Sunday, July 09, 2006

Economists and Immigration

Like most right thinking people I've always thought that immigrants to a country increase the labour supply but in needing goods and services they also create an increased demand for labour.

Today I have discovered the technical term for this is that the "demand curve also shifts out" [registration required after first read], or so says labour economist David Card. Back in 2005 Card produced this research to ask "Is the New Immigration Really So Bad? In his abstract he says
This paper reviews the recent evidence on U.S. immigration, focusing on two key questions:
  1. Does immigration reduce the labor market opportunities of less-skilled natives?
  2. Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated?
In his conclusion he finds that the relationship between the wages of American born high school dropouts and American born high school graduates has remained fairly constant since 1980. This suggests there is no negative impact of immigration on wages.

He also concludes that while the 40% of U.S.A. immigrants having no High School diploma will find it difficult to catch up with the average wage of native-born Americans, their children find it increasingly easier to earn similar sums to the children of those same native-born Americans.

Card's final sentence is worth quoting: "The relatively strong educational progress of second generation immigrants, together with the limited evidence of adverse effects on less skilled natives, suggest that the new immigration may not be so bad after all."

There's an interesting article, by Roger Lowenstein The Immigration Equation, [registration required after first read] discussing these issues, the work of David Card and the conflicting work of George Borjas. Borjas asserts, contrary to Card, that President Bush's proposed guestworker programme will lead to more foreign born workers.
The typical rationale provided for the guestworker program is that the country "needs" immigrants to keep many of its industries running. After all, many immigrants "do jobs that natives do not want to do."

These assertions are among the most persistent and hard-to-shake myths regarding the labor market impact of immigration. Supporters of the guestworker program argue that entire industries would vanish if American employers did not have access to cheap foreign labor. The vast majority of cab drivers in New York City are foreign-born (82 percent in the 2000 Census). Would all those yellow cars be piled up in some junkyard if those immigrants had not been admitted? Of course not. Fewer than 10 percent of the cab drivers in Cincinnati and Detroit are foreign-born. Nevertheless, the cab industry in those cities manages to survive and provide services to the local communities. It may cost a little more to ride those cabs, but the jobs get done.

What past immigration has done — and what the temporary worker program will continue to do on a potentially larger scale — is to depress wages and increase the profits of the firms that employ the immigrants. The labor market effects documented in this paper suggest that the proposed temporary worker program will expose many more Americans to competition from foreign workers, will generate higher earnings losses for workers, and will lead to an even greater redistribution of wealth from labor to those who buy and use immigrant services.
Even though Borjas's work is well researched and sourced, his examples of cabbies in Cincinnatti and Detroit may not serve his purpose. If people previously employed as cabbies can get better paid, less stressful employment with other benefits elsewhere they may well take it. It is sometimes the lack of decent other options that keep people in a type of work. Are there better opportunities for people with the typical background of an American born cabbie in cities such as Detroit and Cincinnatti? If those other opportunities existed would the jobs still be taken by American born workers? I think the answer is probably not, which would lead to a readjustment in the local cabbie industry.

I think Borjas's work falls down on his belief in labour mobility. Is, as Borjas argues, a building company in Michigan really going to relocate to California because of the availability of cheaper, immigrant labour? Some may do. But the majority won't. And that's because many companies are run by people who have ties to an area. People who don't want to move. People who would only move for substantial advantages and a substantially better life. If you owned a reasonably profitable construction company in Michigan would you move, for slightly more profit, to California? Who would do the construction in Michigan?

If Borjas is right, and immigration adversely affects the wages and employment prospects of the already low waged should immigration be reduced? Is it just my own liberal prejudice saying that immigration is a G-O-O-D thing and should continue? Is my support for immigration screwing over the already low paid?

Fundamentally I believe that mobility of labour is a good thing. Diversity of communities is a good thing. Any change disproportionately affects the low paid. Isn't it better to campaign for the better treatment of immigrants ***and*** an end to seeing labour as just another cost to be lowered as much as possible?

No comments: