets of studies is that there is a zero correlation between wages and employment across geographic areas. What one puts on the left-hand side and the right-hand side of the regression model doesn't change this fundamental empirical fact.

Am I the only one who finds the contradictory inferences disturbing? It seems to me that at least one (and perhaps both) of the inferences economists draw from these cross-region correlations must be wrong.

Who Are "We"?

George Borjas says recent says a recent CEA report left a misleading impression about the benefits from immigration by using a non-standard assumption of who ought to count in the calculations when tallying up gains and losses. When a broader definition of "we" is adopted, and when theoretical results about the long-run impact of immigration are imposed, a different interpretation can be placed on the results in the report:

An Inconvenient Truth That Somehow Didn't Make The CEA Report, by George Borjas: As I mentioned in a previous post, the CEA seems to have concluded that if one allows for complementarities between immigrants and natives who have the same education and work experience, the long-run gains from immigration are somewhere between $30 to $80 billion per year.

A careful reading, however, indicates that the CEA doesn't quite say that--and they are very careful about avoiding that particular terminology. Nevertheless, I think it is the “impression” one gets from the media coverage. Look at the headline at the MSNBC website: Immigrants 'Benefit US by $30bn'

I found that impression odd when I first saw the report, ...[so] I took out a pad of paper and worked out the mathematical model.

As I suspected, the $80 billion number does not mean what most people would probably take it to mean. Economic theory predicts that the long-run gains from immigration to the pre-existing population must be zero—even when there are complementarities between immigrants and natives and even if those complementarities are incredibly strong. In the long run, capital adjusts fully until firms wither away all the excess profits from the initial wage depression. A short version of the mathematical proof is here, and here are more detailed handwritten_notes.

The CEA used the Ottaviano-Peri result that the complementarities helped natives and calculated how much natives gained as a result. This is what they say:

Multiplying the average percentage gains by the total wages of US natives suggests that annual wage gains from immigration are between $30 billion and $80 billion.

But they completely ignored the fact that the same complementarities that supposedly help natives also hurt immigrants, and by quite a bit. In other words, the CEA uses a strange definition of who “we” are: including only native-born workers and ignoring the millions of immigrants already here who are affected by yet more immigrants. This choice is not one that is typically made in the academic studies the CEA borrows from...

George Borjas: Are Opponents Of The Immigration Bill Anti-Hispanic?

George Borjas asks what might have motivated opposition to the immigration bill:

Are Opponents Of The Immigration Bill Anti-Hispanic?, by George Borjas: ...The accusation that skeptics of the immigration bill are xenophobic, racist, anti-Hispanic--whatever!--is not new. It is a tried-and-true method of stifling debate. Unfortunately, playing this particular race card often works in the kind of world we live in.

The fact is: different people have different motives for taking positions on contentious social policy issues. Surely some of those skeptics are guilty as accused. But many are not. Moreover, their accusers have their own set of motives and axes to grind. Immigration skeptics do not have a monopoly on bigotry. It all reminds me of the debate over welfare policy eons ago. Because a disproportionately large number of female-headed households on welfare were black, critics of the welfare system were often accused of masking their true racist intentions. In hindsight, it's pretty clear that the welfare critics were right: the welfare system "as we knew it" provided distorted incentives--incentives that encouraged more welfare, less work, more poverty. ...

Most of us who oppose the immigration reform bill are making a similar argument: It too leads to distorted incentives. The amnesty will likely encourage more illegal immigration; the guest worker program will increase profits for employers, but at the cost of a two-tier labor market with an easily exploitable workforce and lower wages for native workers; and the guest workers themselves have a huge economic incentive to become permanent settlers, even if doing so means becoming illegal immigrants.

So there are very good reasons to oppose Bush's immigration proposal. I suspect that it is the common sense intuition behind these arguments that leads the bill's supporters to lash out at those who disagree with them. And since it is difficult for them to argue on the basis of the merits, they choose to stifle debate the only way they can: by playing the race card.

Let me try something. Here are two scenarios:

1. A farmer hires a guest worker from Mexico to drive a tractor and plow a field.
2. Using technology, a camera is mounted on the front of the tractor and connected to the internet in a way that allows a worker in Mexico to sit in front of a computer screen and plow the field by steering the tractor remotely.

To make it simple, assume it costs the farmer the same amount either way, and the quality of the work is identical.

In both cases, the effect on the wages of domestic workers is similar - wages would tend to be depressed by the expanded supply of labor available to do the job, though the magnitudes could differ if, say, 2 made more labor available than 1.

There are differences. One is, obviously, where the workers and their families live, go to school, get health care, etc. Another is where they spend (at least part of) their paychecks and who collects the payroll and sales taxes the wages and spending generate.

-- I can imagine people whose primary concern is the effect of immigration or offshoring on domestic labor markets and wages opposing both 1 and 2.

-- It seems people who are "are xenophobic, racist, anti-Hispanic--whatever!" but supportive of globalization in general would oppose 1 but support 2. However, if they use the effect on wages as cover, then they too would oppose both.

-- People who are "cosmopolitan" types, would support both 1 and 2. Winners from immigration and offshoring are also more likely to support both.

-- It's harder to think of why someone might support 1, but oppose 2, except perhaps if they'd rather have as much of the income as possible paid and spent domestically, or if they believe that work conditions in the home country would be deplorable and hence it is better to have the workers come here as guests.

Glaeser: A First Step on Immigration

Edward Glaeser applauds "the true blue liberals and bedrock conservatives ... who came together to serve their country" on immigration reform:

With compromise, a first step on immigration, by Edward L. Glaeser, Commentary, Boston Globe: Last year, Americans for Democratic Action gave Senator Ted Kennedy a "liberal quotient" of 100 percent... The group gave Senator John Kyl of Arizona an equally perfect liberal quotient of 0... Kyl and Kennedy are as odd a couple as there is, yet together they proposed the Secure Borders, Economic Opportunity and Immigration Reform Act of 2007.

America's immigration system manages to treat immigrants terribly and provide porous borders. Both the country and its immigrants will benefit if our vast illegal population is replaced with an even larger legal immigrant population... To achieve those benefits, the friends and foes of immigration must come to terms.

Kennedy and Kyl remind us that the hallmark of leadership is wise compromise, not extremist zeal. Those presidential candidates on both the left and right who have bashed the bill offer an ultra partisan recipe for legislature failure... The bill can be improved, but for it to pass -- and that is the important thing -- all of us who care about immigration must compromise.

For the fans of Fortress America, the bill offers hundreds of miles of fences and vehicle barriers, 10,000 more border guards, and a commitment to punishing the employers of illegal immigrants. I'm not crazy about spending billions on a concrete cordon meant to exclude people who only want to live in America, but if that is the price of compromise, so be it.

The real problem with the secure borders "triggers" is that the bill's pro-immigration policies only start when the often amorphous security provisions are in place. Fuzzy rules are a recipe for future conflict. The most important ... fix for the bill is to require only objectively measurable triggers for starting the flow of visas.

The most contentious aspect of the bill is the Z visa program that offers temporary legal residence to illegal residents for around $5,000. Some critics are outraged at any kindness to illegal immigrants...

[P]ro-immigrant advocates object to the fee. The right to live in the United States is worth a lot more than that. The Z visa program may be imperfect, but basic humanity and national security make it vital that we move people from gray illegality into the mainstream.

For the friends of immigration, the bill also offers 440,000 visas per year that will be allocated partially on the basis of education and work history, and up to 200,000 temporary guest worker visas each year. I would like to see the tie between visas and education get stronger and I hope that many of these temporary workers can stay permanently...

The best reason to support immigration is that there is no better way to fight global poverty than to welcome the poor into America. ... I cannot see enjoying that privilege but wanting to deny it to others. The second-best reason to support immigration is that immigrants enrich our country with their work and service...

The bill's provisions for more visas of all forms are grounded in humanitarianism. Pure national interest drives the need for more of the H-1B visas, which target skilled workers. Human capital is critical for national success. More educated immigrants bring ideas and innovation, and are less likely to set off nativist ire.

I applaud the bill's provisions that will increasingly allocate visas on the basis of education and work history. While letting family connections drive visa policy might seem humane, we should target visas to those immigrants who will make the benefits of immigration most obvious. While I would rather have the guest worker program than not, our goal should be skilled immigrants committed to America, not transient workers.

While the bill can be strengthened, the first step is to applaud the true blue liberals and bedrock conservatives, like Kennedy and Kyl, who came together to serve their country.

The last sentence makes it sound like the illegal immigration problem is bigger than it actually is, and therefore that it is crucial to compromise core principles in order to combat the large threat that it imposes. The policy should fit the crime, and overstating the harm leads to an overzealous policy response.

