Supply and demand and immigration

by Russ Roberts on July 11, 2006

in Cafe Conversation, Immigration

Do immigrants lower wages of native born Americans? Those who say yes, such as George Borjas in this New York Times Sunday Magazine piece by Roger Lowenstein, say it’s just a matter of supply and demand—the supply shifts out and wages have to fall. But of course, that only holds if demand is constant as well as David Card points out:

As Card likes to say, "The demand curve also shifts out." It’s
jargon, but it’s profound. New workers add to the supply of labor, but
since they consume products and services, they add to the demand for it
as well. "Just because Los Angeles is bigger than Bakersfield doesn’t
mean L.A. has more unemployed than Bakersfield," Card observes.

In theory, if you added 10 percent to the population — or even
doubled it — nothing about the labor market would change. Of course, it
would take a little while for the economy to adjust. People would have
to invest money and start some new businesses to hire all those
newcomers. The point is, they would do it. Somebody would
realize that the immigrants needed to eat and would open a restaurant;
someone else would think to build them housing. Pretty soon there would
be new jobs available in kitchens and on construction sites. And that
has been going on since the first boat docked at Ellis Island.

Seems pretty reasonable. But then Lowenstein gives the reader Borjas’s retort:

But there’s a catch. Individual native workers are less likely to be
affected if the immigrants resemble the society they are joining — not
physically but in the same mix of skills and educational backgrounds.
For instance, if every immigrant were a doctor, the theory is, it would
be bad for doctors already here. Or as Borjas asked pointedly of me,
what if the U.S. created a special visa just for magazine writers? All
those foreign-born writers would eat more meals, sure, but (once they
mastered English, anyway), they would be supplying only one type of
service — my type. Bye-bye fancy assignments.

Is Borjas right? Should Lowenstein be worried?  Give it a shot in the comments section and I’ll weigh in later today or tomorrow.

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{ 28 comments }

happyjuggler0 July 11, 2006 at 12:56 pm

I have three observations on the article.

One, Card is the same Card as in Card/Krueger, and my personal take on his studies there is he is full of **it. Thus he doesn't inspire confidence whenever he opens his mouth, even though I'm happy whenever an economist takes my side in whatever issue is at hand.

Two, I wish someone had pointed out the unmentioned part of the equation, namely that there is a geometric rise in income for immigrants from dirt poor countries like Mexico or India, unskilled or skilled.

Three, the point about many more working immigrants in the US than there is unemployed Americans is a profound point with many implications, but somehow one never hears about it in debates.

With point two in mind, one needs to take an awful narrow definition of "us" to frame the debate in us vs them terms and conclude that "we" lose by immigration.

With point three in mind, it seems pretty clear that if you favor women in the workplace then you ought to be in favor of immigration. The household work that women have traditionally done is very much real work, and an increase in low skill immigrants is a lifesaver for women in the workforce, or who want to be in the workforce.

Don July 11, 2006 at 1:27 pm

Borjas seems to admit that newcomers indeed eat and require shelter but that they surely won't read magazines. That's probably not the best assumption, but so what? If we lose a magazine writer job to get another job in some other field we're just changing the labor mix. So, yes, bad for magazine writers in the short run, but his retort is unpersuasive past that very short run.

HowBoutThis July 11, 2006 at 1:31 pm

I think Borjas isn't thinking this all the way through. A glut of immigrants in any one profession would make other professions more attractive. So the immigrants (and citizens) who couldn't make it in one profession would switch to other fields where the demand was higher and more money was available. Also, once a glut was created, immigration in that field would fall off. So any glut, if it existed would be temporary.

Tim S. July 11, 2006 at 2:13 pm

First, debates like this are always tough, because everyone knows someone who doesn't fit neatly into a category or stereotype, and it's easy to be labeled a jerk for not considering the "human factor" when talking rich v. poor, American v. Immigrant.

That said, the Lowenstein example doesn't seem to be a good parallel because he is an employed, American journalist. Earlier the article notes the propensity of domestic employers to prefer 'their own kind' before immigrants, other things equal, so the currently employed, American construction workers and maids don't have to worry about being replaced, nor does Lowenstein.

The effect on the American unemployed is what is interesting here. Both this article, and several friends in construction have recently related their tendency to hire Mexican (or foreign) workers before Americans. The reasons: reliability and better performance. The latter are much more likely to show up late, drunk, or not at all, whereas the former tend to be generally more motivated & reliable.

