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Supply and demand and immigration

Posted By Russ Roberts On July 11, 2006 @ 11:52 am In Cafe Conversation,Immigration | Comments Disabled

Do immigrants lower wages of native born Americans? Those who say yes, such as George Borjas in this New York Times Sunday Magazine piece [1] 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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[1] this New York Times Sunday Magazine piece: http://www.nytimes.com/2006/07/09/magazine/09IMM.html?_r=1&pagewanted=all

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