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Immigration and wages: the latest
From Ottaviano and Peri:
This paper estimates the effects of immigration on wages of native workers at the national U.S. level. Following Borjas (2003) we focus on national labor markets for workers of different skills and we enrich his methodology and refine previous estimates. We emphasize that a production function framework is needed to combine workers of different skills in order to evaluate the competition as well as cross-skill complementary effects of immigrants on wages. We also emphasize the importance (and estimate the value) of the elasticity of substitution between workers with at most a high school degree and those without one. Since the two groups turn out to be close substitutes, this strongly dilutes the effects of competition between immigrants and workers with no degree. We then estimate the substitutability between natives and immigrants and we find a small but significant degree of imperfect substitution which further decreases the competitive effect of immigrants. Finally, we account for the short run and long run adjustment of capital in response to immigration. Using our estimates and Census data we find that immigration (1990-2006) had small negative effects in the short run on native workers with no high school degree (-0.7%) and on average wages (-0.4%) while it had small positive effects on native workers with no high school degree (+0.3%) and on average native wages (+0.6%) in the long run. These results are perfectly in line with the estimated aggregate elasticities in the labor literature since Katz and Murphy (1992). We also find a wage effect of new immigrants on previous immigrants in the order of negative 6%.
I have yet to read the paper. Here is an ungated version.
Posted by Tyler Cowen on July 24, 2008 at 01:06 PM in Economics | Permalink
Comments
Ok.
So basically in the long run in response to the increased supply of unskilled labor, there's simply less capital investment and more reliance on labor. Everything rebalances and wages don't decrease, all of the natives may be slightly better off in the long run.
That's fine and all, but are we allowed to talk about whether we'd prefer to live in a country with 20% of the population at the unskilled labor wage level, or 40% of the population at that same wage level?
If we are, and I don't see why we shouldn't be, then I'm going to vote for the former. I have a choice to very marginally increase my buying power in the long run, at the cost of radically increasing the size of the lower-class, I'll pass thank you. And so will a lot of people.
This is also not taking into account cultural effects, which are very important.
Posted by: BillWallace at Jul 24, 2008 4:01:20 PM
I had found the link to the Octaviano and Peri study a week or so ago at another web site and went through it at the time. It struck me as exceedingly narrow in its scope --- this, despite criticizing previous studies by Borjas and others as too narrow, a drawback in their terminology of "the fallacy of the partial.
......
Here, in more detail, is what they say on pp. 31 - 32:
"6.1 The Fallacy of Partial Effects
Most existing empirical studies on the effect of immigration on wages (including Borjas, Freeman and Katz,1997; Card, 2001; Friedberg, 2001; Section IV—but not Section VII—of Borjas, 2003; and Borjas, 2006) carefully estimate the partial elasticity of native wages to immigration within the same skill group (often taken as an education-experience group) and treat this elasticity as “the effect of immigration on wages”.23 As we illustrated in Section 3.3, the partial effect, described in equation (12), is uninformative of the actual overall effect of immigration on wages. To evaluate that we need to consider the entire distribution of immigrants across skill groups, the cross effects among groups and the adjustment of capital. More importantly, the partial elasticity (12) is likely to be negative in most reasonable models as long as immigrants are closer substitutes for natives in the same group (education-experience) than they are to natives in other skill groups...."
......
What's revealing here, ironically and unconsciously, is that the same criticism of "partial effects" of immigrant workers --- especially in the low-skilled category the two authors focus on --- can and should be directed at their focus. How so? In several ways:
1) The failure to consider the long-term effects of such low-skilled immigration on the wage-levels of native-born Americans in the same category;
2) The even more blatant failure to consider the long-term spillover social costs of such low-skilled immigration, overwhelmingly out of Mexico and Central America.
Such as the growth of early adolescent, teen-age, and young adult Hispanic gangs in communities that are violent, often deadly, and often connected with larger gangs elsewhere in the States and to drug-dealers there and south of our border.
-- Example: In Santa Barbara where I have lived with my family for 43 years, there are now several violent Hispanic gangs that clash regularly with one another . . . openly, whether downtown or along the beach area. In the last year or so, there have been 4 such violent deaths . . . two of them caused by 15 year-olds. On July 4th, the annual fireworks display on the downtown beaches --- which draws tens of thousands of spectators from around California --- at least two gangs clashed, one death due to stabbing occurred, and several knife-attacks that wounded a few other teen-agers occurred. In a similar vein, illegal immigrants have attacked passers-by on foot or on bicycles or sitting in cars.
-- Social Costs here. They are numerous, even now in the short-term. For one thing, taxes for more police protection. For another thing, more taxes for social programs to deal with the children and parents of dysfunctional families to try stemming the growth of gangs. For a third thing, Santa Barbara --- a city of 90,000 and traditionally peaceful and low-crime --- depends mainly on tourism for its business. Already there have been letters in the local newspaper from out-of-towners sayng that they now are apprehensive about visiting downtown Santa Barbara. (Two of the stabbings that led to deaths were in daylight in the center of downtown, right in a tony shopping area.)