So (admittedly with little study) it seems likely to me underlying this debate is another indictment of American drug, education, and welfare policies. These lead to a "poor" attitude, and the poisonous tendency of looking to government to protect the rights of one group at the expense of others' liberties.

Alas, I fear solving the "immigrant problem" is still only the beginning of our problems.

Noah Yetter July 11, 2006 at 2:43 pm

Tim, I am very intrigued by the comparison of the realiability and quality of Mexicans vs. Americans. Though I personally do not doubt your statement (as it conveneniently confirms my priors), can you share your source(s)? I would like to read more on this notion.

Patrick R. Sullivan July 11, 2006 at 3:53 pm

Magazine writers are already subject to foreign competition. An article can be written anywhere in the world and still appear in an American publication.

This is simply a question of Say's Law; Supply is (implicit) Demand.

Tim July 11, 2006 at 3:56 pm

Noah,

My only sources for this are a mention of it in this Lowestein article (p. 12-13), and conversations with two different friends at different times, both owners of small local (MD) construction/ repair companies. Both pointed to the greater reliability and steadier work ethic of (specifically) Mexican vs. American workers. Both tend now to hire only Meixcans/ Latinos if possible.

It would be interesting to see more research on this, but my feeling is the trend would be more of the same, for those reasons I list above: a combination of native workers' resentment and apathy from poor public education as well as their feeling of entitlement our welfare state fosters, versus the relative ambition of a poor Mexican who takes a tremendous journey just to be in a position to work.

Diana July 11, 2006 at 4:44 pm

Here is some proof that immigrants don't just increase the supply of labor and the demand for food and housing:

- The LA Newspaper La Opinion is published in Spanish: http://www.laopinion.com

- The women’s' magazine Latina targets Hispanic women in the US: http://www.latina.com/latina/homepage.jsp

- And here is a list of Spanish TV channels that are broadcasted in the United States (some of them are actually produced in Latin America, but a number of them are targeting the US market only):
http://en.wikipedia.org/wiki/List_of_United_States_cable_and_satellite_television_networks#Hispanic.2FLatino

It seems that Borjas’s retort doesn’t really add anything to his original argument. Immigrants supply labor, but they also consume, and their consumption goes beyond housing and food.

colson July 11, 2006 at 6:48 pm

I don't understand Borjas. Lowenstein has all the evidence in the first half yet ignores it when it comes to Borjas statement. The fundamental point is that a job is a job – you are either unemployed or employed. That employed person will still consume regardless of the type of job they have. Borjas' statement relies on a distinction that all jobs are not jobs – that somehow some jobs escape the prior established points on manual labor.

Maxim July 11, 2006 at 9:49 pm

Surely it would hurt American doctors if most new immigrants offer the same services they do. It would hurt them in exactly the same way the native steel industry gets hurt when foreign steel is allowed to enter the country freely.

But it would benefit consumers by lowing the cost of medical services. It seems that all the tried-and-true arguments for free trade also apply to to this aspect of the immigration debate.

99 July 12, 2006 at 1:24 am

I think both Borjas and Card are correct; the former is talking about the short term, the latter the long term.

In the short term, sizeable increases in the numbers of lower skilled workers seem likely to exert downward pressure on the wages these lower skilled workers can demand (and though many such workers will inevitably be immigrants themselves, some will, of course, be American citizens). It seems pretty certain in the long term, though, that there will be no change to the workforce other than its size, caused solely by immigration. Immigration is just another form of population growth, and population growth is a basic input for economic growth. FWIW I also accept the criticism of Borjas's methodology (that is, that he overstates his case).

All in all, if I were a low wage worker, I'd rather see increased competion from immigrant workers than increased competion from a jump in female labor force participation. The former is likely to stimulate the economy more strongly — and hence provide more opportunities to sell my labor — than the latter.

99 July 12, 2006 at 1:43 am

*****Tim, I am very intrigued by the comparison of the realiability and quality of Mexicans vs. Americans. Though I personally do not doubt your statement (as it conveneniently confirms my priors), can you share your source(s)?*****

I'll share a hunch with you based on personal experience about why I think people often make such generalizations, and why they may well be valid.

I manage a small business that employs about a dozen people. We provide a service to consumers and businesses. Our workers get paid on a commission basis. A college degree is not required, though we certainly like to hire people with degrees. More important, however, are work ethic, common sense, and intelligence.

Long story short, the structure of the pay and benefits tends to attract a younger job applicant. Sometimes we get lucky and hire someone with truly outstanding abilities. But in general the sector we're in — and its attendant pay and benefit structure — is not perceived as a sufficiently stable or lucrative career choice for the typical older American worker — especially one with a family. So, most Americans we hire tend to be younger, and we often hire college students to work for us during the summer (which happily coincides with our busy season).