If it is "vital that we move people from gray illegality into the mainstream," I don't see why he supports the $5,000 fee that will be charged if illegal immigrants want to obtain temporary legal residence. I support legalizing workers that are already here. However, because they are already here, charging them $5,000 to stay would likely bring far fewer illegal immigrants out of hiding than a much, much lower fee (offer them $250 to become legal and more would step forward). Here's a few more details about the program:

The legalization provision would enable most illegal immigrants to stay in the country indefinitely with Z visas that would be renewable every four years. They also could have the option to seek permanent legal residency by obtaining green cards, but they'd have to wait more than eight years and would have to return to their home countries to apply.

A fee of $5,000 is a lot to pay to keep doing what you are already doing. If the main goal is to document illegal workers, a high fee is counterproductive.

I also wonder about his contention that "there is no better way to fight global poverty than to welcome the poor into America." Immigration certainly helps those who come here and we should do as much as we can to help, but we can't absorb enough of the world's poor to cure global poverty on our own. Globalization, which brings economic growth and development to poor countries, offers a much broader reach and a better way to fight global poverty. In the long-run, development within Mexico is the answer to the illegal immigration problem. The real question is why capital, the traditionally more mobile factor of production, is not moving to Mexico to take advantage of low cost labor and what can be done to change that.

For more on immigration, here's some NotSoSneaky humor with a point.

Paul Krugman: Immigrants and Politics

Paul Krugman says that when it comes to immigration reform policy, "it’s the political economy, stupid." Immigration reform that increases the number of workers without a voice in the political process, as the current bill likely will, comes at too high a price:

Immigrants and Politics, by Paul Krugman, Commentary, NY Times: A piece of advice for progressives trying to figure out where they stand on immigration reform: it’s the political economy, stupid. Analyzing the direct economic gains and losses from proposed reform isn’t enough. You also have to think about how the reform would affect the future political environment.

To see what I mean ... let’s take a look back at America’s last era of mass immigration..., which ended with the imposition of severe immigration restrictions in the 1920s. ...

[T]hen as now there were some good reasons to be concerned about the effects of immigration.

There’s a highly technical controversy going on among economists about the effects of recent immigration on wages. However that dispute turns out, it’s clear that the earlier wave of immigration increased inequality and depressed the wages of the less skilled. For example, a recent study ... suggests that in 1913 the real wages of unskilled U.S. workers were around 10 percent lower than they would have been without mass immigration. But the straight economics was the least of it. Much more important was the way immigration diluted democracy.

In 1910, almost 14 percent of voting-age males ... were non-naturalized immigrants. (Women didn’t get the vote until 1920.) Add in the disenfranchised blacks of the Jim Crow South, and what you had in America was a sort of minor-key apartheid system, with about a quarter of the population — in general, the poorest and most in need... — denied any political voice.

That dilution of democracy helped prevent any effective response to the excesses and injustices of the Gilded Age, because those who might have demanded ... labor rights, progressive taxation and a basic social safety net didn’t have the right to vote. Conversely, the restrictions on immigration imposed in the 1920s had the unintended effect of paving the way for the New Deal ... by creating a fully enfranchised working class.

But now we’re living in the second Gilded Age. And as before, one of the things making antiworker, unequalizing policies politically possible is the fact that millions of the worst-paid workers ... can’t vote. What progressives should care about, above all, is that immigration reform stop our drift into a new system of de facto apartheid.

Now, the proposed immigration reform does the right thing in principle by creating a path to citizenship for those already here. We’re not going to expel 11 million illegal immigrants, so the only way to avoid having ... a permanent disenfranchised class is to bring them into the body politic. ...

But the bill creates a path to citizenship so torturous that most immigrants probably won’t even try... Meanwhile, the bill creates a guest worker program, which is exactly what we don’t want to do. Yes, it would raise the income of the guest workers themselves, and in narrow financial terms guest workers are a good deal for the host nation — because they don’t bring their families, they impose few costs on taxpayers. But it formally creates exactly the kind of apartheid system we want to avoid.

Progressive supporters of the proposed bill defend the guest worker program as a necessary evil, the price that must be paid for business support. Right now, however, the price looks too high and the reward too small: this bill could all too easily end up actually expanding the class of disenfranchised workers.

_________________________
Previous (5/21) column: Paul Krugman: Fear of Eating
Next (5/28) column: Paul Krugman: Trust and Betrayal

Update on the Status of the Immigration Reform Bill

Ezra Klein does some reporting on the immigration reform bill:

The State of Play on Immigration, by Ezra Klein: Spent some time Picking Up The Damn Phone this afternoon, and got a much better sense of the political path the immigration bill still has to traverse. First, expect the temporary guest worker program to tumble from 400,000 to 200,000... But this is a more complicated win [for liberals] than it appears at first glance: There's concern among certain liberal groups that if you drop the guest worker program too low, you simply amp up illegal immigration, which is actually worse.

Enter H.R 1645, the STRIVE Act. The House will spend June creating their own version of the immigration bill under the leadership of Zoe Lofgren, a Silicon Valley Democrat (so expect a much greater number of visas for high-skill workers in the final bill) and former immigration lawyer. She'll be under heavy pressure from unions and left-leaning groups to use Luis Guttierrez's STRIVE Act as the basis for her bill. STRIVE, which has a long list of cosponsors ranging from Rahm Emmanuel to Dennis Kuncinich to Silvestre Reyes to Jeff Flake, has a few advantages over the Senate bill, the most notable being its treatment of guest workers, who, after 5 years, $500, and evidence of English and US history classes, can apply for citizenship.

If such a bill is adopted in the House, the legislation will move to Conference with the Senate, which the Democrats control... Current thinking is that Bush will sign just about anything that emerges from the process, be it far to the left, or, as with the Sensenbrenner bill he approved last year, far to the right. He needs the accomplishment.

One last thing: The folks I talked to believe this is the year. Two years from now isn't an option. The particular political circumstances we're in are nearly unique: Bush has nothing left to lose but his involvement still provides cover for Republicans, Democrats can get an immigration bill without full ownership over it... You have the RNC defending a bill that, were it offered under a Democratic president, they'd be tearing apart. Meanwhile, this just won't be a priority for the next president: President Democrat will want to do health care, not amnesty, and President Republican will want to get reelected someday. So this is the shot.

Borjas on Immigration: A Lemon in the Senate

George Borjas on the immigration reform bill:

A Lemon in the Senate, by George Borjas, NRO: Although the details of the immigration deal are sketchy, it seems to contain a number of key provisions:

1. Amnesty for 12 million illegal immigrants.
2. A guest-worker program that will admit 400,000 workers each year.
3. Vague promises of border enforcement sometime in the future.
4. A proposed change in the legal immigration system, away from the family preferences that now dominate the system and towards a point system that rewards skills.

Any “reform” that gives amnesty to 12 million illegal immigrants without taking care of the underlying illegal -immigration problem is a lemon. After all, what guarantees that the current batch of 12 million illegal immigrants will not be replaced by another 12 million in just a few years? What guarantees that guest workers will not stay illegally in the United States after their visa expires? What guarantees that border enforcement will be taken seriously by the Bush administration in the next two years or by the Democratic administration after that?

There is one dim light at the end of this dark tunnel, however. Much of the political elite in the Senate is now on record as supporting a point system that allocates entry visas on the basis of skills — a move that I have long advocated. ...

So what should we do? No bill is better than this bill. To paraphrase Woody Allen, this bill is a travesty of a mockery of a sham.” An amnesty is an amnesty, no matter how it is packaged and spun. The guest worker program will surely enrich employers, but will exacerbate the downward trajectory in the economic status of poorer workers. And I think it is much more likely that, after reading this article, Steve Jobs will FedEx me a pre-release version of the Iphone than the Bush administration will seriously enforce border security in the time they have left.

The bill neatly summarizes the intellectual flimsiness of the Bush administration — a flimsiness that has cost us dearly in so many other areas. Perhaps they can convince themselves otherwise; that legalizing the status of illegal immigrants is not an amnesty; that the laws of supply and demand can be repealed when it comes to immigration; that we will trust them to secure our borders in the next two years when they haven’t done so in the previous six. But we all know that, in the end, their promises are a sham, a travesty, and a mockery of what immigration policy should be about.

I don't think there is a good answer to the immigration question. It helps the poor in Mexico raise their standard of living and that is certainly worth something. But although the evidence is mixed, the work Borjas has done indicates that immigrants do depress the wages of low-income workers and may also increase the cost of social services (though both the existence and size of the costs of immigration are controversial, see here  [Krugman] for the Borjas-type view of these issues, and here [Card] and here [Krueger] for opposing views).

Since Borjas has his say above, and since it's a view that is more nationalistic than my own, I'll repeat this from Alex Tabarrok:

I would argue ... that economists are too quick to take the nation as the relevant moral community. ... Why should we cut the cake in one way, excluding some from the moral community, but not in another? Indeed, geography is not the only way we can define the moral community. Why not ask whether English speakers benefit ... or Christians or left handed people? Each of these is just as valid as asking whether the collection of people called the nation benefit from free trade.

