More on immigration and wages

by Russ Roberts on April 10, 2006

in Immigration

Here’s a nice overview from the Economist of the empirical evidence on immigration and the underlying economics (Ht: Joshua Hill):

Mr Borjas divides people into categories, according to their
education and work experience. He assumes that workers of different
types are not easily substitutable for each other, but that immigrants
and natives within each category are. By comparing wage trends in
categories with lots of immigrants against those in groups with only a
few, he derives an estimate of immigration’s effect. His headline
conclusion is that, between 1980 and 2000, immigration caused average
wages to be some 3% lower than they would otherwise have been. Wages
for high-school drop-outs were dragged down by around 8%.

Immigration’s critics therefore count Mr Borjas as an ally. But hold
on. These figures take no account of the offsetting impact of extra
investment. If the capital stock is assumed to adjust, Mr Borjas
reports, overall wages are unaffected and the loss of wages for
high-school drop-outs is cut to below 5%.

Gianmarco Ottaviano, of the University of Bologna, and Giovanni
Peri, of the University of California, Davis, argue that Mr Borjas’s
findings should be adjusted further. They think that, even within the
same skill category, immigrants and natives need not be perfect
substitutes, pointing out that the two groups tend to end up in
different jobs. Mexicans are found in gardening, housework and
construction, while low-skilled natives dominate other occupations,
such as logging. Taking this into account, the authors claim that
between 1980 and 2000 immigration pushed down the wages of American
high-school drop-outs by at most 0.4%.

This should give Nicholas Kristof pause. He argues it’s compassionate to keep out pitifully poor immigrants to keep the wages of American high school dropout high. So the total impact on the poorest Americans is either a decrease of a little more than 8%, less than 5% or less than 1%. For that, Kristof is willing to condemn Mexicans to the Mexican economy. Where’s the compassion?

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{ 28 comments }

Ann April 10, 2006 at 2:43 pm

"Kristof is willing to condemn Mexicans to the Mexican economy. Where's the compassion?"

True compassion would lead us to pressure Mexico and other countries to fix their economies, thus helping hundreds of millions of poor around the world rather than the lucky few that come to the US either legally or illegally.

bbartlog April 10, 2006 at 3:11 pm

It's not our government's job to have compassion for the Mexican poor. The general welfare mentioned in the Constitution is the general welfare of the people of the United States, not that of the world.

Geoffrey Brand April 10, 2006 at 3:24 pm

The general welfare clause in the Constitution refers to just that, "general welfare" Not the specific welfare of High School dropouts. Not letting in immigrants reduces the welfare of many current citizens by eliminating the potential benefit of immigrants’ productivity.

tom April 10, 2006 at 3:31 pm

"If the capital stock is assumed to adjust, Mr Borjas reports, overall wages are unaffected and the loss of wages for high-school drop-outs is cut to below 5%."

So, wait a minute. Is it being suggested that a large increase in the supply of low skilled labor has no impact on overall wages? Or that there is a downward influence on wages caused by illegal aliens, but everything else NOT being equal there are other factors that offset the lower wages? If you say it's the former then you are displaying your economic ignorance. And if it is the later then illegal aliens are preventing overall wages from being higher than they otherwise would be assuming capital stock adjustment.

If one is looking at the impact of immigration on wages why would one not keep everything else equal? Is cafehayek in favor of the minimum wage because there are offsetting factors that minimize the impact of the minimum wage? Have you all heard of ceteris paribus?

Half Sigma April 10, 2006 at 3:38 pm

"They think that, even within the same skill category, immigrants and natives need not be perfect substitutes, pointing out that the two groups tend to end up in different jobs. Mexicans are found in gardening, housework and construction, while low-skilled natives dominate other occupations, such as logging."

This logic is ridulous because laborers ARE substitute goods for each other, so if all the Mexicans went back to Mexico, the salary of gardening jobs would rise, attracting more non-Mexicans, which in turn causes the wages for all unskilled labor to rise.

I mean, come on, this is basic supply and demand. There is an issue of burden of proof here. If someone is trying to argue that immigration doesn't affect wages, then they have the burden of proving their case, otherwise we need to assume that supply and demand work as we expect them to.

Faultolerant April 10, 2006 at 3:55 pm

What, pray tell, is wrong with Mexicans living in Mexico "being subject to the Mexican economy"?

If I recall it wasn't the US that imbued the Mexican government with corruption. Nor was the the average US citizen who made poverty de rigeur south of the Rio Grande.