But we love to hire recent immigrants if they're qualified. For them, the opportunity we offer is a chance to make it in a job that requires the use of smarts more than muscles. And the pay can be quite good for someone with a strong work ethic.

Ain't no way your average 20 year old American college kid on summer break (especially if he goes to a prestigious school, which usually implies he's from money) is going to work as hard as the 30 year old from Turkey who's thrilled to be able to break into white collar America. (and yes, we recently hired an outstanding fellow from Turkey who won a green card in the lottery).

Perhaps it works the same in other industries. Perhaps when Americans and immigrant workers are compared head to head, the comparison is between different classes, ages, and life stages.

Just my two cents. But this really is how it works in my little corner of the economy. Immigrants, in general, outperform the Americans willing to work for us.

Brad July 12, 2006 at 4:40 am

Damn. Patrick beat me too it above. But I can expand… If they were competitive by price in the old country, they will be less competitive if they immigrate here, as the cost to employ them will undoubtedly be higher here. That cost could be offset by any advantage in having them close to home, but could also be increased by time zone advantages the globe gets you. Like if your researchers gather facts all day, go home, then wake up to a completed article because the author worked while they slept.

I'd ask Ted Balaker (Reason Foundation) what he thought about the percentage of workers who work best in office vs. those that work best remotely. It's definitely underestimated. That would figure into the math as well.

failingeconomist July 12, 2006 at 8:55 am

Patrick also beat me to it (but then I’d sort of expect that from our days on sci.economics)

US magazine writers are already faced with visa free foreign competition. It’s called email.

I sit here on my terrace in Portugal and tap out articles for TCS Daily, where I am in competition with Don Boudreaux (and others: although not very hard competition as Don writes so much better than I that given a choice, he’ll get published. I sorta fill in the gaps sometimes if you understand me). I also have just started doing book reviews for the Philadelphia Inquirer, I write occasionally for a couple of the London newspapers, contribute to a couple of think tank sites, even do some paid blogging here and there.

I’ve never met most of my employers, in fact at least three of the major ones I’ve not even spoken to on the telephone.

OK, we might call this trade rather than immigration but I can’t see that the effect is any different. I have visa free access to at least part of the US market for writers.

Tim Worstall July 12, 2006 at 8:56 am

Darn, Wrong log in. That above is me.

spencer July 12, 2006 at 10:24 am

There is an element of "self-selection" bias in the entire discusion of immigrant vs nonimmigrant analysis.

It is almost a truism that the individual immigrant is more of a risk taker and much more motivated and a harder worker then the
population pool the immigrant is drawn from or the population pool in the new country.
Otherwise the individual would stay home rather then undertake the difficult and risky task of relocating to a foreign culture.

John Dewey July 12, 2006 at 11:09 am

I agree with your point, Spencer. I wonder if expanding legal immigration will lead to a more normal – and less motivated – pool of immigrant workers.

Helen's_kid July 12, 2006 at 11:12 am

Before Americans feel threatened by job loss or wage reduction from foreign immigrants, they should prudently investigate the effects of local, domestic regulation on their ability to create income. It is a curse.
For instance, consider the constraints on an individual in Cortez Colorado, especially a transient vendor (and don't forget to get a city sales tax license). http://www.cityofcortez.com/permits.shtml
I picked this city at random, it may not be representative of the country as a whole, but anyone who has ever tried to operate a business anywhere in the U.S. knows what I'm talking about. Abracadabra! Blame the immigrant.

save_the_rustbelt July 12, 2006 at 12:51 pm

There are, according to pro-immigrant groups, about 1 million immigrants, almost all of them illegal, working in conctruction jobs in the U.S.

Illegals do not complain about OSHA violations, workers comp violations, wage-and-hour violations so they cea be employed and cheated much more readily and much cheaper than American workers.

So which Americans were displaced? Where did they go for work?

Construction is an industry where many of the supervisors came up through the ranks on the end of a hammer or seat of a bulldozer. If we source the basic jobs to illegals where do we get supervisors 20 years from now?

