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More evidence on immigration and wages
As of 2004 California employed almost 30% of all foreign born workers in the U.S. and was the state with the largest percentage of immigrants in the labor force. It received a very large number of uneducated immigrants so that two thirds of workers with no schooling degree in California were foreign-born in 2004. If immigration harms the labor opportunities of natives, especially the least skilled ones, California was the place where these effects should have been particularly strong. But is it possible that immigrants raised the demand for California's native workers, rather than harming it? After all immigrants have different skills and tend to work in different occupations then natives and hence they may raise productivity and the demand for complementary production tasks and skills. We consider workers of different education and age as imperfectly substitutable in production and we exploit differences in immigration across these groups to infer their impact on US natives. In order to isolate the "supply-driven" variation of immigrants across skills and to identify the labor market responses of natives we use a novel instrumental variable strategy. Our estimates use migration by skill group to other U.S. states as instrument for migration to California. Migratory flows to other states, in fact, share the same "push" factors as those to California but clearly are not affected by the California-specific "pull" factors. We find that between 1960 and 2004 immigration did not produce a negative migratory response from natives. To the contrary, as immigrants were imperfect substitutes for natives with similar education and age we find that they stimulated, rather than harmed, the demand and wages of most U.S. native workers.
In other words, if lots of Mexican carpenters move to California, we don't see the non-Mexican carpenters leaving in droves, due to lower wages.
Here is the paper. Here is a non-gated version. The article makes the interesting observation that if California were counted as a nation (and the U.S. not), it would receive the second largest number of immigrants per year of any country, with only Russia beating it out.
Posted by Tyler Cowen on March 15, 2007 at 03:55 PM in Data Source | Permalink
Comments
If the carpenters really didn't leave it is probably due to the housing
bubble.
Wait a couple of years and check again.
Or check Vegas and Arizona now, I think you will find some of those CA
carpenters. Where will they work now that the bubble has popped?
Posted by: save_the_rustbelt at Mar 15, 2007 4:20:04 PM
Russia? where does Russia get large flows of immigrants? ethnic Russians leaving other former soviet nations? Chinese in Siberia?
Posted by: DK at Mar 15, 2007 4:48:19 PM
Non-Mexican carpenters in CA are all out on workers comp. Back injuries I hear.
Posted by: gassie at Mar 15, 2007 5:02:48 PM
>where does Russia get large flows of immigrants?
most are from former soviet republics Tajikistan Azerbaijan Georgia Moldova Ukraine Armenia Kirghistan some are from China ( they settle mostly in Siberia ).
Almost all construction workers are from Tajikistan and Moldova, Azerbaijanes are car drivers and sellers in markets.
Posted by: Sergey Kurdakov at Mar 15, 2007 5:15:16 PM
Two words: opportunity costs.
Without immigration, California, which was fated to have vast amounts of new construction after 1960 due to its superb climate, would have attracted lots more American-born carpenters from other states.
I may have asked this before, but why do economists forget all their Econ 101 concepts like opportunity cost, supply and demand, and risk and reward when it's time to propagandize for immigration?
Posted by: Steve Sailer at Mar 15, 2007 7:41:50 PM
Smoke and mirrors, strawmen and other fallacies.
Look, "...immigrants have different skills and tend to work in different occupations then [sic] natives and hence they may raise productivity and the demand for complementary production tasks and skills."
Where are these complementary vocations that are different enough that illegal immigrants aren't likely to possess those skills? Masonry? What's the complement? Landscaping, harvesting, ditch digging, etc.? The only complement to any of these jobs is increased demand for them (which, I know, isn't a complement).
"To the contrary, as immigrants were imperfect substitutes for natives with similar education and age we find that they stimulated, rather than harmed, the demand and wages of most U.S. native workers."
That assertion is almost hysterically laughable. I'll dig up the stats on illegal immigrant education levels eventually, but I'm just taking a stab in the dark that it would be difficult to gather a representative native population sample of US citizens with education levels equally low. Further, the claim that illegal immiigrants stimulated the wages of and demand for "most" U.S. native workers is ridiculous. The leftists on here should be up in arms over pablum like this.
Also, I recognize that the post used the nebulous term "immigration" to address the concerns most frequently aired by illegal immigration opponents. Refusal to recognize the corrosive effects of 12-20 million illegals in this country isn't a viable solution to the problem.
Posted by: skh.pcola at Mar 15, 2007 7:44:07 PM
I may have asked this before, but why do economists forget all their Econ 101 concepts like opportunity cost, supply and demand, and risk and reward when it's time to propagandize for immigration?
Unless you think that non english speaking and largely immigrants are a perfect substitute for educated Americans then it is not a forgone conclusion that immigrants will lower wages.
Now one point that I think, from reading your other work, you may be picking up on is that there is an increasing return to human capital.
So while skilled and unskilled labor may technically be compliments, concentrating skilled labor boosts productivity even more.