I understand individual rights and I understand counting everyone equally but I see less value in counting some in and some out based on arbitrary characteristics like which side of the border the actors fall on.

I am in the large group that benefits from immigration overall, and I think that immigration often gets the blame for things that have other root causes. But if I believed that immigrants were affecting me directly by making it harder for me or others close to me to support our families due to lower wages and benefits, I think it would be hard for me to put the poor in developing countries on an equal footing when evaluating the costs and benefits of immigration policy.

Changing Mexican Demographics and Illegal Immigration

As illegal immigration from Mexico subsides due to changing demographics, the silly fence on the border that is planned will probably get the credit:

Will we have enough workers?, by Shannon O'Neil, Commentary, LA Times: As many in Congress, in the media and in homes across the country debate the best way to stem the flow of undocumented workers across the Rio Grande, they don't seem to be aware that this perceived problem is becoming increasingly irrelevant. In fact, the immigration concern of the future could well be how to entice Mexicans and other Latin Americans to cross into the U.S. in the numbers we need.

Mexico is undergoing a demographic transition. According to the Mexican census bureau, long gone are the days of families with six, seven or 10 kids. Instead, Mexican women now average 2.2 births — only slightly above the average 2.1 births that occur in the United States and that are considered the "replacement rate,"... Life expectancy in Mexico has increased to 75 years, compared to 77 in the United States. ... In short, Mexico is about to age dramatically.

In the last 10 years, nearly 5 million Mexicans have come to the U.S. ... The "pull" of plentiful U.S. jobs and higher salaries has been an important factor..., but so has the "push" of Mexico's fast-growing, economically-active population, combined with weak job creation.

This situation is about to change. Job growth is a key component of President Felipe Calderon's agenda in Mexico. But even without faster job creation there, migration pressure — the "push" — will ease. ...[T]he economically-active population — which grew by more than 1 million ... each year during the 1990s — now adds just 500,000 annually. Over the next 10 years that means about 5 million fewer new workers compared to the previous decade — a number that's roughly equal to the population of undocumented Mexican immigrants in the United States. This suggests that demography may accomplish what border enforcement has not. In the next decade, the tide of northbound Mexican labor will likely recede.

At the same time, the United States is on the brink of its own massive demographic change. The first baby boomers are becoming eligible for Social Security benefits... The next generation, Generation X, ... doesn't have the critical mass to fill their shoes, much less new job openings. The generation after that, Generation Y — now ranging in age from babies to college students — is larger, so it will partly alleviate the labor crunch. But Gen Y workers are also likely to ... be better educated than their elders, which will push them toward high-skill careers. Immigrants will still be needed if the U.S. economy is to continue growing.

The immigration policy debate needs to grapple with these future facts. ... Looking forward, the immigration system should balance the pressures of supply and demand... This would include an efficient guest-worker program that rises and falls with labor needs and also provides a potential path to citizenship. It includes a dignified and fair process through which undocumented workers who are here now could be legitimized...

This practical strategy ... positions the U.S. for continued growth. And it goes far beyond merely reacting to the immediate situation with ineffective and ultimately counter-productive barriers.

Immigration and Wages

Tyler Cowen with the abstract of a paper presenting new evidence on immigration and wages:

More evidence on immigration and wages, by Tyler Cowen:

As of 2004 California employed almost 30% of all foreign born workers in the U.S. and was the state with the largest percentage of immigrants in the labor force.  It received a very large number of uneducated immigrants so that two thirds of workers with no schooling degree in California were foreign-born in 2004.  If immigration harms the labor opportunities of natives, especially the least skilled ones, California was the place where these effects should have been particularly strong. But is it possible that immigrants raised the demand for California's native workers, rather than harming it?  After all immigrants have different skills and tend to work in different occupations then natives and hence they may raise productivity and the demand for complementary production tasks and skills.  We consider workers of different education and age as imperfectly substitutable in production and we exploit differences in immigration across these groups to infer their impact on US natives.  In order to isolate the "supply-driven" variation of immigrants across skills and to identify the labor market responses of natives we use a novel instrumental variable strategy.  Our estimates use migration by skill group to other U.S. states as instrument for migration to California.  Migratory flows to other states, in fact, share the same "push" factors as those to California but clearly are not affected by the California-specific "pull" factors.  We find that between 1960 and 2004 immigration did not produce a negative migratory response from natives.  To the contrary, as immigrants were imperfect substitutes for natives with similar education and age we find that they stimulated, rather than harmed, the demand and wages of most U.S. native workers.

In other words, if lots of Mexican carpenters move to California, we don't see the non-Mexican carpenters leaving in droves, due to lower wages. 

Here is the paper.  Here is a non-gated version.  The article makes the interesting observation that if California were counted as a nation (and the U.S. not), it would receive the second largest number of immigrants per year of any country, with only Russia beating it out.

Benhabib and Jovanovic: Optimal Migration

I like the set-up of this model because it gets at what I believe is a key element of the immigration debate - how we value the welfare of people outside our borders relative to the welfare of citizens within our borders. As Alan Krueger says:

There are no simple answers on immigration policy because different people can legitimately assign different weights to the welfare of new immigrants, recent immigrants, and various groups of natives.

Here's the introduction and conclusion to the paper:

Optimal Migration: A World Perspective, by Jess Benhabib and Boyan Jovanovic, NBER WP 12871, January 17, 2007 [open link]: 1 Introduction All rich industrialized countries severely restrict immigration.[1] While the extent of the restrictions varies by country and by period, they nevertheless are at odds with the basic tenets of free trade, and in deep contradiction with some of the most cherished values of liberal democracy: that there should be no job discrimination based on nationality, ethnicity, race or gender. While we deplore job discrimination directed at citizens, we also design immigration laws that exclude foreign nationals out of our countries and our job market.[2] It follows that there must be costs associated with immigrants that are borne by the citizens of a country, or otherwise the borders would be open.

Feldstein: Immigration Won't Solve Europe's Fiscal Problems

Marty Feldstein says European countries are making a mistake if they think they can rely on immigration to fund social programs for their aging populations:

Immigration is no way to fund an ageing population, by Martin Feldstein, Commentary, Financial Times (free): Increasing life expectancy and declining birth rates are leading to big fiscal problems throughout Europe. Without fundamental changes, the rise in the relative number of older people and the slower growth of the labour force will substantially raise government outlays for pensions and healthcare.

A common reaction to this problem is a call for increased immigration. The taxes paid by these new workers would help to finance the benefits of the aged. Although there is general discomfort with some of the social consequences..., many have concluded that increased immigration is the only way to avoid a big increase in tax rates or a cut in benefits.

However, a little analysis shows that even a very large increase in immigration would have only a very small impact on ... revenue... Much of the tax paid by the new workers would be needed to finance the government benefits that they and their families consume – especially for healthcare and education. It is necessary, therefore, to ask how much net revenue is created by immigration...

Here are some simple calculations for Spain. The analysis would be much the same for other leading European countries. ... Consider the potential impact of a one-time inflow to Spain of an additional 2m new workers, equivalent to a 10 per cent increase in Spain’s labour force. ... Since immigrants generally earn less than native Spanish workers, a rise in ... foreign-born workers equal to 10 per cent of the labour force would raise total labour compensation by about 8 per cent or less. Since wages are only about 75 per cent of total GDP, a rise of 8 per cent in gross wages would be equivalent to a 6 per cent rise in GDP.

At least half of the additional 6 per cent of GDP would be consumed by the immigrants and their families. An additional fraction of the extra GDP would be used by the government to finance benefits for them. So the net additional revenue available to pay benefits ... would be only about 2 per cent of GDP or less.

This 2 per cent of GDP is very small relative to the future fiscal problem. Government spending on pensions and healthcare is ... projected to rise by 2050 to 24 per cent. The 2 per cent of GDP in net revenue ... would therefore finance less than 10 per cent of the projected pension and health benefits.

The increased immigration would, moreover, provide only temporary relief to a permanent fiscal problem. ... The extra immigrants ... would provide net revenue temporarily but would eventually receive retirement pensions and healthcare that absorb the extra taxes that they pay. It would take a continuing increase in the number of immigrants to achieve even the relatively small additional revenue that I have described. ...

There may be many reasons to favour increased immigration. ... But it would be wrong to advocate increased immigration as necessary to deal with the fiscal consequences of an ageing population...

The only way to avoid either significantly higher tax rates or substantially lower retirement incomes is to shift from a pure tax-financed system to one that supplements the tax-financed benefits with increased saving and investment. It is not too late to begin a transition from a pure pay-as-you-go system to a mixed system, but it will be progressively more difficult to do so as the population ages.