The idea that mass illegal immigration has minimal impact on labor markets is counterintuitive.

donny July 13, 2006 at 5:55 am

The use of immigrant labour, legal or otherwise, broadens the pool of talent. An intelligent Mexican is as capable of coming up through the ranks as an intelligent American is. Unless his boss is stupid enough not to make the best use of his potential. But that's not a public policy issue, it's an issue of management.
I own my skills and my ability to produce value. I don't own other people's need for my skills. In other words, I don't own my job; I only own my ability to do my job.
When I was a teenager some of my friends had under the table jobs at less than minimum wage. They did this knowingly. If you believe that "society" had a right to restrict this trade, then perhaps both sides were cheating "society". But I don't believe that the employees were being cheated.
There are a lot of people willingly and knowingly being "employed and cheated" to provide a better future for their families.

panasianbiz.com July 13, 2006 at 11:25 am

I stumbled upon this site while I was doing some online research. This is really a tough issue to resolve because there are so many nuances that the extremists often don't consider. Do immigrants steal jobs out from under legal citizens, or do they perform jobs, for the most part, that are necessary for our economic functioning but which most people don't want to do?

dj superflat July 13, 2006 at 1:20 pm

in the NYT article, he gives an inane example. he claims that immigrants "created" the gardening jobs in CA, by contrast to NJ where no one has a gardener. but this just shows that either (i) wages for gardeners in CA went down relative to what they are in NJ (which is why no one has one in NJ) and/or (ii) people who would have been relatively high-wage gardeners (like those in NJ) in an immigrant-free CA are instead doing something, creating competition and lowering wages for nurses, teachers, whatever. the thing i can't figure out (but some economist should be able to model) is how to measure the value of pushing americans out of service jobs and into other fields where they (e.g.) might creat myspace or cure cancer or whatever. put another way, if immigrant labor leads to more landscaping companies that make more money and pay taxes and provide benefits, etc., doesn't the increase the pie? so it seems like the simplistic answer is that you can't assume the size of the pie is stagnant, the issue is whether increased competition for the larger pie is better than lower competition for the smaller pie (pie of size X divided by a million gardeners, pie of size X plus whatever divided by 1.1 million gardeners). there seems no way to reliably do this math.

but i must say that i agree with the comments about the reliability of immigrant work — had same experience living in DC, where the likely-illegal immigrants did phenomenal work, worked incredibly hard, while the natives in crap jobs seemed far more likely to shirk. explanation seems obvious: raking weeds for $5/hour seems like a great deal if you el salvadorean, seems like a raw deal if you american (particularly if you're a member of a minority group tremendously opressed by the US over the years, and thus there's little love lost for a system that seems designed to screw you and keep you doing crap menial labor).

dj superflat July 13, 2006 at 1:25 pm

my final two cents: i can see the argument that immigrant work (largely menial) frees up americans to do better things with their talents. but if you're one of the unfortunate american who can't be freed up to do something better — that is, menial work is about all you're ever going to be good for — then immigrant labor screws you by increasing competition (and it's not just the numbers — it's the competition of people who are relatively delited to have the work). placing further burdens on the least fortunate and likely most disaffected americans seems unwise, but (somewhat vicious) competition is pretty much the engine that drives america. based on this, i would expect the left to oppose immigrant labor and its effects, the right to support immigrant labor and its effects. shows how much i know (or how consistent the left and right are in their reasoning).

John Dewey July 13, 2006 at 2:43 pm

dj superflat,

I disagree that immigrant labor places greater burdens on the "least fortunate" of the native born population.

In the first place, the true "least fortunate" are those afflicted with both physical and mental disabilities that make them only marginally employable. My group of "least fortunates" would not have been working in lawncare or construction or most food service jobs.

Second, it is not immigrant labor but rather government mandated minimum wages that burden young workers. Though not as efficient as immigrant workers, these young workers would still be employable if allowed to work for $3.00 or $3.50 an hour.

Third, lucrative crime opportunities and an impossible to kill welfare state allow unskilled native born workers an out. They don't face the immigrant's hard choice: show up and work hard or go hungry.

It's not immigrants that burden your group of "least fortunates". It's government laws, programs, and failures (to stop crime).

faultolerant July 17, 2006 at 5:03 pm

One good thing about all the illegal immigrants in Texas is that they're disposable. If you don't like how your maid, groundskeeper, repair man, car washer or whatever does the job….fire 'em and get another one. They've truly created a group of "commodity people".

Since they exist beneath the "Rule of Law" (As long as you don't inflict physical harm), you can treat them like any other piece of property. It's certainly a motivation for the illegal to work harder to keep that job – because there a dozens of illegals in line right behind him/her for that job.

So, in that sense I'm all for illegal immigration….there's no need to give a damn about the folks that work for you. And where else could a middle-class schlub afford a maid, groundskeeper, maintenance man and car washer……viva la immigracion!