--- Added social costs: To judge by the stream of letters to the local newspaper, a fair number of growing Santa Barbara citizens are increasingly worried themselves about visiting public spaces that, traditionally, in our city, have been impressively safe.
3) Mid-Term and Long-Term Educational Costs. The drop-out rate of Hispanics from the Los Angeles school system --- they are now the largest ethnic group in that system --- is around 60% in high-schools. The higher the drop-out rate, the more likely these teen-agers will have few occupational skills, will likely get in trouble, and will in some measure join violent gangs. Over time, a new ethnic-based underclass will surely emerge.
--- Somehow none of these costs are factored into by the two economists, themselves critic of the "fallacy of partial effects."
......
More generally, though I have a Ph.D. in both economics and political science, I am constantly amazed at how ineffectual economic studies tend to be when they move outside a narrow focus on strictly economic issues --- say, fiscal policy, monetary policy, and a handful of other topics --- and come up with essentially policy recommendations based on "partial" and hence "fallaciously misleading" cost/benefit analysis. It doesn't matter whether the policy advice is explicit or (as in the current Ottoviani and Peri paper) implicit.
The economic analysis in most of these studies is usually marred by a variety of faults: partial equilibrium, an excessively narrow focus on costs and benefits, a focus usually on a few years of data, a failure to consider social and other non-economic spillovers, and so on. If, to make things worse, the economic modeling entails dummy variables, interaction variables, or logistic regression techniques (where the outcome or dependent variable is itself qualitative), the R-square coefficient of determination is usually flawed or too low if not flawed for policy advice . . . even leaving aside, mind you, these other, more fundamental problems.
......
The upshot?
Anyone who takes this Octaviani-Peri study as justifying the continuation of large-scale immigration of low-skilled workers --- legal or illegal, it doesn't matter --- is either someone who knows little about social policy, statistical modeling, or political sagacity. A harsh criticism? Let those who believe it come up with specific criticisms of this detailed analysis that I have set out here.
.....
Michael Gordon, Aka, the buggy professor, http://www.thebuggyprofessor.org
Posted by: the buggy professor at Jul 24, 2008 4:21:35 PM
Just noticed that I called one of the authors of the immigration study "Octaviani." It should be Ottoviano. My fault. Not seeing as well as I'd like at monitor distance from my eyes, just having had cataract surgery two days ago, with some blurring still in one eye.
Michael Gordon
Posted by: thebuggyprofessor at Jul 24, 2008 4:26:36 PM
OK, so the buggy professor doesn't like immigration.
But what's wrong with focusing on the narrow question of how immigration affects wages? That isn't to say that immigration doesn't have any other downsides or upsides, just that it's often better for research to focus carefully on a single well defined question, not to try to answer all questions at once. I'm sure that another paper could be written about the impact of immigration on crime, for example...if not, why don't you write one?
Posted by: ed at Jul 24, 2008 6:04:08 PM
The job market for high schools students is depressed. Was that factored into the survey? How about the effect of immigrant labor on senior citizens who have college degrees & hold part time jobs to supplement their social security checks? The 6% depression on the wages of previous immigrants is most telling. In essence, legal immigrants, who have followed the rule of law, are most negatively affected by rampant illegal immigration. The ramifications are that the 6% adverse effect starts a vicious cycle where the advantages of waiting for legal immigration is less attractive to potential immigrants, making further illegal immigration more attractive, creating additional negative influence on legal immigrants wages. Rinse and repeat. Seems like Benjamin Disraeli's quote on "Lies..." is appropriate.
Posted by: Jason Armstrong at Jul 24, 2008 7:09:53 PM
I've heard that the #1 group whose wages are hurt by unskilled immigrants is the previous wave of unskilled immigrants. Shouldn't we try to stem the flow of immigration, if only to give the current group of migrants a few years of better wage growth, to help them get established, etc?
Also, I keep checking the box "remember personal info" but this blog doesn't seem to remember me. And must we always fill out a fake email? So irritating.
Posted by: Erik at Jul 24, 2008 7:15:42 PM
That's fine and all, but are we allowed to talk about whether we'd prefer to live in a country with 20% of the population at the unskilled labor wage level, or 40% of the population at that same wage level?
If our lower class is 20% smaller by limiting immigration, how much larger is the class below that in the countries from which workers would have been emmigrating? Millions of people are obviously happy to exist, usually temporarily, in our lower class. Is St Patrick's Day so hard to live with that you would prefer so many live a worse life?
Posted by: false_cause at Jul 24, 2008 7:46:48 PM
1) "OK, so the buggy professor doesn't like immigration" -- Ed
No, Ed --- just the contrary. I am opposed to more low-skill immigration, and would be happy to see our country switch to a policy of immigration that emphasizes needed skills. If those immigrants are from Mexico or Central America, so much the better . . . or, more accurately stated, who cares?