An Interview With David Card

David Card is interviewed about a wide variety of topics in his research. Here are bookmarks to specific topics:

• Tax Rates and Labor Supply
• Minimum Wage
• Sticky Wages
• Strike Patterns
• Unions and Inequality
• Skill-Based Technical Change
• Returns to Education
• Voting Machines
• Immigration
• Why Labor Economics?

Interview with David Card, by Douglas Clement, The Region, Minneapolis Fed, December 2006 (Interview: October 17, 2006): David Card seems like a pretty mild-mannered guy. True, he speaks with conviction, but it is confidence backed by meticulous research and tempered with open acknowledgment of the limits of that research. Card, an economist at the University of California, Berkeley, is the antithesis of a zealot.

Nonetheless, by virtue of the topics he investigates, he has frequently found himself in the center of the nation's most incendiary controversies. And in many cases, Card's findings have been at odds with the conventional wisdom. Raising the minimum wage modestly is likely to have a negligible impact on employment levels, he has found.

Immigration has only a minor impact on wages of native-born workers. But it would be wholly inaccurate to say he's been drawn into these debates. In fact, he has scrupulously avoided taking advocacy positions. A public stance, he believes, might raise doubt as to the rigor of his methods and the impartiality of his findings—two qualities he does defend zealously.

In 1995, Card was awarded the John Bates Clark Medal, given every two years to an outstanding American economist under 40 years of age. In granting the award, the American Economic Association highlighted Card's ingenious use of “natural experiments”—naturally occurring instances of the phenomena under study.

To study the impact of minimum wage legislation, for instance, Card looked at fast-food jobs in New Jersey and Pennsylvania. To understand immigration, he examined the 1980 Mariel boat lift, when Miami's labor force increased by 7 percent. In a just-released paper on unemployment benefits and job search behavior, he scrutinized data from Austria, where workers on the job for 36 months or longer get generous severance.

“If one unifying principle runs through David Card's work,” observes Harvard economist Richard Freeman, “it is a belief in the power of empirical economic science—in the ability to use statistics creatively to make inferences about how the economy operates.”

An Educated Immigration Policy?

Tyler Cowen proposes a solution to the immigration problem:

The Immigration Answer? It’s in Mexico’s Classrooms, by Tyler Cowen, Economic Scene, NY Times: Poorly functioning Mexican and Latino educational systems are a central problem behind current immigration dilemmas... If the United States took in a higher ratio of legal immigrants, and required more education, the entire North American region would be better off.

A high school diploma brings higher wages in Mexico, but in the United States the more educated migrants do not earn noticeably more... Education does not much raise the productivity of hard physical labor. The result is that the least educated Mexicans have the most reason to cross the border. In addition, many Mexicans, knowing they may someday go to the United States, see less reason to invest in education.

Mexican immigrants used to have higher-than-average levels of education, but today the average male Mexican migrant has lower-than-average education by Mexican standards. David McKenzie ... and Hillel Rapoport ... document this shift... (“Self-selection patterns in Mexico-U.S. migration: The role of migration networks” ). Less-educated migrants are more likely to bring crime and social problems, and they are less likely to assimilate.

In contrast to the men, female arrivals from Mexico still have above-average levels of education for their gender. A woman who migrates is most likely to have eight to nine years of education.

It appears that (relatively) educated Mexican women are more willing to break away from their families. Furthermore, Mexican women are less likely to work in agriculture or at hard labor, so education brings a higher wage in the United States. ... Nonetheless, illegal Mexican immigrants to the United States are usually male, if only because crossing the border is perilous and physically demanding.

This gender imbalance worsens the problems of immigration. Large numbers of young Mexican men have scant prospects for marriage ... in the United States. Men who marry tend to earn more money, behave more responsibly, commit less crime and assimilate more readily. Much of the so-called “immigration problem” stems from the illegality of immigration rather than from immigration itself. ...

A better immigration policy would tighten the border, while allowing in more legal immigrants from Mexico and other Latin countries, and require higher levels of education. Young Mexicans would see greater reason to invest in education, to the benefit of all Mexican society... The less educated Mexicans could be some of the biggest winners from immigration reform.

In the United States, employers have a greater incentive to train legal Mexican workers and combine their labors more effectively with capital investment... The legality and thus physical ease of immigration would also encourage the arrival of more Mexican women ,,, remedying the gender imbalance... In the short run, the greater number of immigrant children would raise costs in the United States for education and health care, but in the longer run those children would produce goods and services and pay taxes.

Taking in a higher proportion of women would relieve the migration-driven gender imbalance of rural Mexico. It is common for villages to have many unmarried young women, but virtually no young men. ...

Shutting the Mexican border is probably not possible, and it would paralyze American businesses and agriculture. ... The United States needs the courage to legalize a higher number of immigrant arrivals. The problems with current illegal migration are real. But most Americans benefit from Latino migration, even of the illegal kind, and they could benefit much more from legal and better-educated arrivals.

I don't always agree with Tyler, but having made a somewhat similar argument myself in Build It and They Will Stay Home, this time I do, at least with the idea that development within Mexico is the best long-run solution:

[I]n the long-run, the only real solution is to help poorer countries develop economically. ... If the wealth gap persists, we won't be able to build fences high enough, moats wide enough, or do anything else to stop people from trying to come here and from being successful in their attempts. We might reduce the flow, but no more than for, say, illegal drugs. Poverty prevents countries from doing all the things we think of as "fair," better environmental rules (but look back at the choices we made at similar stages of economic development before casting stones), health care, decent wages, etc. The very existence of poverty makes competition with wealthier countries look unfair to those affected by the entry of poor countries into the marketplace.

But how do we solve that? By isolating those countries from the world's wealth through protectionism, immigration restrictions, and other means so that the wealth gap persists while they try to develop on their own? Or are we better off engaging with poor countries economically and doing everything we can to help them develop and overcome the poverty that is holding them back while also helping the poorer residents of developed countries who might be affected by such policies?

People do not want to leave the place they grew up, leave their family and friends, and go illegally to a foreign country with a different language, a place where they are not generally welcome. It takes a powerful economic incentive to induce them to leave. I am not advocating opening our borders to anyone who wants to come here. But doing all we can to encourage investment in poor countries is the best way to solve the wealth gap and associated problems in the long-run, and that may mean accepting US companies outsourcing or moving to poorer countries during the transition period, and allowing more immigrants from those countries to come here and work. But by whatever means, economic development in poorer countries is the key to resolving many of the difficult problems we face and the only way to achieve a lasting solution.

Immigration and Productivity

This is an argument against illegal immigration on the basis that it stifles innovation and technological change by taking away the incentive to lower costs:

Productivity and immigration, by Alfred Tella, Washington Times: Productivity is the offspring of human creativity and the primary source of our economic well-being. Productivity means doing things more efficiently, finding a better way. ... It is the wellspring of economic growth, the fabled goose that lays the golden eggs. But the goose can come to harm, and we need to be ever vigilant.

One threat to productivity today is cheap immigrant labor. An estimated 12 million illegal immigrants, mostly low-skilled, poorly-educated Mexicans and other Latin Americans, have stolen into and remain in our country. Their numbers increase by nearly a half million yearly...

The negative impact of illegal workers on American wages and social welfare costs has been well documented and publicized. But far less attention has been given to the detrimental effects the excess supply of immigrants has on productivity. Following is a summary of some of the more significant analyses.

Immigration is Good

This argues that, when the costs and benefits are compared, illegal immigration is a net benefit:

Illegal -- but Essential, by David Streitfeld, LA Times: Shortly after dawn, the day laborers began gathering beneath a San Diego Freeway overpass in West Los Angeles. A house painter pulled up in a pickup, looking for an assistant. He offered $12 an hour. A worker jumped in. Next to arrive was a white-haired woman driving a Honda. Her garden needed a makeover. She'd pay $11 an hour. She departed with a second worker. ...

Down here, at the West L.A. Community Job Center, arrangements were being made to remodel ... living rooms, landscape ... yards, rebuild ... decks. The work is undertaken by men from Mexico and Central America. Most are in this country illegally. The jobs, which last only a day or two and pay cash, are all but invisible to the state and federal governments. No one has to fill out paperwork, follow safety regulations or pay taxes.

Yet what happens here is far from marginal. The jobs that flow out of this day-laborer hiring spot — and from thousands of others around the state, some as informal as a street corner — are a pillar of California's economic strength.