I'm all for LEGAL immigration – the more the merrier – bit ILLEGAL immigration is the issue. Having 500,000 people march on Dallas city hall, and boycott American goods today (04/10/06) doesn't impress me. Makes me wanna rev up the wall building machine…….

John Dewey April 10, 2006 at 5:57 pm

Faultolerant,

The 500,000 people who rallied in Dallas yesterday weren't trying to impress you, so don't get too worked up about it.

I doubt that half of them were illegal immigrants. Some families at the rally are made up of illegal immigrants, legal immigrants, and U.S. citizens. Others, like me, have no relatives who are legal or illegal immigrants.

I did notice that large numbers of people were filling out voter registration cards. I also noticed a few children trying to do so as well, but being told to just wait a few years.

It is very unlikely that Congress will agree to deport 12 million illegal immigrants. The Republican Party is smart enough to know that would be long term suicide.

Patrick R. Sullivan April 10, 2006 at 6:47 pm

' I mean, come on, this is basic supply and demand.'

It sure is, but you've stopped your analysis too soon. The immigrants increase labor supply, but they also increase labor demand–they need food, clothing and shelter too–per Say's Law; supply is (implicit) demand.

If the immigrants are more productive than the natives, they could well increase unskilled labor's wages.

Mark April 10, 2006 at 8:47 pm

"This logic is ridulous because laborers ARE substitute goods for each other, so if all the Mexicans went back to Mexico, the salary of gardening jobs would rise, attracting more non-Mexicans, which in turn causes the wages for all unskilled labor to rise."

Or, perhaps, Americans would just do their own gardening. Ideological opponents of immigration urge Americans to do just this because they are concerned with the social and political consequences of immigration. But from an economic perspective, it is a total loser. Americans would have less leisure (except for those who enjoy gardening as a hobby) and Mexicans would have less disposable income.
To put it more starkly, I have heard that in Argentina, many middle class households have Bolivian maids (Bolivia is much poorer than Argentina for those who don't know). If all of those Bolivian maids were deported, would you expect unskilled wages in Argentina to rise by very much as Argentines take the jobs formerly done by Bolivians? The main reason those jobs exist in the first place is the abundance of cheap labor.

Grzegorz April 10, 2006 at 9:01 pm

Russell,

By any chance would you happen to know the cost of the Hagel-Martinez bill? Not just in current dollars but in outlays into the future?

JohnJ April 10, 2006 at 9:13 pm

Why do discussions about immigration tend to refuse to differentiate between legal and illegal immigration?
Legal immigration – good.
Illegal immigration – bad.
Immigration is good for all the economic reasons people are saying and more.
Illegal immigration is bad for all the economic reasons people are saying and more.
JohnD, most voters favor a tough stance on illegal immigration, so political suicide it wouldn't be. I agree that it is unlikely, though.

ish April 11, 2006 at 1:48 am

To assert that, because a company is able to spend less on labor, they will ultimately invest more which will boost our economy is problematic because it makes assumptions regarding how much a company will reinvest rather than just chalk up the lowered labor cost to increased profits that are partially shared among the higher skilled workers (the executives).

I live in a rural county in Indiana. There are few businesses other than farms and factories. And there are also few locally owned businesses. Profits are not passed onto the local community. I guarantee you that conservative business leaders will take every opportunity to cut labor costs. When the Mexicans have saturated certain low end jobs, it forces low skilled laborers to compete for scarcely available labor jobs and increasingly lower wages. There are few jobs here for someone like myself who is a college graduate.

I am fortunate to have a fairly good paying job, but I do not receive health care benefits. Meanwhile, while I am working legally and paying taxes on my income, I am funding health care services for the children of these aliens who the state is legally compelled to provide for. Meanwhile, the businesses who are employing these illegal workers are not paying any taxes on them.
We do not have the resources to foot the bill for these people. I am just curious, while we continue to debate immigration, does anyone know where we are suppose to draw the line? Is there a line?
If you are a social services worker and you have a client who is an illegal alien, why is the client not immediately deported along with their family? They are nothing more than parasites that are living on the backs of lower middle class Americans like myself. Where do we draw the line? Nowhere?
I am also curious, do you think that the Mexicans will all start working legally as soon as they become citizens.

Henri Hein April 11, 2006 at 2:32 am

"If someone is trying to argue that immigration doesn't affect wages, then they have the burden of proving their case"

You know what they say, the proof is in the pudding. When wages are higher in cities with more immigrant population, compared to cities with low immigrant population, is it not natural to conclude that immigrants increase productivity and therefore wages?

