Another Academic Food Fight
Today Harvard economist George J. Borjas declares himself the victor in a debate that’s actually far from settled about the impact of immigration on wages. In a disingenuous Wall Street Journal op-ed, he writes: “Recent research has finally begun to demolish the peculiar (yet influential) notion that an influx of more than 16 million foreign-born workers, which increased the size of the workforce by 15 percent (from 1980 to 2000), had little impact on wages.” Borjas then goes on to explain how his own widely cited research with Lawrence Katz found that in the short-run, wages of high school dropouts fell by 8.2 percent due to immigration and, in the proverbial long-run, 4.8 percent.
But the Borjas and Katz research is by no means the only respectable work exploring the question, which poses enormously difficult research challenges. Brad DeLong has a nice summary and analysis of the longstanding methodological debate between Borjas and Katz and Berkeley’s David Card, whose work has found a “surprisingly weak relationship between immigration and less-skilled wages.”
The most significant new study about the subject, by economists Gianmarco Ottaviano and Giovanni Peri, concluded that the wage effects of immigration were positive for all native workers with at least a high school degree and neutral to mildly negative (minus 0.4 percent) for those without a high school degree. Ottaviano and Peri’s methodology takes into account the reality that immigrants and low-skilled native workers tend to end up clustered over time in different job categories.
A 2003 Dallas Fed study by Pia M. Orrenius and Madeline Zavodny came up with yet another conclusion: “Although increases in the share of newly arrived immigrants have no statistically significant negative impact on the wages of low-skilled natives, increases in the share of those who are already in the U.S. when they adjust status have a small but significant negative effect on low-skilled native wages. The biggest negative effect however, comes from the stock of all immigrants, which is also the immigrant group characterized by the most U.S. experience. Taken together, these findings suggest that the process of assimilation makes immigrants more substitutable for natives and hence increases wage competition.”
It was interesting that Borjas’ co-author Lawrence Katz was quoted in a recent Times article as saying that he was surprised by the attention their study received. “This was not intended,” he said. Nonetheless, Borjas is using the very same work under his own highly public byline to claim mission accomplished when it isn’t. No one is questioning Borjas’s credentials as an economist, which are stellar (Paul Krugman for one thinks highly of him). But Borjas has clearly become an advocate who isn’t presenting a balanced portrait of the ambiguous findings of the best research to date. Note, for example, that he is a member of the policy board for the Center for Immigration Studies, which vociferously advocates for tough enforcement and little else.
One of the many reasons that immigration reform is such a brutal issue is that the research is so inconclusive about the extent of the economic costs and benefits arising from inflows of foreign workers. It doesn’t help when even one of the most knowledgeable academic analysts of the subject won’t acknowledge that he knows less than he claims to.
Don't forget the commentary of Princeton economist Alan Krueger. [warning: link goes to pdf] He writes:
April 18, 2006 9:36 AM | Reply | Permalink
1. The suddent interest in disproving Borjas is certainly interesting. Is some group behind all of the attempts to disprove his study or behind attempts to get the other side's opinion out there?
2. Even if illegal immigration is a net financial benefit for the U.S. (which based on living in Los Angeles I highly doubt), aren't any positives heavily outweighed by the negatives?
3. If it's a net financial benefit, isn't it a dangerous situation to have a system that profits off illegal activity? Doesn't that lead to corruption among not just our politicians but government agencies? For instance, if a government agency depends on illegal immigration for a certain part of its income, won't it try to maximize that income by, for instance, "looking the other way" on immigration enforcement? What monetary value can be placed on avoiding corrupt politicians and agencies?
See the comment I left here (TLB) for the many other costs of illegal immigration.
April 18, 2006 9:59 AM | Reply | Permalink
I wish we could have discussions which differentiated between illegal and legal immigration.
My girlfriend is a legal immigrant, and has a good job. I very much doubt that she has driven down wages, because she really has no interest in working for less than the market rate. She also has a Permanent Resident Green Card which allows her to move freely between jobs.
An illegal immigrant, or the Guest Worker, has no such options. We had a contractor in our office who was here on an H1-B and it was near impossible to hire him on full time because of the processes involved.
An illegal immigrant is in even worse condition, because if they complain at all about wages their may be repercussions.
So it seems to me that these guys are just talking past one another and may very well both be right. But nobody seems to be interested in finding out exactly what is going on, because they are too interested in calling each other names.
April 18, 2006 10:33 AM | Reply | Permalink
I think most of the "studies" are extremely short of hard data, since downward pressure on wages is virtually invisible. Wages "would have risen" with inflation, but didn't. Wages "might have risen" but for lower cost competition from masses of immigrants. So the effect on wages of mass immigration is partly masked, and in addition many jobs pay cash and are not recorded or reported properly.