2) "If our lower class is 20% smaller by limiting immigration, how much larger is the class below that in the countries from which workers would have been emmigrating? Millions of people are obviously happy to exist, usually temporarily, in our lower class. Is St Patrick's Day so hard to live with that you would prefer so many live a worse life?" --- false cause
(i.) Well, false cause, let's take Mexico. When I was born 69 years ago --- just before WWII erupted in Europe (1939) --- Mexico was a sparsely populated country of 19 million people. By the end of this end, its population will have essentially gone up six-fold to 110 million-plus. Assuming I live another 12 years or so, the population in one man's life-time will have risen more than seven-fold.
When, exactly, did USA citizens have a say in influencing Mexican birth policies and population control? When did we have a say in the agreement reached by the corrupt, authoritarian PRI --- the Institutionalized Revolutionary Party --- and the Catholic Church that prohibited the propagation of birth control techniques? When, to go on, did the United States insist, officially or otherwise, that corruption and tax-evasion and drug-cartel gangsterism should become rife in Mexico, that the distribution of income and wealth and literacy should be lopsidedly dished out among the 110 million Mexicans, and that Mexicans in large number should discriminate against their Indian population . . . the official estimates of which are ludicrously small and unreliable?
All the while, of course, that the Mexican government has been encouraging as many low-skilled Mexicans to migrate to the United States, both as a safety-valve for its own failed policies at home and as the second or third largest source of foreign revenue that the Mexican immigrants send back home.
Yet you say that US citizens seem to have a duty --- moral, apparently --- to offset these ills in Mexico by allowing apparently as many illegal immigrants from south of our borders as possible.
.......
(ii.) Let us continue in this moral manner. Mexico's official per capita income, set out in PPP, is about $13,000. Guatemala's per capita income is roughly a quarter of that . . . in effect, about the same gap below Mexico's as Mexico's per capita income is below the US's.
Please let me know when the Mexican government and the Mexican people decide it would be a good thing to let in as many Guatemalan immigrants, legal and illegal, as you expect the US to do for Mexican immigrants? And please let me know when, if the Mexican government continues to protest the current US policies --- supported overwhelmingly by the American people (and electorate) --- to halt illegal immigration from Mexico when the Mexican government has halted its policies of evicting all Guatemalan immigrants from its country?
And should there be any Guatemalans actually living in Mexico despites its eviction policies, please let me know when the Mexican government will allow the Guatemalan candidates for that country's presidency to campaign in Mexico while letting those Guatemalans in Mexico vote openly for their candidate of choice?
.......
(iii.) You also seem convinced that millions of low-skilled immigrants --- whom you identify as living in our lower class --- will be there temporarily. Will you kindly let the L.A. School Board know, then, how it can drastically reverse the existing drop-out rate of Hispanic students, some 60%$ or so, from high school before graduation. Or do you have an alternative economic formula you can offer all of us how drop-outs will only be temporarily in "our lower class."
Or maybe you think the drop-out rate is linguistic, a problem of mastering English. Odd,no? That problem doesn't seem to have the same impact, that linguistic problem, on Californian residents of Asian background, especially from North Asia and India. About 45% of the entering class at UC Berkeley --- which selects 1 out of 10 applicants (already in the top 12% of California graduating high school students) --- are Asian, though the total percentage of the California population is 12% . . . which includes South Seas Asians, who do less well in school.
........
(iv.) Finally, kindly let the police force in Santa Barbara and the tax payers here --- not to mention a thousand or so businesses of all sizes dependent on tourism --- what your formula is for dealing with the surging growth of very violent Hispanic gangs, which didn't exist 10 or 15 years ago despite a fairly large but stable and peaceful and hard-working minority of Mexican- and other Hispanic Americans. The chief of police here, a very good fellow, is one of those Hispanics, and I'm sure he would be delighted to get your advice on how to stop the violence, whether by more costly policing or more costly social programs or more costly . . . well, exactly more costly what?
And should you not have such advice to give, I am sure that the taxpayers in our community would gladly have you tithe way into the future by volunteering to send in, say, 10% of your income to offset the rising local taxes here . . . all this, you understand, quite apart from the losses suffered by local businesses as tourists begin to avoid Santa Barbara if violence continues to swell.
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Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
Posted by: the buggy professor at Jul 24, 2008 9:34:06 PM
false cause,
You beat me to the punch. I would just add that low skill immigrants to the US usually make a quantum leap up in wages from where they were in the old country. This in my opinion dwarfs the ~6% drop in wages of previous low skill immigrants.
Posted by: happyjuggler0 at Jul 24, 2008 10:13:38 PM
buggy professor,
A staggeringly large amount of the problems you outline is caused by drug prohibition in the US. This is what US gangs feed off of, and what to a large degree is causing skyrocketing violence in Mexico, and what decimated Colombia.