We would be thinking about a production function like (S^1.4)(U^.3) where S is skilled labor and U is unskilled.
Here unskilled labor raises the marginal productivity of skilled labor but more skilled labor actually raises it more.
The exponents have to be pretty wacky to make a model like that work but given that the US, paradoxically, has the highest education level in the world and at the same time the largest shortage of skilled labor something of the sort may be going on.
Posted by: Karl Smith at Mar 15, 2007 8:04:15 PM
I think there's still a lot of sorting out to be done, but I think the best way of understanding the problem is this: Does native labor substitute for foreign born labor, or does native labor consume foreign-born labor as an input in its own production?
Anytime you increase the supply of some type of labor, you raise the surplus of those who consume the labor. If native workers consume foreign labor, i.e. if they use foreign labor as inputs into their own production, then greater foreign labor supply increases the productivity of native labor.
Let's say a native worker knowledgable in construction is likely to be a contractor (or sub-contractor). Then a greater supply of foreign born construction workers raises the native worker's wages, since the native worker consumes foreign labor.
This story isn't proven, but it is pretty likely. Native-born Americans are far less likely to be high-school dropouts than they were 30 years ago. I'm guessing that immigration (along with other more important factors) has been moving Americans into skills and professions that complement, rather than substitute for, foreign-born labor.
Posted by: Keith at Mar 15, 2007 8:56:13 PM
"Without immigration, California, which was fated to have vast amounts of new construction after 1960 due to its superb climate"
California didn't have a good climate before 1960?
Sailer's really grasping at straws now that the evidence is showing his "I hates brown people" routine for the joke that it is.
Hey, but let's hear Schaeffer tells us how immigration's going to turn all of America into Cudahy! It's so funny when Schaeffer generalizes wildly from one slected square mile.
Posted by: Keith at Mar 15, 2007 9:03:56 PM
Ad hominem slurs and ignorant generalizations seem to be the stock in trade for immigration boosters.
If you want to understand unskilled immigration's impact on African-Americans, economist George Borjas of Harvard did a study on it recently:
http://www.vdare.com/sailer/060924_crime.htm
Posted by: Steve Sailer at Mar 15, 2007 9:15:17 PM
Keith writes:
"California didn't have a good climate before 1960?"
I cited 1960 because that's when the period studied started: "We find that between 1960 and 2004 ..." Please try reading the paragraph Tyler posted before posting with your killer refutations of my comments.
Posted by: Steve Sailer at Mar 15, 2007 9:17:58 PM
This sounds a lot like Grossman's "Trading tasks" argument about offshore outsourcing: the foreign labour (abroad) is a complement rather than a substitute.
Posted by: Eric Crampton at Mar 15, 2007 9:32:58 PM
I am not going to comment on the content, but on the syntax. The paper has a single author. Why then is it written in the first person plural? Who is the "we" to whom the author(s) refer(s)?
Incidentally I too feel funny writing "In a previous paper (Yours Truly, 2004) I found that ...". But I have never gone so far as to invent an invisible twin for a co-author.
Posted by: John S. at Mar 15, 2007 9:51:34 PM
The Peri paper is trivially contrafactual. If Peri was right, Americans would be net moving to California to take advantage of the "opportunities" that the "complementary" immigrants are allegedly creating. The truth is Americans are leaving California in droves. This reality demonstrates clear immigrant competition, not symbiosis.
Peri also fails to consider the impact of immigrants on prices. Once you add the price impact (housing, congestion, etc.), immigration becomes a major net negative with large wage depression effects. A quick look at real wage trends, shows the adverse impact of immigration on wages in California.
The Peri model is essentially a “rigged game” where immigration can only have positive effects. In real life, the impact of immigration in California has been strikingly bad.
Of course, Peri doesn’t even mention the impact of immigration on schools, crime, etc.
Facts before theory.
Posted by: Peter Schaeffer at Mar 15, 2007 10:01:33 PM
Keith,
You may not like the evidence of how immigration is creating a new and ever larger underclass in the U.S.
However, before you make fun of the sad realities at hand, you should at least study the evidence.
Posted by: Peter Schaeffer at Mar 15, 2007 10:04:05 PM
Schaeffer just beat me to it. I wondered why the focus was on whether "carpenters" were leaving California. What I want to know is whether the quality of life in California improved with more immigration. The migration of people from California to other states that those states are preferable, while the continued migration from Mexico from California to Mexico indicates that the quality of life is still much better in California than Mexico. The point at which it will even out is when Mexicans will not prefer to live in California. Is the quality of life in Mexico going to improve that much? It seems doubtful to me. Could the quality of life in California decline dramatically? That strikes me as more likely.
Posted by: TGGP at Mar 15, 2007 10:08:04 PM
Cowen: I'll ask the same question I asked Peri (answer at the link).
What's the price tag on the massive PoliticalCorruption associated with IllegalImmigration?