Wages in the construction industry, the meatpacking industry, in casual labor industries like lawn mowing and farm work, restaurants, hotels, and plant nurseries have all fallen (or not risen) because of mass immigration. Nobody can get ahead. These jobs encompass the lower two quartiles of the US workforce, who compete with 3rd world workers eager for substandard wages.
Shifting factories overseas and outsourcing hightech service jobs add to the woes of American workers; these are the other face of the same economic coin.
General prosperity has been yanked out of American hands by elitist factory and business managers, who want more profit through lower costs, and who care nothing for the creation of a prosperous market in the US.
Cleverly, the corporatist dream of fobbing off labor costs on somebody else have come to fruition. We see uninsured poor workers using expensive Medicare and emergency health services, and getting little subsidy checks called Earned Income Tax Credit from their fellow citizens. Wages are kept low through brutally globalized competition from workers living in shacks, or 20 to an apartment. American workers live in their own higher cost economic environment and can't prosper when they get paid 3rd world wages.
All this has been aided by a foolish and treachorous intelligentsia and religious establishment, and the leftwing of the Democratic Party. Amazing.
No wonder the lower and middle economic classes of workers are steaming, finally, and ready to throw all the bums out in November.
April 18, 2006 1:16 PM | Reply | Permalink
I guess it is just pure coincidence that 10 years ago, all these low end jobs in Houston paid $5. Now, ten years later, those same jobs STILL pay $5, while the cost of living has doubled.
And of course the enormous influx of 3rd world labor has NOTHING to do with pumping up the supply of labor to take these jobs.
You are a neoliberal propagandist and you are aiding and abetting the overclass that is the worst enemy of the majority of Americans. That makes you a traitor in my book, and guilty of treason (look it up in the constitution). I ask the Justice Dept to indict for treason you and all other establishment propagandists who write in favor of this ruinous mass immigration.
My documentary/book in progress is at http://www.leftwingmediamachine.blogspot.com
April 18, 2006 1:21 PM | Reply | Permalink
Well I just read a bunch of these articles. I don't believe them. They are essentially supply-and-demand simulations. A lot of data goes in (so it looks real official) but it is necessary to make many assumptions too. Change the assumptions and you change the conclusions. And the conclusions are not checked against any real world experience. So IMHO it is pretty straightforward to get whatever answer you want, depending on the assumptions you put in.
In this case, economics really is the dismal science.
April 18, 2006 3:08 PM | Reply | Permalink
So I did my own study. (I mentioned it on another thread.)
A most remarkable statistic in these debates is this: The median wage for high-school dropouts is almost constant from state to state! ($9 or $10 / hour) Meanwhile the percentage of illigmigrants varies a factor of ten.
It is these high-school dropouts we worry lose jobs and wage levels due to the immigration.
I noticed, it's hard to find any other employment categories that are so constant from state to state. Unemployment usually varies a factor of two or more. Take a look at some statistics www.oesc.state.ok.us/lmi/publications/StateRankings/ OKStateRankings2002.pdf
Average income varies a factor of two from $24K to $45K. Median family income varies a factor of two from $44K to $83K. Median wage for carpenters varies over a factor of two from $10 to $24 per hour. Any statistic you can think of has great variations among states.
So what is keeping the median wage for high-school dropouts so constant? Some factor that works on a national scale.
I think the answer is US citizenship. It doesn't make sense for a US citizen to take a job that pays much less than $9/hour, and forgo whatever opportunities to get by without a job.
So my hypothesis is that large-scale immigration is pulling down the unskilled wage, but US citizens dropping out of the labor market sets a robust floor to wages, that is pretty constant across the US.
April 18, 2006 3:31 PM | Reply | Permalink
On the other hand, we are also hearing silly claims from Nathan Newman and others that the very counterintuitive study of Mr.Card (that falling real wages has nothing to do with illegal immigraton) and others merits especial consideration because of the liberal viewpoint of the author(s); certainly their study seems to have quickly made it out of the obscure reaches of academe and onto the political firing line in record time. And boy are the big corporations pleased.
April 18, 2006 4:52 PM | Reply | Permalink
Victor,
Just FYI, one of Card's other big areas of study with Alan Krueger relates to the minimum wage. Without going into the details, they found pretty strong evidence that increases in the state minimum wage actually increased employment, contrary to conventionasl economic theory. That work did not make the "big corporations pleased." If there's a consistent theme in Card's work, it's that conventional supply and demand economy theory doesn't always play out that way in practice. That can lead to liberal or non-liberal conclusions, but that's kind of what academics should be testing in ways that we can all wrestle with, no? --Greg
April 18, 2006 5:20 PM | Reply | Permalink
Immigration (illegal and legal) drives up the price of land. It's simple supply and demand. Those who already own land benefit. Your typical unskilled worker does not benefit.
The effect on wages may well be impossible to figure out using the available data. Real wage calculations do not cope well with the problem of asset price inflation.
April 20, 2006 7:42 AM | Reply | Permalink