Not only does this directly cause violence (turf wars for black market rents, especially after the police crack down on previously quiescent territorial jurisdiction take out an incumbent), but it turns the locals of poor neighborhoods against the cops. Why the latter? Because most people rightly consider that the only true crimes are crimes against liberty, and they see nothing wrong with dealing in durgs any more than they see anything wrong in selling liquor at the corner store. Thus enforcing the drug laws makes cops the bad guys, which makes citizens refuse to rat out anyone to the cops. When cops stop being bad guys for putting consenting adults in prison, then locals will start snitching on the real criminals who violate the liberty of others.
I also agree that you are off topic. I thought this was a wage discussion regarding immigrants.
Posted by: happyjuggler0 at Jul 24, 2008 10:26:45 PM
Continuing off topic:
I agree that LA, and all other urban areas in the US, regardless of immigrant level, have done a pathetic job of educating K-12 students.
As such it is high time to admit that the government royally sucks at running K1-12 education, much like it sucks at running any other kind of industry (would you buy acomputer from a government owned business? Or a car, or pizza, or anything at all if you could avoid it?).
The government should sell off 100% of its K-12 schools, and give out universal school vouchers, allowing schools to charge more than the vouchers for tuition.
The resulting competitive melee between K-12 school businesses would mean that the better schools would attract more students and expand, while the crappy schools would go out of business.
Yet another government failure solved.
Posted by: happyjuggler0 at Jul 24, 2008 10:38:27 PM
to buggy professor-
The same things have been said about almost every immigrant group in America, maybe even your ancestors.
You can hardly blame Mexico's people for an agreement between the Catholic Church and a dictatorship, though it seems to make you feel better. And just because Mexico has a flawed and unjust immigration policy of its own doesn't justify criminalizing people that just wanted to make a better life for themselves. Two wrongs don't make a right.
You have no duty to support immigration of any kind, but attacking an academic study for focusing on one aspect of an important issue is a baseless attack. You are free to paint the issue in as broad a brush as you'd like. In fact, from your comments, it seems you already have.
Posted by: anothereconomist at Jul 24, 2008 10:47:06 PM
Thank you for your comments, but when they say I have gone off the subject --- nothing wrong with sticking just to the impact of immigration on wages (especially those of low-skill Americans)--- those making those comments miss the significance of the paragraph from the Ottoviano-Peri study.
1) Specifically, the authors criticize Borjas and others for specifying a statistical model that embodies "the fallacy of partial effects." Now "partial effects" has a technical meaning in statistics --- actually two or three variant meanings --- but they boil down in common parlance to a mis-specified model . . . due to a variety of possibilities: a poorly formulated or inadequate variable, omitted variables, or a failure to consider interaction variables. Once that "fallacy" is raised, then the two authors open themselves up to a similar criticism of looking at immigration too narrowly in cost-benefit terms . . . in this instance, overall long-term cost effects of low-skill immigration (their main focus really)
2) In effect, boiled down to skeletal terms, their article cannot help being part of a wider debate on the benefits (or costs) of low-skilled immigration. Explicitly the article doesn't enter that front-burner, highly politicized debate. Implicitly it does and will be used by the exponents of unlimited immigration of that sort, legal or otherwise.
If you doubt that, then all the two authors had to do was say this: "There is, of course, a vigorous debate about the overall benefits and costs of low-skilled immigration. Our paper is very narrowly focused, and we say clearly that it should not be used by the proponents of continued free immigration . . . AKA, legal and undocumented (in the pro-immigration camp)."
3) Remember, it is the two authors, not me, who criticize other studies as being way too narrow or wrong statistically speaking . . . which is what "the fallacy of partial effects" amounts to.
Once they do that, they are fair game in my view for the kinds of criticisms I have made.
4) What remains in question for those criticizing my views is their failure to deal with the large-scale social and educational spillovers of low-skill immigration, now decades old.
It does not help the debate to draw parallels with immigrants in the 19th and early 20th century . . . say, illiterate Italians (often the explicit parallel with low-skill Hispanic immigration). The US in those days experienced labor scarcity. Even illiterate low-skilled workers could find jobs on assembly line production; they did not have to graduate high school --- and for that matter, most Americans until 1939 were not educated beyond the 9th grade on an average.
We live in a far different kind of economy these days, where those without high-school levels of skills (at a minimum) are at a disadvantage in the job market, to say the least. The average male worker wage has risen exactly 2% since the mid-1970s . . . a little more if that worker receives health benefits. (Women wages have more than doubled in that period, but are still lower than male wages.0
Sixty per cent of Hispanic immigrants drop out of L.A. schools --- the fault of the schools according to the critics here, despite the efforts to try various things. Gangs are all a problem in line with libertarian ideology (drug prohibition). 50% of Hispanic kids are now born illegitimate.
But it's all the problem of the government, you see.