Does your simplistic model also conclude that tariffs are good?

Henri Hein April 11, 2006 at 2:34 am

"Legal immigration – good.
Illegal immigration – bad"

The problem with that is that it's pretty arbitrary what's considered legal and what's considered illegal. Both are driven by labor demands. How do you determine what labor demands are good, and what labor demands are bad?

Kimbell Duncan April 11, 2006 at 4:43 am

To the extent that illegals work in a black market (cash) for labor, outside of the tax and legal framework for legal workers, perhaps they are providing labor that is simply not available otherwise. We know, for example, that minimum wage will limit demand for low wage labor since arbitrarily-imposed wage costs under minimum wage can be above the marginal productivity of labor in some uses. To the extent that the law effectively restricts demand for this sub-minimum wage labor, a black market supplied by illegals will increase demand for labor in these areas and increase supply of the final product to consumers. Contrary to hyperbole, in this case legal Americans do not suffer a loss of jobs – jobs are created to serve the demands of new consumers (illegals) and services or products that were previously unavailable on the market are now available (since the demand for labor which was blocked by minimum wage laws becomes effective).

Before looking to government to intervene in order to correct a perceived problem, perhaps we should consider the ill effects of previous interventions that provides the market opportunity for illegal immigrants.

Also, Mexican illegal immigrants are highly mobile and risk incarceration in order to cross the border and search for the means of a livelihood. Perhaps we should ask what is it about our naturalized poor that keeps them from making their own journeys to compete for these precious "American" jobs that the Mexicans are apparently stealing. Could it not be because the American poor are actually subsidized to remain poor through government unemployment programs rather than compete for low wage jobs taken by illegal immigrants? Have we fostered a belief of entitlement that inhibits initiative? Or is the standard of living of our poor so high relative to a mass of Mexican laborers that illegal immigrants aspire to such a standard?

JohnDewey April 11, 2006 at 7:47 am

"Perhaps we should ask what is it about our naturalized poor that keeps them from making their own journeys to compete for these precious "American" jobs that the Mexicans are apparently stealing."

Kimbell, I agree that some poor workers are not competing with Mexican workers because they are subsidized to remain poor. In some cases the subsidy is from the government. In other cases it is from relatives.

I do not agree that Mexicans are apparently stealing American jobs. With the U.S. at what is historically full employment, it is not clear that unemployed workers are available to compete with Mexican workers.

Ann April 11, 2006 at 8:37 am

"The problem with that is that it's pretty arbitrary what's considered legal and what's considered illegal. Both are driven by labor demands. How do you determine what labor demands are good, and what labor demands are bad?"

What? We don't need to decide which labor demands are "good" – people who come here (or stayed here) illegally are illegal, regardless of what we think of labor demand. It's not fuzzy. If we need more legal workers, we should up the quota (which I would support).

Do supporters of amnesty think that we should pass that first and then perhaps worry about border security later? The more I think about it, the more I think that we need to secure the border first. If deporing 11 or 12 million would be too expensive to be practical, surely the cost of an amnesty is even greater, if we haven't secured the borders.

This amnesty will surely have the same effect as the last one, or an even greater effect if it includes everyone here at some future point – the numbers would swell by many more million, very quickly. Is there any limit? Can we handle 20 million more in a short amount of time?

Hong Kong handled the refugees from the Cultural Revolution (the population literally doubled in just a few years), but it set them back for many years. If we pass an amnesty (oops, sorry, "guest worker" program), how many more millions should we expect to get within a few months?

Half Sigma April 11, 2006 at 9:25 am

Patrick: "The immigrants increase labor supply, but they also increase labor demand"

It should be obvious that immigrants have only a small impact on labor demand in the U.S. because they earn very small salaries compared to Americans, they send some of their money back home, and a lot of the stuff they buy is manufactured in other countries.

And the food they eat is practically free because our government pays farmers not to grow stuff because there's so much of it. Hell, increased demand for food might decrease demand for labor because farmers wouldn't have to devote so much effort to limiting their production.

John Dewey April 11, 2006 at 10:33 am

"Do supporters of amnesty think that we should pass that first and then perhaps worry about border security later?"

In the first place, most supporters of the McCain-Kennedy-Specter immigration bill do not consider it to be amnesty. But I assume that you do, and are addressing those supporters.

Even opponents of the bill such as Senator John Cornyn agree that illegal border crossings should not be changed from a misdemeanor to a felony. Given that the offense was and continues to be a misdemeanor, what difference does it make even to those who consider the bill amnesty? If the government insists on collecting a fine, then collect the fine.