Borjas, Grogger, and Hanson: Immigration and African-American Employment Opportunities

New research on immigration. This is the first study to look for a link between immigration and incarceration rates in the black population:

Immigration and African-American Employment Opportunities: The Response of Wages, Employment, and Incarceration to Labor Supply Shocks, by George J. Borjas, Jeffrey Grogger, and Gordon H. Hanson, NBER WP 12518: Abstract The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 3.6 percent, lowered the employment rate of black men by 2.4 percentage points, and increased the incarceration rate of blacks by almost a full percentage point. [open link]

I think it's important to add this from the end of the introduction:

These findings can obviously generate a great deal of controversy in the immigration debate and can be easily misinterpreted. As a result, we are extremely cautious in both the presentation and interpretation of the evidence. Although we have attempted to control for other factors that may account for the large shifts in black employment and incarceration rates over the four-decade period that we examine, it should be obvious that no study can control for all possible factors. It is equally important to emphasize that although the evidence suggests that immigration played a role in generating these trends, most of the decline in employment or increase in incarceration in the black population remains unexplained. Put differently, immigration seems to have an effect and this effect seems to be numerically important, but we would have witnessed much of the decline in black employment and the concurrent increase in black incarceration rates even if there had been no immigration in the past few decades.

The Characteristics of Migrant Workers from Mexico

A Reaction Essay in Cato Unbound on the issue of immigration from Mexico. This is a reaction to this essay (posted here) by Richard Rodriguez:

Seeing Mexican Immigration Clearly, by Douglas S. Massey, Reaction Essay, Cato Unbound: Richard Rodriguez is an essayist in the humanist tradition and thus comments on the cultural meaning of Mexican immigration and the symbolic importance of Mexicans in American society. As a student of culture myself, I concur with his emphasis on cultural meanings and symbols in the current debate. ...

Despite my appreciation for the cultural ramifications of Mexican immigration, I am a social scientist and ultimately believe that accurate understanding needs to be grounded in empirical reality. In 25 years of research on a variety of public policy issues, I have never seen so much misinformation.... Thanks to the media and political entrepreneurs, Mexican immigrants are routinely portrayed as a tidal wave of human beings fleeing an impoverished, disorganized nation who are desperate to settle in the United States, where they will overwhelm our culture, displace our language, mooch our social services...

This profile, however, bears no discernible relationship to the reality that I know as a social scientist.

Mexicans Unbound

Cato Unbound on Mexicans in America. This is a shortened version of the lead essay:

Mexicans in America, by Richard Rodriguez, Lead Essay, Cato Unbound: Some years ago, with the publication of my first book, I became notorious in certain American academic quarters for my opposition to bilingual education and my celebration of assimilation—the child’s coming to think of himself as belonging within a society of strangers.

I retain my belief in the necessity of a common American culture. But I am lately appalled by voices raised in this country against Mexican migrant workers.

Americans have tended to abrogate to economists the question of the costs and the benefits of illegal immigration. But, surely, beyond how much Betsy Ross is willing to pay for a head of lettuce, there is the question of morality, there is the question of Mexico. ...

Mexico represents a special annoyance to the United States because ... Mexico is forthright in reminding America of the corruption of our past. In the 19th century, Americans were illegal immigrants into Mexican territory. The United States stole the Southwest from Mexico..., a desire we unrolled with great mumbo-jumbo and called Manifest Destiny. Everything Americans want to say about illegal immigrants today, history can also say about us. ...

Mexican Americans have the bad but telling habit of naming gringos “Anglos.” So-called Anglos name Mexican Americans “Hispanics.” Hispanic. In all the video footage I have seen of people crossing illegally from Mexico, ... the faces look more Indian than Spanish. Most of the illegal immigrants from Mexico may be mestizo, racially, but Indian features predominate. And isn’t that curious? The Indians are illegally coming into the United States. Indians will always wander in the Americas and they should. ...

Race vs. Class Based Objections to Immigration

I haven't posted much on immigration lately because there's been little new to say. But I think this adds a different, though uncomfortable, perspective. This is by Eric Rauchway, an historian at the University of California, Davis:

Tongue-Tied, by Eric Rauchway, American Prospect: Arnold Schwarzenegger's renunciation of his past support for Proposition 187 confirms ... the Austrian's [movement]... definitively away from anti-immigrant policies. Democrats can enjoy watching him squirm.... But the rest of us, including liberals, should stop smirking; we don't know how to talk effectively about immigration either. Two problems stand in the way: Immigration policy has only ever really united Americans when they could talk about it in racist terms, and talking about immigration in terms of class has tended to explode Democratic coalitions.

The last time existing American immigration policy was genuinely popular was in the 1920s, when congressmen could safely say, as Clarence Lea of California did, that "[t]rue assimilation requires racial compatibility" while passing legislation that was supposed to "fix... the type of the American race." It was the golden age of American racism, when Birth of a Nation ruled the box office, Madison Grant's The Passing of the Great Race taught Americans to speak knowledgeably about protecting the Nordic peoples, and the Ku Klux Klan rose in a new and expanded version (now, with extra added bigotry against Jews and immigrants).

The 1924 Immigration Act restricted immigration by imposing quotas based on national origin, on the presumption that some nations were incapable of producing good Americans. It easily passed a Congress dominated by Republicans in both chambers... President Calvin Coolidge gladly signed it; he too thought that "biological laws tell us that certain divergent people will not mix or blend." Immigration restriction ... also won the approval of the American Federation of Labor (AFL), whose president Samuel Gompers warned against "racial groups" oblivious to immigrants' "menace to the people of their adopted country."

That was the political genius of the debate over the 1924 law -- it depended on racism, and racism brought Americans together (or enough of them, anyway, to garner wholesale congressional support). This was an innovation, as Gompers noticed: "There is less hostility to enactment of proper immigration legislation in this session of Congress than ever before." Before, Gompers and other labor leaders had tried to sell immigration restriction based almost exclusively on class considerations, and had only ever won with great difficulty.

For decades before World War I, the AFL had supported a literacy test to restrict immigration. The argument was almost purely an economic one, based on working-class interests. Literacy tests had of course been used for racist purposes -- keeping nonwhites out of Natal, in South Africa, or out of Australia -- but those tests required immigrants to read in a language not their own. The American literacy test required that immigrants demonstrate competence in their own language, as a way of hindering the influx of working-class foreigners. It discriminated, in other words, not on the basis of race, but on the basis of class.

As President Woodrow Wilson explained in opposing it, the test was "merely a penalty for lack of opportunity," which "constitutes a radical change in the policy of our Nation." ... The literacy test came before Congress repeatedly. Sometimes it passed, but it met presidential vetoes from Grover Cleveland, William Howard Taft, and Wilson before finally passing a Democrat-dominated House and Senate over Wilson's veto in 1917. The literacy test made national leaders nervous. Framed as a protective measure for the least-skilled workers ..., it did not obviously appeal to other constituencies, and threatened to cost employers money. And insofar as it annoyed ethnic voters, it posed a major threat. ... He was right to be nervous, too: Ethnic voters deserted the Democrats at the next presidential election, which made them a political minority for a dozen years.

We can draw a few conclusions from this history:

1. A reactionary, racist argument against immigration might be popular, but as Schwarzenegger has recently discovered, it's immoral.
2. An argument against immigration based on the needs of the workers now living in America will be insufficiently popular, and will also hurt a party that, like the Democrats in 1916 and 1932, relies on the votes of immigrants and their immediate families. Inasmuch as it denies opportunity to those who deserve it, that argument is immoral, too.
3. But an argument simply favoring immigration will not, by itself, strike working people in America as fair.

What to do? Maybe something that Americans used to understand how to pull off -- allowing immigration while spending money to alleviate its impact. The peak years of immigration were also years of devotion to public education and to public health measures, both of which Americans thought would mitigate the effects of immigration. These policies didn't rest on enlightened arguments -- Americans wanted education for assimilation and public health measures to protect them against foreigners they considered disease-ridden -- but the policies were good. Education increased workers' skill levels. Public health measures made it safer to move around the country.

Looking forward, the lesson seems clear enough. By promoting new and broader public services and social outlays as part of a humane framework for approaching immigration, we can adapt Americans to the global economy without compromising basic moral and economic concerns.

Note: Opening sentence fixed. Initially, two posts were mixed together (minimum wage link/immigration) due to incomplete editing.

"Comparative Advantage, Comparative Advantage, Wherefore Art Thou, Oh Comparative Advantage?"

An email suggested looking at this paper by Richard Freeman on globalization and trends in U.S. and worldwide labor markets. It was a good suggestion. This is longer than usual even though I cut quite a bit, but well worth the time it takes to read it:

Labor Market Imbalances: Shortages, or Surpluses, or Fish Stories?, by Richard B. Freeman, Boston Federal Reserve Economic Conference: There are two competing narratives about the how the labor market in the US will develop over the next decade or two.

The Impending Shortage narrative, which has attracted attention from business and policy groups, is that the retirement of baby boomers will create a great labor shortage. Slower growth of new entrants from colleges and universities, an increased proportion of young workers from minority groups, and inadequate training in science and math will produce a shortage of the skills the country needs to maintain itself as the leading economy in the world. The message to policy makers is to forget about the sluggish real wage growth of the past three decades, the deterioration in pensions and employer provided health care, and fears of job loss from off shoring or low wage imports. Instead policy should focus on helping business find workers in the coming shortage.