--- Michael Gordon
Posted by: the buggy professor at Jul 25, 2008 12:28:37 AM
The substance of Michael Gordon's criticism is that the authors never made any explicit claim about the benefits of immigration outweighing the costs but Prof. Gordon thinks they "implicitly" make such a claim. Thus, having accused the authors of making an implicit claim, he attacks them for not presenting rigorous evidence to back up the claim that they did not actually make.
Right. Of course, one could just as easily use such an argument against those who latched onto Prof. Borjas' earlier paper to support limits on immigration. But the real issue is that the levels of low- and unskilled wages have mattered greatly to policy makers since the time of Thomas Malthus and David Ricardo. Understanding the determinants of those wage rates and how policy can affect them is an important subject in its own right and a substantial amount of labor economics literature focuses on this point. This paper, if correct, makes a contribution to that literature.
In a similar vein, another topic of vigorous debate is what has caused the increase in inequality in the U.S. over the past 25-30 years. Again, it's a subject that is important in its own right, that is covered by a substantial amount of literature, and is also something that immigration is partly blamed for. Understanding the effect of immigration on wages helps us understand whether sluggish growth at the bottom of the income distribution was caused by immigration instead of the weakening of unions, skill-biased technical progress or lack of gains in education (all competing explanations, not necessarily correct explanations).
This is how real research advances knowledge on certain topics. Answering specific questions using real-world data is difficult enough, which is why those who present convincing answers on even very narrow questions are rewarded heavily in the economics profession. Convincing answers on general policy questions are very hard to come by in economics which explains why the authors of this paper didn't even try to go there.
Posted by: Ricardo at Jul 25, 2008 2:31:15 AM
You can use all the fancy words and convoluted cherry-picked stats you like but the facts are that American workers in every field of low-wage activity has been replaced by brand-spankin-new immigrants. We're talking about millions of Americans here.
Sure, none of them are YOUR kids, but there's a good chance that they're your brother's kids or your cousin's kids or your former classmate's kids.
But hey, so long as you can save fifty cents on your next dry-cleaning bill, who the fuck cares if these born and bred Americans lose their jobs to outsiders. YOU'RE saving money! Now let us fall on our knees and pray to the One God we economists hail in worship.
"Brought to you by Carl's Jr. Brought to you by Carl's Jr! BROUGHT TO YOU BY CARL'S JR!"
-------------
There will of course never be a proper revolution in America. But in the theoretical event of one, economists are likely to find themselves in the same docks as the robber barons they've justified.
mnuez
Posted by: mnuez at Jul 25, 2008 4:32:35 AM
false_cause:
It's simply a philosophical question about whether our government should pursue policies that maximize the well-being of its own citizens, or the well-being of the entire world. I prefer the former.
In the case of the latter, I believe there are still some points to be made against free immigration, but in general I think immigration has the better argument.
In the case of the former, this paper presents some useful evidence in favor of immigration. But I provided some counter-points against it.
If we disagree on that basic philosophical question, and it appears that we do, then my counter-points are meaningless to you, and that's fine. But I think on that question, you'll find you're a distinct minority in this country.
Posted by: BillWallace at Jul 25, 2008 6:10:59 AM
Steve Sailer about to write a trillion comments on here in 3...2...1...
Posted by: Pagal_Aadmi_for_debauchery at Jul 25, 2008 10:23:05 AM
This is sloppy economics. Even if you buy into the P/O model, the economics of low skill immigration are dismal. P/O don't even try to take into account the negative externalities associated with low-skill immigration. There are any number of issues.
1. Crime - Contrary to various claims, illegal immigrants are a very high crime group. Roughly 10% of the U.S. jail population is illegal (according to the GAO). Since illegals are only 4% of the population, they are a large net crime burden. Don't believe me? Ask the family that was wiped out by an MS-13 killer in San Francisco a few days ago.
2. Taxes - The Heritage foundation has studied the tax costs illegal immigration. Each low skill immigrant household pays around $10,000 in taxes and consumes around $30,000 in public services. That's a net $20,000 loss to the American people. Here is an amazing fact. The average low-skill immigrant household consumes more in public services than it earns... (average earnings are below taxpayer funded services consumed).
3. Wages - If you actually read the P/O papers, you will find that they shows huge empirical wage losses for workers (native and immigrant) in California and elsewhere (correctly). However, these wages losses are simply a "magical" phenomena happening for some other reason. The P/O model also predicts that California should have higher than national wages (because of immigration) and natives should be moving to California to take advantage of the complementary workers (low-skill immigrants). Both conclusions are exactly wrong. Natives are fleeing California and wages are rock bottom (far below other states).
4. Contrary to P/O, immigrants are massively displacing American workers in the labor force. This is an empirical (reality based) conclusion. Take a look at Grogger, Hanson, and Borjas who wrote “Immigration and African-American Employment Opportunities: The Response of Wages, Employment, and Incarceration to Labor Supply Shocks”
The abstract tells the story
“The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 4.0 percent, lowered the employment rate of black men by 3.5 percentage points, and increased the incarceration rate of blacks by almost a full percentage point.”