Does it make any difference if the border is secure? It will take years to build either a fence or a wall. Just planning for such a wall should cause illegal immigration to skyrocket. Once the fence/wall is built, it will take a few days for more immigrants to figure out how to beat it.

Patrick R. Sullivan April 11, 2006 at 11:47 am

'And the food they eat is practically free because our government pays farmers not to grow stuff because there's so much of it. Hell, increased demand for food might decrease demand for labor because farmers wouldn't have to devote so much effort to limiting their production.'

That may be the single most confused thing I've ever read in the comments section of an economics blog.

tom April 11, 2006 at 12:49 pm

"If the immigrants are more productive than the natives, they could well increase unskilled labor's wages."

Hey, Pat. You're not much better when it comes to economics. If illegal immigrants were more productive than natives, then they would have been earning a higher wage than natives. Why, then, would productive high wage illegals be crossing the border to take unproductive low wage jobs in the US?

TGGP April 11, 2006 at 5:48 pm

Long term suicide for the GOP is importing massive numbers of people who will vote for their competing party, as their children will likely do for a good many generations. The current proportion of the vote cast by Hispanics is rather low and voter sentiment is for less immigration, so whether or not you agree with that sentiment, taking the opportunity now to shut down the border is the smart move for the Republican party.

Steve Sailer actually discussed the "fence could'nt work" meme just a little while ago (although I think he also should have mentioned previous succesful enforcements of border laws, like the oh-so-politically-incorrectly-named "Operation Wetback"): http://isteve.blogspot.com/2006/04/fence-couldnt-work-meme.html
He also discussed the long-term future of the Republican Party in ""Mexican Evolution" or "Republican Devolution"": http://www.vdare.com/sailer/050801_devolution.htm

Half Sigma April 11, 2006 at 6:17 pm

Swagy: "there are enough laws on the books right now to enable effective control of the problem the real issue is the will to enforce the laws already in place."

If by this you mean that an elite cabal within our government favoring open borders conspires behind the scenes to not patrol our borders, deport anyone, or punish any employers of illegals, then yes this has got to change.

Patrick R. Sullivan April 11, 2006 at 7:56 pm

'If illegal immigrants were more productive than natives, then they would have been earning a higher wage than natives. Why, then, would productive high wage illegals be crossing the border to take unproductive low wage jobs in the US?'

I was wrong, that is the most confused thing I've read.

If Mexicans can come to America and use American infrastructure (tangible and intangible) and capital more efficiently than the lowest skilled natives are using it, they will BOTH have incomes higher than they would have had using Mexican infrastructure and capital, AND higher incomes than some Americans.

And that higher income could result in increased demand for what those low skilled Americans can produce. Not to mention that the example of the superior work ethic might rub off on the Americans.

Patrick R. Sullivan April 11, 2006 at 7:58 pm

"there are enough laws on the books right now to enable effective control of the problem the real issue is the will to enforce the laws already in place."

Like we were able to prohibit the consumption of alcohol in the Roaring 20s, or enforce the 55 mph speed limit, or Nixon's wage and price controls?

Henri Hein April 12, 2006 at 2:02 am

"What? We don't need to decide which labor demands are "good" – people who come here (or stayed here) illegally are illegal, regardless of what we think of labor demand. "

Are you denying illegal immigration is driven by labor demand? Why did *you* think they're coming?

The demand for labor is there, and the law barring the flow of labor is arbitrary. You're right, it's not fuzzy. It's clearly economics nonsense, and a violation of employers' right to freely transact.

Half Sigma April 12, 2006 at 11:30 am

Patrick: "Like we were able to prohibit the consumption of alcohol in the Roaring 20s"

Both are cases where the perceived benefit of cheating was greater than the perceived chance of getting caught times the percieved cost of getting caught.

If the potential illegal immigrant perceives that there is a good chance he will get found out and deported, and he has to pay thousands of dollars to get smuggled in because we built a fence along the border with Mexico, and he is a lot less likely to find work here because of a crack down on employers, then he will be a lot less likely to try it.

Humour February 7, 2008 at 3:20 am

Humour is an element that adds spice to life and without which may be life would have been very difficult to spend. But contrary to what many people believe, humour is not all about smiling and laughing, though it caters to these fields mainly. Humour is actually the capability to see the lighter side of life, sometimes even in a serious environment. But this lighter view of life should be done intelligently. Slapstick humour is no humour at all, it is just trash.

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