What's the price tag on giving the MexicanGovernment even more political power inside the U.S.?
Please, factor that into the bottom line and then get back to us.
Posted by: Read Peri's Response at Mar 16, 2007 12:19:33 AM
In the Peri model, Americans should be net moving to California in droves. However, in real life over 2 million Americans left California in the 1990s and the outmigration continues to the present. See Movin’ Out Domestic Migration to and from California in the 1990s for a report on the subject.
According to Saying Goodbye California Sun, Hello Midwest Americans are still leaving California at the rate of 100,000 per year. The NYT article makes it quite clear why. Real wages are much lower in California than elsewhere, so exiting is an obvious choice.
Note that Peri never even considers the potential impact of immigration on prices in California. The most recent Census department data shows that the cost of living in California is much higher (roughly 45%) than the rest of the US, making real wages much lower. This is exactly contrary to what Peri predicts.
Somehow Peri missed all of this.
Posted by: Peter Schaeffer at Mar 16, 2007 1:24:52 AM
Can anyone tell me why Russia receives so many immigrants, and where they might be coming from? I apologize for my naivete.
-Mike
Posted by: Mike at Mar 16, 2007 8:54:17 AM
While there are no good stats comparing cost of living between the various states -- the best data is for the cost of living of management or the top income quintile. But, if you deflate California nominal state gdp or income by this second best series you find that real income or real per capita gdp in California has fallen from one of the highest in the country to well below average.
It is hard to ignore the very strong relationship between relative real income in California and the growth in the size of the immigrant population.
So I wonder what the results would be if you compared the real wage growth of carpenters in California to the growth in the real wage of carpenters in other states. Wouldn't this be a superior test of the impact of immigrants then the test the author conducted?
Posted by: spencer at Mar 16, 2007 10:19:32 AM
spencer,
I agree your test would be superior. However, Peri didn't even consider price impacts. Once you do, immigration into California starts looking very bad.
Posted by: Peter Schaeffer at Mar 16, 2007 11:32:52 AM
Interesting debate here. Just a point from the real world. . .
In a year or so something known as the Transportation Worker ID Card (TWIC) will be imposed on all workers in the transportation sector across the country. Included in this population are owner-operator short haul truckers serving the Ports of Los Angeles, Long Beach and Oakland -- all in California.
TWIC requires all transportation workers in the US to have a green card (in addition to undergoing a background check). Because the population of short-haul truckers in California is dominated by immigrants, it is now now widely recognized TWIC will decrease, perhaps precipitously, the supply of short-haul truckers available to move import and export cargo through the ports.
California politicians of both parties are worried about this. They fear that the already congested ports (all those Chinese imports, you know) will become dysfunctional because of a lack of available truckers to move freight containers. A similar labor shortage affecting longshore workers in 2004 caused massive problems not only in California but across the nation. The business community is concerned about this as well, and expects trucking rates to climb as importers and exporters scramble to find trucking services.
Ironically, while we move to limit the pool of available labor, there is a critical shortage of truck drivers nationwide. Meanwhile the demand for trucking services has never been higher, as we settle into our new "distribution economy."
Classic supply and demand suggests that trucking rates will jump significantly in the near future. But there is still the overarching question: Where are the Americans who actually WANT to drive trucks for a living?
Posted by: Anonymous at Mar 16, 2007 2:37:29 PM
TWIC requires all transportation workers in the US to have a green card (in addition to undergoing a background check). Because the population of short-haul truckers in California is dominated by immigrants, it is now now widely recognized TWIC will decrease, perhaps precipitously, the supply of short-haul truckers available to move import and export cargo through the ports.Please correct me if I am mistaken, don't you mean "dominated by illegal immigrants"? Shouldn't legal immigrants be mostly unaffected by this requirement?
Classic supply and demand suggests that trucking rates will jump significantly in the near future. But there is still the overarching question: Where are the Americans who actually WANT to drive trucks for a living?You answered your own question. The Americans who want to drive trucks for a living don't do so because the pay isn't high enough.
Or am I missing something?
Posted by: bob montgomery at Mar 16, 2007 3:46:57 PM
A different study with a different result.
A recent study by the Pew Hispanic Center about Latinos and the construction industry offers an opportunity to put these claims to the test.
According to Pew, 60 percent of new construction jobs between 2004 and 2006 went to foreign-born Latinos. Forty-six percent went to those who have arrived since 2000. Pew estimates that two-thirds of recently arrived Latino immigrant workers are illegal.
That means that, at a minimum, about 30 percent of all new construction jobs went to illegal immigrants.
Posted by: Scott Gustafson at Mar 16, 2007 5:20:36 PM
But there is still the overarching question: Where are the Americans who actually WANT to drive trucks for a living?
I know one. He's waiting for his probation to end so a drug possesion charge is expunged from his record. He's thinking long haul tho.
Posted by: triticale at Mar 16, 2007 8:08:32 PM