Now some of you may argue that these folks are on the right. However, some folks on the left have an even more devastating paper out. Take a look at Sum, McLaughlin, Khatiwada, and Palma who wrote “The Nation’s Temporary Guest Worker Program, the New Immigrant Workforce, and The Steep Deterioration in the Nation’s Youth Labor Markets”. A few quotes tell the story
“America’s teen and young adult labor markets have been devastated over the past seven years. Employment levels and rates of employment among all teens and most young adult subgroups (20-24 years old) have declined markedly since 2000, especially males, those with no post-secondary schooling, and youth from low income families”
“Declines in youth employment have been matched almost one for one with increased employment of new arrivals over the past 7 years”
5. Education – Unskilled immigration is crushing public education in the United States. This is a sad truth found in every study of America’s future labor force. Don’t believe me? See “Coming US challenge: a less literate workforce” (http://www.csmonitor.com/2007/0206/p02s01-legn.html). A useful quote
“US workers may be significantly less literate in 2030 than they are today. The reason: Most baby boomers will be retiring and a large wave of less-educated immigrants will be moving into the workforce. This downward shift in reading and math skills suggests a huge challenge for educators and policymakers in the future, according to a new report from the Educational Testing Service (ETS).”
The sad reality is that unskilled immigration is a major burden on the U.S. It must be stopped. At the end of the day we can have Open Borders or we can have the American Dream. We can not have both.
Posted by: Peter Schaeffer at Jul 25, 2008 3:47:23 PM
A lot a people seem to think that we can somehow get back to high wages for blue collar workers (especially males) with high school only degrees. These people are upset that wage growth for them has been pathetic for 30 years.
However, let's look at what caused the high wage growth in the 1950s and 1960s--the lack of any competition after World War II. Europe, Russia, China, and Japan had their industrial base destroyed, so the US worker was at a near monopsony position while this base was rebuilt in the 1950s and early 1960s. Also, let's note the changes in civil rights--minorities and women were permitted to compete for a lot of these union and blue collar jobs. As much as some may pine for the glory days of the 1950s when a white male could get a good job out of high school and reasonably support a family, those days were a unique anomaly and will never ever be replicated short of another devastating world event.
Posted by: elvin at Jul 26, 2008 2:47:39 PM
"A lot a people seem to think that we can somehow get back to high wages for blue collar workers (especially males) with high school only degrees. These people are upset that wage growth for them has been pathetic for 30 years.
However, let's look at what caused the high wage growth in the 1950s and 1960s--the lack of any competition after World War II. Europe, Russia, China, and Japan had their industrial base destroyed, so the US worker was at a near monopsony position while this base was rebuilt in the 1950s and early 1960s. Also, let's note the changes in civil rights--minorities and women were permitted to compete for a lot of these union and blue collar jobs. As much as some may pine for the glory days of the 1950s when a white male could get a good job out of high school and reasonably support a family, those days were a unique anomaly and will never ever be replicated short of another devastating world event." ---Elvin
1) A set of stimulating comments, Elvin many thanks. If you were just saying that big economic change --- however caused --- creates winners and losers both within and across many or most countries, those comments would be fairly accurate . . . this, mind you, without anyone pinning down who the winners or losers happen to be.
For instance, by the early interwar period, the impact of the most recent cluster of Schumpeterian revolutionary technologies --- the sort that change the basic nature of national economies, especially those countries able to work with advanced technologies and sustain steady GDP and per capita income growth --- ensured that autos and trucks destroyed the horse-and-buggy trade, and electrification the candle and kerosene lamp trade, and so on. We also switched from a largely agricultural economy to an urban industrial one in the late 19th and early 20th century too.
Similarly, the most recent wave of radical transforming technologies --- the computer chip, ICT firms and spin-offs, ICT-using firms and industries (including retail and wholesale) --- shook up and transformed the Fortune-500 list of major business firms after 1975. By 1995, a good 75% of those firms now listed in the Fortune 500 hadn't existed twenty years earlier --- not that the replaced 375 had necessarily gone out of business.
…………
2) There is, however, nothing per se in economic history that entails necessarily a decline or stagnation per se in the real wages of low-skilled workers unlesscertain economic theorems be invoked that are not necessarily or at least always invoked by libertarian economists to explain economic trends. Such as factor-price equalization, which follows from the Heckscher -Ohlin model of trade and comparative advantage . . . along with its key assumption (itself dubious in most instances of trade between rich and poor countries): the countries involved in free trade all share the same production technology and they all have perfectly competitive markets.
--- Even then, with less restrictive conditions --- increasingly relaxed in dozens or hundreds of follow-up studies since 1941 --- the Samuelson-Stolper theorem has to be invoked: namely, in the follow-up studies that distinguished between different economic sectors of production and kinds of labor, unskilled labor will find the wages of unskilled workers in trade-competitive sectors in countries with high levels of physical and human capital will, as free trade expands with countries with the opposite kinds of factor endowments, stagnate or be cut back . . . not to mention that lots of unskilled laborers in, say, manufacturing industries will be laid off. They, in turn, will be added to the supply of low- or unskilled workers in the non-traded sectors of the rich economy, holding back or retarding wages there too.