Shortage claims have focused on science and engineering. Many leaders of the scientific establishment and high tech firms have complained that the US faces a shortfall of scientists and engineers and have asked for governmental policies to address this problem. ... The heads of Intel, Microsoft, and other high tech firms have spoken out on this issue as well. ...

But the shortage claim goes beyond science and engineering. Demographic projections of the US labor supply that show a sharp reduction in the growth of the work force through 2050 (see table 1) have aroused concern in the business and policy community. Reporting the consensus from the Aspen Institute’s Domestic Strategy Group, David Ellwood stated that: "CEOs, labor leaders, community leaders, all came to the unanimous conclusion that we will have a worker gap that is a very serious one.“ ... A 2003 Fortune Magazine headline declared “Believe It or Not, a Labor Shortage Is Coming” for virtually all workers (Fisher, 2003).

Believers in the impending shortage story generally favor increased immigration, particularly of highly skilled workers through H1B and other visas; increased spending on education and technological innovation; and guest worker programs to keep a sizable flow of less skilled but legal immigrants coming to the country. They regard many of these immigrants as complements rather than substitutes for US workers. They also advocate greater education and training of US citizens, particularly of disadvantaged minorities.

The Globalization Surplus narrative, which has attracted attention as part of discussions of the current mode of globalization, takes the opposite tack. It holds that the spread of global capitalism around the world, particularly to China and India, has generated a labor surplus that threatens wages in advanced and higher wage developing countries. Trade, off-shoring, global sourcing of jobs, and flows of capital to the low wage giants combine to reduce the demand for workers in manufacturing and tradable services in advanced countries and in moderate income developing countries.

At first, the advent of huge numbers of workers from India and China into the global capitalist system seemed to offer a boon to most workers in advanced countries. The labor force is less skilled in the global giants than in the advanced economies. According to the Heckscher-Ohlin model, skilled workers in the advanced countries would benefit from the new trading opportunities while only the relatively small number of unskilled workers would lose. If all workers in the North were sufficiently educated, they would avoid competing with low paid labor overseas and benefit from the low priced products produced there. Competition from low wage workers in China and India might create problems for apparel workers in Central and Latin America or for South Africa, but not for ... the advanced North. Similarly, the “North-South” trade model that analyzes how technology affects trade between advanced and developing countries implied that trade would benefit workers in the North, who had exclusive access to the most modern technology. More low wage workers in the developing world would lead to greater production of the goods in which the South specialized, driving down their prices.

Tell it to Lou Dobbs! The off shoring of computer jobs, the US’s trade deficits even in high technology sectors, and the global sourcing strategies of major firms have challenged this sanguine view. The advent of China, India, and the ex-Soviet Union shifted the global capital-labor ratio massively against workers. Expansion of higher education in developing countries has increased the supply of highly educated workers and allowed the emerging giants to compete with the advanced countries even in the leading edge sectors that the North-South model assigned to the North as its birthright.

Which narrative better fits the labor market? ... In this paper I assess the two competing visions and the demographic and economic projections on which they are based. I reject the notion that the retirement of baby boomers and slow growth of the US work force will create a future labor shortage in favor of the argument that the increased supplies of skilled labor in low-wage countries will squeeze highly skilled as well as less skilled US workers. I examine the problem of attracting native US talent in science and engineering in the face of increasing supplies of highly qualified students and workers from lower wage countries. Going beyond the US, I argue that the expansion of global capitalism to China, India, and the former Soviet bloc has initiated a critical transition period for workers around the world. Pressures of low wage competition from the new giants will battle with the growth of world productivity and the lower prices from those countries to determine the well being of workers in higher income economies as the low-income countries catch up with the advanced countries. While US wages will not be “set in Beijing” how workers fare in China and India and other rapidly developing low wage countries will become critical to the position of labor worldwide.

The Need for Immigration

A defense of businesses employing migrant workers from the director-general of the British Chambers of Commerce:

Employers are not the villains in the battle over immigration, by David Frost, Commentary, Financial Times: The publicity surrounding the launch of the government’s proposals on asylum and immigration, due tomorrow, has focused heavily on punishing British businesses for employing illegal migrants.

As far as business is concerned this is a complete diversion. The real issue is the fact that UK companies are increasing their use of legal migrant labour at an enormous rate. ... Businesses tell me that the single biggest problem they face is finding the skilled people they need to drive their businesses. They are solving the problem by employing migrant labour.

At the root of this, our school system is not providing significant numbers of our young people with the foundation in essential skills they need for the workplace. Only 44 per cent of school-leavers gain five GCSEs at grade A to C including English and maths. The Department for Education and Skills views this standard as the very minimum employability skills for basic productivity. In addition, there are up to 8m adults lacking the very lowest level of literacy and numeracy needed for the world of modern work.

The response of the business community to the poor quality of young people entering the labour market is to look increasingly to migrant labour, particularly from central Europe and specifically Poland. Employers tell me the reasons for this are simple and twofold: migrants have higher-level skills and a far better attitude to work than local people. They are enthusiastic and committed. ... Indeed, I met the owner of an electronics company in the east of England this month who has now given up recruiting through local newspapers. He finds it more cost effective to send his human resources manager out to Poland to recruit directly.

While business needs continued managed migration, we have to question whether this is the panacea for the UK’s skills shortages. We could be storing up significant social problems, especially in urban areas, if we assign the large number of young people with no qualifications and no work ethic to the scrap heap. Overall numbers in the labour market are rising, but so are the numbers of unemployed. It will not be a cohesive society if we have increasing numbers of migrants employed but at the same time the indigenous population is unable to find jobs.

The government must, therefore, ensure that the education system is fit for purpose. ... The current focus ... within our schools is divisive and elitist. The education system must engage all young people, whatever their talent or ability, and inspire them to learn and succeed. Our businesses and economy need skilled young people...

In addition, the government must ensure that the tax and benefits system acts as an incentive to get people into work. It is clear, particularly in the case of hourly-paid employees, that it does not currently provide a strong enough incentive... Until these issues are dealt with, migration will continue to play an ever growing role in addressing the needs of British business.

The British Chambers of Commerce will never support employers who flout the law and employ illegal immigrants. Indeed, ... employers who knowingly take on illegal immigrants [must be] punished accordingly. However, the overwhelming majority of employers are keen to ensure that they are operating within the constraints of the law. What business needs is an immigration process that is simple, clear and transparent...

But the employment of illegal migrants is a minor part of the issue and it is disingenuous to imply otherwise. The government should concentrate on solving the problems that are making our economy dependent on migration instead of shifting the blame for the failure of its complex and bungled immigration policy on to business.

I don't know how the percentage of illegal immigrants in the U.K at various skill levels compares to the numbers here, but this is directed mainly at high skill, not low skill immigration. To that extent, I agree with the main thrust of the argument - it's a nasty sort of bait and switch when we let our schools deteriorate and then claim we must allow high skill immigration because domestic workers aren't up to the task and the needs of business must take precedence in the global economy.

So long as cheap skilled labor is available elsewhere, business does not have a strong incentive to participate in efforts to improve the skill level of domestic workers. Notice he says "government should concentrate on solving the problems that are making our economy dependent on migration instead of shifting the blame ... to business." He calls on government to do more, but the attempt is to absolve business of responsibility for problems. He doesn't call for business to share in the responsibility and participate in the effort by, minimally, helping to set the political tone needed to make the improvements in domestic education he desires.

Update: Comments lead me to believe that perhaps my assertion that this is directed at higher skill immigration is incorrect. The talk of the biggest problem being businesses "finding the skilled people they need," the mention of "skills shortages," and that "migrants have higher-level skills" as well as the electronics firm example (which I took to mean high-skill employment) led me astray...

Blame the Immigrants

Molly Ivins believes Bush's flip-flop on immigration is a sign Republicans intend to avoid being blamed for problems by placing the blame on immigrants instead:

More Immigrant Bashing on the Way, by Molly Ivins, Commentary, AlterNet: While the rest of you were celebrating life, liberty and the pursuit of happiness, I was keeping an eye on Karl Rove -- because someone has to.

A "Bush Signals Shift in Stance on Immigrants" headline is the early warning sign that we're about to get an all-out immigrant-bashing campaign for the fall, complete with xenophobia, racism and blaming the weakest, least powerful people in the country for everything that's wrong with it.

House Republicans, who know a good socially divisive issue when they see one, are perfectly happy to blame illegal workers for everything. Trade policy, repealing taxes for the rich, corruption in Congress -- it's all done by illegal workers. ... Can't you see that everything that's wrong with this country is because of illegal aliens? It's all their fault. The people in charge have nothing to do with it. ...