John Dewey July 17, 2006 at 5:28 pm

faultolerant,

Do you really believe Texans are as uncaring as your post implies?

I've never seen evidence that small businesses – the major employers of illegal immigrants – treat such immigrants any different than they treat other employees. There is no question that small business owners like me must be demanding of their employees. But small business owners do care about the people who work for them – probably more so than do large corporations.

I know several illegal immigrants who are very grateful their employers helped them solve housing and legal problems.

It is probably true that some employers are just jerks. But those employers would be jerks to legal workers as well.

faultolerant July 18, 2006 at 9:32 am

Dear Mr. Dewey:

Do I believe Texans are uncaring? The honest answer is that Texans are no different that anyone else….care extends as far as interests do. If you're not interested in an issue, you largely don't care much about it.

You may elect to treat your employees in whatever fashion you choose. That's strictly your choice. If you knowingly and purposefully hire illegal immigrants, shame on you, you are a criminal and should be treated accordingly. That having been said, I firmly believe that if an individual decides to violate the law to get here then he or she has no claim on the law for his/her own protections.

This hoary argument about "human dignity" and the "rights of illegal immigrants" to anything is hogwash. It treats the US, and our conventions, as conveniences….to be ignored whenever and wherever the rules are inconvenient and to use as a shield (and hide behind) when those same rules work to the illegal's benefit.

I stand firmly behind what I said: Illegals have created a subculture of disposable people. The streets are literally littered with unemployed illegals all looking for a job. They're a commodity. Warm bodies to do a job and nothing more.

That's a natural result of overpopulation of low- or no-skill labor. Economics will tell you that there is little value in that which is superabundant. How much is a grain of sand worth to you? How about a bucket of sand?

Your comment about employers being "jerks" is a bit odd. Do you mean to say you will employ someone when they're not additive to your business effort? Kissing an illegal's ass is everyone's choice – but only a fool will hire a deadweight. The people that work for me either do the job for which they're paid or look for another. Given that most of them make exceptionally good wages, I rarely have a problem with them. (I'm not anti-immigrant – easily half of my employees are H1-B)

And what does being grateful have to do with anything? If you choose to help an illegal with a problem, you've made a personal choice. Bully for you. It doesn't mean jack when it comes to the job. You may assert the illegal in question will work that much harder – and you may be right – but with any commodity there are lots of nearly identical replacements.

The companies I hire to work for me (personally) employ, I'm sure, many illegals. These people clean my house, wash my cars, mow my lawn and let me devote my time to pursuits I find more valuable. If they fail to do the job I can dispose of them and get more, wich occurs with regularity.

You may disapprove of what I'm saying, but it doesn't make it any less true. The knife cuts both ways….the only problem is that illegals don't want it to work that way. Tough. That's the "other" side of illegal immigration.

John Dewey July 18, 2006 at 1:14 pm

faultolerant: "If you knowingly and purposefully hire illegal immigrants, shame on you,"

I do not, but your disdain wouldn't bother me in the least if I did.

faultoleratnt: "This hoary argument about human dignity and the rights of illegal immigrants to anything is hogwash."

I don't think I made that argument, but I do believe all humans have a right to be treated with dignity.

faultolerant: "The streets are literally littered with unemployed illegals all looking for a job. They're a commodity. Warm bodies to do a job and nothing more."

My guess is that illegals standing on the street are a tiny percentage of all illegal immigrants. Based on what I've read, I believe most illegal immigrants quickly find long term jobs, gain experience in those jobs, and become much more valuable because of that experience.

faultolerant: "I'm not anti-immigrant – easily half of my employees are H1-B"

Then you must be fortunate to be hiring in one of the few industries/occupations that are allowed to hire H1-B employees. I don't think construction companies and agriculture companies and food processing companies have the option to hire H1-B immigrants to perform low-skilled work.

faultolerant: "If you choose to help an illegal with a problem, you've made a personal choice. Bully for you. It doesn't mean jack when it comes to the job."

I totally disagree. All employees, legal or otherwise, will consider the way they're treated when they decide whether or not to remain loyal.

I don't think we disagree about job performance. Employees, legal or otherwise, must perform in order to remain employed. But that doesn't mean employees are commodities. To attract and keep the best employees, legal or otherwise, employers need to show respect for and compassion for the people they hire. Successful businesses, large and small, have figured that out.

I do disagree with your assertion that illegal immigrants are commodities. Your stating that they are commodities does not make it true.

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