--- In short, the losers in free trade in the United States will --- when these other theorems are added to explanations --- tend to have their wages held back or decline in both nominal and real terms . . . though some of the losses in real terms (taking into account consumption and the ability, say, for American low-income workers to buy certain cheap imports from Asia) will be offset to one degree or another. Not, however, totally.
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Observe something odd here, though.
---- All in all, it seems, libertarians prefer to ignore or gloss over Samuelson-Stolper, and the violation of Pareto welfare criteria that ever freer trade entails (gains in income or consumption for one or more individuals or groups while other individuals or groups suffer . . . a positive, not zero-sum game, in the US economy since the late 1970s, please note.
--- Or, if they notice the Pareto impairments here, they denounce the stress on allocation of resources, cite an Austrian economist or two as proof, or tell us that that’s life, and tough titty, guys. The less informed libertarians will then cite a great thinker and novelist like Any Rand and inform us with glee that they owe nobody else in life anything just because he or she lives or breathes and maybe is a fellow citizen . . . the latter, collective category, a presumably left-wing concoction that ill suits libertarian ontology about the real actors in the world: individuals.
--- Apparently, though, there’s a duty of Americans to raise the living standards of Mexicans illegal immigrants is something of an exception, at any rate if it sustains libertarian enthusiasm for low-skilled, low-wage rivals to American low-skilled, low-wage workers. And should American citizens balk at such a duty, they will likely be accused by libertarians of xenophobia, economic ignorance, or in-group idolatry.
……...
3) No matter. Pass it all by for the time being. What’s more to the point, Elvin, is that you are wrong about the historical levels of high wages in the United States compared to the rest of the world when you restrict this to the immediate decade or two after WWII. How so?
--- The fact is that throughout almost all the 19th century and down to 1913 --- and again between 1919 and 1939 (the interwar period) --- the US level of unskilled real-wages had gained noticeably in both absolute and relative terms . . . relative meaning compared to other industrializing countries in Europe and Australia. (Canada was an exception, but its data have been contested by Jeffrey Williamson and several other prominent scholars of comparative real wages.)
--- For instance, Jeffrey Williamson --- a Harvard specialist in historical patterns of immigration, wages, and globalization (comparatively viewed) --- found in a pathbreakng study of 1995: “The Evolution of Global Labor Markets Since 1830” in which he conducted the first real-wage comparisons in purchasing power parity --- that unskilled American labor's real wage rose steadily down to 1913 despite a huge influx of immigrants, both domestically and in relative terms across countries.
--- More specifically, with the Britain wage level of 1905 equal to 100, he found that in 1913 the British level had risen to 110, but the US level was 169. Canada's (taking into account its data-problems) was 219. Germany's level was 92, France's 66, and Denmark's 102 (the other West European countries were below 100, and Italy came in at 53 and Spain at 51.
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Note that in this period, the United States had not practiced free trade, especially in manufacturing. There was in fact a high level of tariff protection. See, for a recent updated survey, http://economistsview.typepad.com/economistsview/2006/08/historical_aspe.html If there was factor-price convergence between the US and Europe down to 1913 --- observe carefully: convergence of sorts, not by any means equality --- it was due overwhelmingly to not industrialization in Europe alone or mainly, never mind free trade: rather, to 60 million largely poor Europeans immigrating to the US and the rest of the New World. Real wages between Europe and the US for unskilled labor --- the sole focus of Williamson in the pre-1913 period --- did not converge themselves very much, if at all.
--- What did ensue seems awfully familiar to Americans living in 2008 these days. You see, the growing presence of immigrants and a see-saw up and down at times (especially in the 1870s and 1880s) caused a growing backlash in US opinion that would, ultimately, lead to restrictions on immigration: first against Asians, then early in the post WWI era even more restrictively and in ethnic discriminating ways.
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4) The next period Williamson covers is the interwar period between 1919 and 1939. With Britain's real wage set for 100 in 1927, the US wage level for labor in 1939 (still, it seems without being entirely clear, for unskilled labor) stood at 283. Britain's rose by 1939 to 109; Germany's see-sawed and fell throughout the 1930s to 88. France's real wage was 66 compared to Britain's 1927 level (and 109 for 1939). Italy's and Spain's real wages were noticeably lower still.
---- Note that again, between 1919 and 1939, the US did not practice free trade until there were efforts late in the 2nd Roosevelt administration to open it with certain countries.
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What follows?
It is essentially only starting in the 1970s that real wages for unskilled labor fall in the US --- and stagnates for all labor, irrespective of skill levels, between the early 1970s and down to 1988, the last year he looks at. (Census bureau studies show that the average male wage has risen 2% across ALL categories of male labor on an average. And for that matter, please note, after 1945 Williamson compares real wage levels between American labor of all skill levels with those in West Europe and Canada, Australia, and Argentina.