Bush was planning to take a stab at resolving the problem, particularly on the Mexican border, with a guest-worker program. But the House Republicans had a hissy fit ... and demanded harsher measures, militarization of the border, a big fence. Not gonna work, y'all. Build a 50-foot fence, and they'll build a 51-foot ladder...

The catch-and-release program currently run for Mexicans by the U.S. government is damn silly. So what will work? If you want to stop Mexicans from crossing the border to work here, put Americans who hire them in jail. Since the Americans who hire them are also often (not always) large donors to the Republican Party, you will have to take that up with them. ... If you don't want Mexicans walking into this country, make sure no one is offering them jobs. You could even pass a law about it. You could even enforce the law. ...

I'm not as convinced as she is that this is a good strategy for Republicans or a strategy they will pursue for the fall elections. But I wouldn't have thought a lot of the antics used in previous elections would work as well as they did, so it's quite possible she's right and immigrants will join the ranks of treasonous media, gay marriage, flag burning, criticism of the war effort, welfare making the poor lazy, and high taxes making the rich lazy as driving forces behind our problems.

The Debate over Immigration

This is a summary of the economic and political issues surrounding the immigration debate by Roger Lowenstein from The New York Times Magazine. It's somewhat long, but it does a good job of summarizing the economic research in this area and is worthwhile reading for anyone interested in immigration issues:

Update: Greg Mankiw and Brad DeLong talk about libertarian, egalitarian, and cosmopolitan explanations for why economists do or do not support immigration. Here's Brad's post:

Greg Mankiw Explains Why Economists Favor Immigration: He does it very very well:

Greg Mankiw's Blog: Why Economists Like Immigration: With members of the House and Senate sparring over immigration reform, it is worth summarizing why most economists are sympathetic with the more welcoming approach of the Senate bill.

The study of economics leaves a person with two strong impulses:

The Libertarian Impulse: Mutually advantageous acts between consenting adults should, absent externalities, be permitted. The ability to engage in such trades is how people in free-market economies achieve prosperity. When the government impedes voluntary exchange, it prevents the invisible hand of the market from working its magic.

The Egalitarian Impulse: The market economy rewards people according to supply and demand, not inherent worth. Markets often fail to provide people the ability to adequately insure themselves against the vicissitudes of life and accidents of birth. We should, therefore, look for ways to help those who end up at the bottom of the economic ladder.

Most economists feel these two impulses to some degree. The difference between right-leaning and left-leaning economists is how strongly they feel each of them. Right-leaning economists have a stronger libertarian impulse, whereas left-leaning economists have a stronger egalitarian impulse.

Although some debates in economics come down to which impulse a person feels more strongly, on immigration the two impulses are reinforcing. The libertarian impulse says, let the American employer hire the Mexican worker, for it is voluntary exchange. The egalitarian impulse takes note that the Mexican immigrant is the poorest person involved in the situation, and he benefits from more relaxed immigration restrictions.

Here is a conjecture: Whenever a policy appeals to both the libertarian impulse and the egalitarian impulse, economists will offer a relatively united view, as they do on the topic of immigration.

I would add a third impulse: the cosmopolitan impulse. Economists tend to think that foreigners are people, and thus that their well-being counts. From the economist's point of view, increasing immigration is a hell of a powerful global economic development policy. The most you can say for restricting immigration is that it is an extremely costly and relatively ineffective domestic anti-poverty policy.

And then, of course, there is George Borjas, who is (a) an economist who is (b) not in favor of immigration from Latin America.

Greg says the libertarian and egalitarian impulses, "are reinforcing" and that is why "economists ... offer a relatively united view ... on immigration," and Brad reinforces this with his cosmopolitan impulse. I would qualify this discussion slightly along Brad's lines. It depends upon your welfare function as well and that is another way to frame the impulse to support, or not to support, immigration. If you are a person, economist even, who cares deeply about the poor anywhere in the world irrespective of borders, the benefits of low-skill immigration will look quite different than they will to someone who believes our allegiance is to our own poor first and foremost (though there are those who argue the costs are low or absent even for low skill domestic workers - see the article below). From a policymaker's perspective, what should U.S. policy address, the welfare of poor anywhere in the world which may represent the preferences of constituents, or should U.S. economic policy attempt only to maximize the welfare of U.S. citizens?:

The Immigration Equation, by Roger Lowenstein, NY Times: The day I met George Borjas ..., the United States Senate was hotly debating what to do about the country’s immigration policy. Borjas professed to be unfazed by the goings-on in Washington. A soft-spoken man, he stressed repeatedly that his concern was not to make policy but to derive the truth. To Borjas, a Cuban immigrant and the pre-eminent scholar in his field, the truth is pretty obvious: immigrants hurt the economic prospects of the Americans they compete with. And now that the biggest contingent of immigrants are poorly educated Mexicans, they hurt poorer Americans, especially African-Americans, the most.

Borjas has been making this case — which is based on the familiar concept of supply and demand — for more than a decade. But the more elegantly he has made it, it seems, the less his colleagues concur. ‘‘I think I have proved it,’’ he eventually told me, admitting his frustration. ‘‘What I don’t understand is why people don't agree with me.''

It turns out that Borjas's seemingly self-evident premise — that more job seekers from abroad mean fewer opportunities, or lower wages, for native workers — is one of the most controversial ideas in labor economics. ...

Econoblog: The Costs and Benefits of Immigration

A Wall Street Journal Online Econoblog on the costs and benefits of immigration:

Immigration's Costs -- And Benefits, Econonblog, WSJ: ...The Wall Street Journal Online asked economists Gordon Hanson of the University of California, San Diego, and Philip Martin, of the University of California, Davis, to discuss the underlying causes of immigration (both legal and illegal), its historical roots and the nature of the current political uproar over the issue.

Gordon Hanson writes: For all the heat that the debate about immigration has generated, the net economic impact of immigration on the U.S. economy appears to be remarkably small. First, some thoughts on legal immigration, before we address illegal immigrants.

Radically Economic Immigration Policy

Richard Freeman devises "radically economic policies" in an attempt to make open immigration, which he believes "could raise global economic well-being considerably," more palatable to opponents:

People Flows in Globalization, by Richard B. Freeman, NBER WP 12315, June 2006: ABSTRACT ...Despite its peripheral status in debates over globalization, the movement of people from low income to high income countries is fundamental in global economic development, with consequences for factor endowments, trade patterns, and transfer of technology. In part because people flows are smaller than trade and capital flows, the dispersion of pay for similarly skilled workers around the world exceeds the dispersion of the prices of goods and cost of capital. This suggests that policies that give workers in developing countries greater access to advanced country labor markets could raise global economic well-being considerably. The economic problem is that immigrants rather than citizens of immigrant-receiving countries benefit most from immigration. The paper considers "radically economic policies" such as auctioning immigration visas or charging sizeable fees and spending the funds on current residents to increase the economic incentive for advanced countries to accept greater immigration.

Introduction The policy debate over globalization in the past decade has largely bypassed the international mobility of labor. Restrict trade and cries of protectionism resound. Suggest linking labor standards to trade and it’s protectionism in disguise. Limit capital flows and the International Monetary Fund is on your back. But restrict people flows? That’s just an accepted exercise of national sovereignty! During the last few decades, when most countries reduced barriers to trade of goods and services and liberalized financial capital markets, most also sought to limit immigration. In this essay..., I argue that people flows are fundamental to creating a global economy and that the interplay among immigration, capital, and trade is essential to understanding the way globalization affects economies. I consider ways to reduce barriers to immigration that could improve the well being of workers around the world.

... [big snip]

More People Flows? Governments of receiving countries have hardened their stances against less-skilled immigrants and refugees in the past two to three decades, possibly in response to the increased immigrant flows. ... Surveys show that the majority of citizens in most countries believe that their country should restrict immigration more than it does... In European Union countries with large welfare states, the major stated economic factor underlying opposition is the fear that immigrants will burden the welfare state... Persons who might be adversely affected by immigrants in the labor market show modestly more negative attitudes toward immigration than others...

However, public opinion and national policies toward immigration seems to rest on issues well beyond gains and losses in the labor market. Some natives worry that immigrants will present a cultural threat to their way of life and reduce social cohesion... Another factor that determines attitudes toward immigration is that immigrants eventually become citizens and affect politics. In the United States, both political parties seek support from the growing Hispanic community and tailor their policies on immigration to appeal to that community...

Easing Immigration Restrictions The critical barrier to immigration is the restrictive policies of destination countries like the United States, Canada, Australia, the European Union, and Japan. If more persons immigrated to these countries, world GDP would rise and the inequality of wages among countries would presumably decline. ... How might the world increase immigration?

Immigration and Political Polarization

Paul Krugman follows up on today's column "Class War Politics." In the follow-up, he talks briefly about research on immigration and political polarization he couldn't fit into the column. I'll be curious to hear reactions to his reason for being "less enthusiastic about immigration than many liberals":

Politicians Need to Go Back to Class, by paul Krugman, Money Talks, NY Times: Readers respond to Paul Krugman's June 19 column, "Class War Politics" ...

Lenore Scendo, New York: I think you're absolutely on target about class warfare and the futility of going centrist to reignite bipartisanship. But doesn't this consign our country to perpetual politics of division? After all, the New Deal succeeded in dire times. Are you suggesting we might need to experience a kindred upheaval before like-minded policies will again succeed?

Paul Krugman: I don't expect or hope for another depression. But think of it this way: what happened politically in the 1930's was that the public realized that true believers in conservative ideology just weren't able to govern effectively. Isn't something like that happening now, in slow motion?

Mary Ellen Verdu, Salem, Va.: ...Why do so many in the working class and lower middle class vote Republican? In Virginia ..., my liberal upper-middle class friends and I threw up our hands as working people voted for elimination of the car tax — and just this week, the estate tax... The same is true for other issues... As a liberal in the progressive tradition this has bothered me for a long time...

Paul Krugman: The point, I think, is that distraction works: many people think that conservatives represent their values, or are tough on terror. Also, bear in mind that there's far too little news reporting on actual policy ideas. During the 2004 election, the biggest domestic policy difference between Bush and Kerry was on health care policy. But I surveyed two months of network news reporting, and there wasn't a single explanation of the difference between the Kerry and Bush plans.

Paul Krugman: A final note. For readers interested in following up on all this, many of the McCarty et. al. charts are at
http://voteview.com/Polarized_America.htm

Also, because of the limits of space, I couldn't talk about an important secondary theme in their book, the role of immigration. They argue that when unskilled immigration is high, the effect is to create a disenfranchised class of low-wage workers, which makes it easier for the Republican party to shift right. And there's a strong correlation between the foreign-born share of the population and political polarization, visible in the charts at the Web address above.

This political effect of immigration, much more than the effect on wages, is the reason I'm less enthusiastic about immigration than many liberals; I fear that immigration undermines the political foundations for a decent social safety net.

Here are a few of the charts from the link, the first two are on income distribution and political polarization, the last shows immigration and polarization:

Click on graphs to enlarge

Social Mobility in the Immigrant Population

For the immigrant population in the U.S., how well do subsequent generations fare relative to their parents and relative to the native born population? According to recent research, immigrants move to American norms over time, but it is a relatively slow process:

Immigration Math: It's a Long Story, by Daniel Altman, Economic View: Much of today's debate about immigration revolves around the same old questions: How much do immigrants contribute to production? Do they take jobs away from people born in the United States? And what kinds of social services do they use? ... To understand fully how immigration will shape the economy, you can't just look at one generation - you have to look into the future.

Sociologists and economists are just beginning to study the performance of second- and third-generation members of immigrant families. ...[I]t's not easy to generalize. But recent research has already uncovered some pertinent facts. Education is a good place to start, because it's strongly correlated with future earnings. Children of immigrants complete more years of education than their native-born counterparts of similar socioeconomic backgrounds. ... David Card, a professor of economics at the University of California, Berkeley [said being] a child of immigrants ... sort of boosts your drive." ...

Still, it can take several generations for poor immigrant families to catch up to American norms. "For the largest immigrant group - that is Mexicans and Mexican-Americans - the picture is progress, but still lagging behind other Americans," said Hans P. Johnson...

Second generations of immigrant families are managing to climb the skills ladder, too. A recent survey by the Census Bureau reveals that 40 percent of the female workers and 37 percent of the male workers in the second generation took professional or management positions, up from 30 and 24 percent, respectively, in the first generation. The survey, taken in 2004, included many adults whose parents came to the United States decades ago, noted William H. Frey ... With more recent immigrants, he said, it's possible that lower education rates may eventually lead to worse outcomes.

Other factors could ... make success more difficult for today's children of immigrants, compared with those of the past. One is increased competition. The children of Italians and Poles who came to the United States around the turn of the 20th century didn't face much of it, because the government imposed quotas on immigration after their parents arrived, said Roger Waldinger, a professor of sociology at the University of California, Los Angeles. By contrast, the children of recent arrivals face competition from successive waves of immigrants from numerous regions.

Inequality of income and wealth is another factor that could affect opportunities. "The second generation of Italians and Poles came of age in an era of historically low inequality," Professor Waldinger said. "The second generation of Mexican immigrants is coming of age in an era of historically high inequality, and that has to work to the disadvantage of those with low levels of schooling."

But there are also forces working in the opposite direction. For one thing, the children of today's immigrants will have much better access to education and the labor market than those of a century ago. ... Mr. Johnson said. "The conditions today are better in terms of educational opportunities." ... One reason, he added, is that society is "much more open to outsiders" in top jobs and at elite colleges than it ever was before.

Even if successive generations of immigrants manage to become as economically successful as native-born Americans, a big question will remain: How many people do we really want in the United States? From the standpoint of government fiscal policy, Professor Card said, you could argue that the only immigrants you'd want in the United States were those "whose children are going to get Ph.D.'s" and would therefore be economically productive.

Some people might argue that a larger population raises housing prices and causes more pollution, he said. But there can be advantages to size, too. "If you have population growth, you can finance intergenerational transfer systems" like Social Security and Medicare, he said. And lest we forget, he said, "big countries have more power." ...

There is also work by George Borjas on this topic that ought to be mentioned. See Making it in America: Social Mobility in the Immigrant Population. The post includes graphs from the paper showing outcomes across countries for second and third generations in the immigrant population. Borjas says:

In rough terms, about half of the differences in relative economic status across ethnic groups observed in one generation persist into the next. As a result, the very large ethnic differences in economic status that characterize the current immigrant population will likely dominate discussions of American social policy for much of the 21st century.

[2nd generation graph, 3rd generation graph]

Update: More on Immigration. This is about the results of imposing tougher penalties for those caught trying to enter the U.S. illegally:

Along Part of the Border, A Zero-Tolerance Zone Tough Program Is Discouraging Illegal Crossings, by Sylvia Moreno, Washington Post: On June 1, the three Ordaz-Valtierra brothers from Mexico illegally crossed the Rio Grande with the same dream that so many other Latin American immigrants have: head north from the border, get jobs and start sending money home.

Their journey, instead, ended in a federal courthouse here, where, dressed in orange prison jumpsuits, each was charged with the federal misdemeanor crime of entry without inspection. Each pleaded guilty and was sentenced by a U.S. magistrate judge to 15 days. Under guard of U.S. marshals, they were put in shackles and bused to a West Texas jail to serve their time and await deportation home. ...

Immigration, Growth, Employment, and Wages

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

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

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

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

A Conversation with Pia Orrenius: The Economics of Immigration

We must be past the onset of diminishing returns to learning anything new about the economics of immigration, but there still seems to be more interest in this topic than I would have guessed and there's always more to learn. This Dallas Fed article follows up Pia Orrenius's commentary in the WSJ and emphasizes issues such as the economic effects of guest workers and the the economic distinction between legal and illegal immigration that haven't been emphasized in recent posts:

On The Record, A Conversation with Pia Orrenius: The Economics of Immigration, Southwest Economy, Issue 2, March/April 2006, Federal Reserve Bank of Dallas: ...Pia Orrenius, a Dallas Fed senior economist and immigration expert, discusses the economic aspects of the growing number of foreign-born workers, including their effects on the U.S. economy, government budgets, and native-born Americans' jobs and earnings.

Q: What can you tell us about the size of the immigrant population in the United States?

A: Immigrants make up about 12 percent of the overall population, which means about 36 million foreign-born live in the United States. The commonly accepted estimate for the undocumented portion of the foreign-born population is 11 million. Immigrants come from all parts of the world, but we’ve seen big changes in their origins. In the 1950s and 1960s, 75 percent of immigrants were from Europe. Today, about 75 percent are from Latin America and Asia. Inflows are also much larger today, with 1 million to 2 million newcomers entering each year...

Immigration, Employment, and Wages

If you haven't batted the evidence on immigration around enough yet, here's a little more from Pia Orrenius of the Federal Reserve Bank of Dallas. She was a member of the President's Council of Economic Advisers from 2004-2005 and supports a relatively open door policy:

The Impact of Immigration, by Pia Orrenius, Commentary, WSJ: ...The stereotype of the hard-working immigrant still rings true in our country. Male immigrants have labor force participation rates of 81%, exceeding U.S.-born men's participation rate of 72%. Illegal immigrant men have even higher participation rates -- around 94%... Immigrants have contributed more than half of U.S. labor force growth in the past decade as a result of high immigration rates and their desire to work. ... Economists have noted time and again that the effect of immigration on natives' wages is small.