There was, simultaneously, renewed convergence in the real wage level across the two sides of the Atlantic, but the convergence stopped in most of West Europe around 1990 or so (with some variations).
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5) Between about 1950 and 1990 or so, Japanese and the West European real per capita income gained steadily on the US per capita income in PPP terms, and for a straightforward reason: convergence catch-up growth. After 1990, though, this convergence reversed itself. Why?
The United States was and still is --- save for two or three very small north European countries --- the only industrial country to fully benefit from the productivity breakthroughs of the most recent clustered wave of Schumpeterian radical, economy-wide transforming technologies . . . especially in ICT but also biotech.
But note: while the per capita income gap has widened again between the US and both Europe and Japan in PPP terms (and generally rates of multifactor productivity), the average American wage for males continues to stagnate. It has not risen for all skilled categories, on an average, since 1979. That general average, of course, includes the steady decline in unskilled workers' wages.
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6) The first conclusion?
Nothing startling, but worth spelling out anyway. It relates, you see, to this debate on libertarian enthusiasm for unrestrictive immigration . Namely?. Well,the Average Wage of ALL male American workers, of all skill levels, has stagnated for three decades or more: a rise of 2%, nothing higher . . . though, if you include increased health-insurance benefits, it has risen from 2.0% to maybe 12-15% for those who are lucky to have such insurance.. And yet, simultaneously, for most of the last 30 years or so, convergence in per capita income between the US and Europe (and Japan) has reversed itself . . . contrary to your view.
--- Something else follows, Elvin, again contrary to what you say. It isn’t, you see, some sort of "catch-up" between Europe (and Japan) and the US that explains the decline in unskilled labor's wages --- let alone the stagnation across all categories of labor, skilled or otherwise, for males since most of the period since 1970 or 1979 --- but rather some combination of technological change and greater globalizing forces, with two obviously related, that explains the stagnation of wages. Then, too, some of this wage-outcome has also been due to women's influx into the labor market since the end of the 1970s: female average wages have doubled or so in that period, but in 2008 were at about $20,000 and hence a third lower than the male average wage at about $31,000. (I'm citing these figures from memory, having looked at the census figures about a week ago.)
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7) We can get more specific now in terms of the current debate that this thread deals with --- in other words, our second conclusion.
Growing globalization --- which includes ever greater flows of investment, technology, multinational implants, goods, finance, and services, plus legal and illegal immigration levels not seen since the end of the 19th century in the US --- seems to have definitely contributed to the stagnation of al average male wages. And since, contrary to most studies, radically transforming ICT technologies have fed back and accelerated globalizing forces --- while, in turn, the impact of growing trade then intensifies the pace of making American firms in almost all industries ever keener to increase labor productivity or hold back wages or both --- that contribution is obviously not low.
--- Moreover, for good or bad, such globalizing transformations reflect policy choices. On balance, in my view, the US economy has greatly profited from the combination of radical new technologies and globalization, but that does not mean --- as you imply (along with, I suppose, almost all libertarians) --- that there is a natural economic law of convergence that entails indifference to the impact on the real wages and uncertainties that plague the American labor force these days . . . a pessimistic trend captured in recent opinion surveys that isn’t just, it seems, a reflection of slowed down GDP growth in the fall of 2007 and the first quarter of this year.
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8) Which should make all of us reflect on what to do here.
--- Or are we supposed to do nothing? Just accept, say, the growing fall-out of both policy-choices and market forces while ignoring the growing political backlashes against, roughly, 3 or 4 decades of ever freer trade, the influx of low-skilled legal and illegal workers (and the social and educational costs of all sorts that ensue), ever rising costs and uncertainties about health care, and the problems of educational performance of Hispanic immigrants, their children, and of African-American children? All the while that libertarians grouse about excessive pessimism, media-fed hype about this or that slice of American life, cry-baby whining, an ignorant lack of respect for markets, and the likelihood that the Republican Party as it has shaped up the last decade or two might not survive into the future through no fault of its own except . . . well, except for what? And how long will American public opinion and hence electoral votes support free-trade and the libertarian policy to boot of unrestrictive immigration?
--- Remember, during the earlier periods of clustered waves of Schumpeterian revolutionary technologies --- two in the 19th century and two in the 20th century before the ICT revolutions of the 1970s --- American real wages rose steadily, and until the 1970s that included the wages of unskilled Americans. Something is very different these days, and it has been for 30 years or so now. The growing concerns of our citizenry --- excuse the non-libertarian preference for the well-being of Americans above those of Mexicans or Chinese (which doesn’t mean I sense hostility to them) --- well, those concerns look very real to me, not the creation of Lou Dobbs, Paul Krugman, and the radical-left zealots in blog-land and certain sectors of American university and intellectual life.
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Michael Gordon, AKA, the buggy professor: http://www.thebuggyprofessor.org
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