The Fiscal Impact of Low-Skill Immigration

by  Alex Tabarrok in

Low-skill immigrants have low wages and thus don’t pay much in taxes but they do use some government services, especially education for their children. What’s the net fiscal impact? The National Academy of Sciences did a detailed scenario analysis looking at the impact over 75 years, thus including second and third generations. Overall the NAS concluded that the net fiscal impact of the average immigrant was positive. The impact was negative, however, for immigrants with just a high school education and even more so for immigrants with less than a high-school education.

Two recent papers qualify this conclusion. The NAS study estimated the direct fiscal effects of an immigrant–what do they pay in taxes and what do they take out in services? Immigration, however, has indirect effects on the native born population. In the The Case for Getting Rid of Borders—Completely I wrote:

The immigrant who mows the lawn of the nuclear physicist indirectly helps to unlock the secrets of the universe.

More prosaically, low-skill immigrants can complement higher-skilled native labor, increasing native productivity. Go to any fine restaurant in DC, for example, and you will typically see a native-born front of the house and a Mexican born back-of-the house. As Tyler quipped at lunch recently, all restaurants in the United States are Mexican restaurants only the type of food they are cooking changes. The opportunity to hire Mexican cooks increases the number of restaurants and the opportunities and wages of the native-born front of the house. Higher native wages mean higher taxes so there is a beneficial indirect fiscal effect of low-skill immigration.

A recent paper by Colas and Sachs, The Indirect Benefits of Low-Skilled Immigration finds that under plausible assumptions the indirect effects are large enough to make the net effects of immigration positive for almost all US immigrants.

My excellent colleague Michael Clemens makes another similar point about capital. When a profit-maximizing firm hires more labor it also hires more capital. Capital pays taxes. Thus, immigration raises the taxes paid by capital and when you add that indirect effect to the calculation it also shows that the net fiscal impacts of low-skilled immigration are plausibly positive.

The fiscal benefits of low-skilled immigration aren’t a big reason to support low-skill immigration but the new literature on the indirect effects should take one worry off the table.

As a takeaway, it’s important to recognize that the fiscal benefits arise because low-skilled immigrants are gainfully employed. The U.S. excels at integrating people into the workforce. We need to keep this in mind when thinking about labor policy including minimum wages, occupational licensing, E-Verify, access to banking, education, and driver’s licenses and so forth. We could easily turn fiscal benefits into fiscal costs by making it more difficult to employ immigrants (and workers more generally). Employing immigrants benefits both them and native citizens. America’s open markets play a pivotal role in this success. Let’s keep it going.

When are mental health interventions counterproductive?

by  Tyler Cowen in

The researchers point to unexpected results in trials of school-based mental health interventions in the United Kingdom and Australia: Students who underwent training in the basics of mindfulness, cognitive behavioral therapy and dialectical behavior therapy did not emerge healthier than peers who did not participate, and some were worse off, at least for a while.

And new research from the United States shows that among young people, “self-labeling” as having depression or anxiety is associated with poor coping skills, like avoidance or rumination.

In a paper published last year, two research psychologists at the University of Oxford, Lucy Foulkes and Jack Andrews, coined the term “prevalence inflation” — driven by the reporting of mild or transient symptoms as mental health disorders — and suggested that awareness campaigns were contributing to it.

“It’s creating this message that teenagers are vulnerable, they’re likely to have problems, and the solution is to outsource them to a professional,” said Dr. Foulkes, a Prudence Trust Research Fellow in Oxford’s department of experimental psychology, who has written two books on mental health and adolescence.

Here is more from Ellen Barry at the NYT.

The evolution of university governance

by  Tyler Cowen

This David Pozen piece is excellent, non-partisan, and uses plenty of economic reasoning.  Here is just one excerpt from a much broader treatment:

For all the talk of how the modern university has been corporatized, neoliberalized, and so on, there hasn’t been as much attention paid to the ways in which it has been presidentialized.

The presidentialization of Columbia dates back well before the current moment. Our last president, Lee Bollinger, ran the university for over two decades. During his tenure, Bollinger oversaw the rise of a substantial administrative apparatus—the ten highest paid Columbia employees, apart from surgeons, are now all senior executives—as well as the creation of a dizzying array of research centers, policy institutes, and global programs that operate more or less independently of the academic departments. Bollinger’s office also launched countless smaller projects with discretionary funds. After the insurrection at the Capitol on January 6, 2021, for instance, he came up with the idea for a Constitutional Democracy Initiative (with which I am affiliated) and, within weeks, an impressive new outfit was up and running. Meanwhile, the most broadly representative body on campus, the University Senate, seemed to become less relevant with every passing year.

And on endowments:

Over the past generation or so, having a large endowment has become something more than a means to support longstanding institutional goals; it has become an end in itself, a key measure of a university’s prestige and its president’s performance. And because most philanthropists don’t like to fund boring old operating budgets, expanding the endowment is often accomplished through conditional gifts for enticing new endeavors, as reflected in the proliferation of extra-departmental centers, institutes, and programs referred to above. Once launched, these non-tuition-receiving entities—and all the jobs, faculty fiefdoms, and student opportunities that come with them—only tend to increase the demand for ongoing donations.

There are further interesting points at the link, including about Title IX, recommended.  For the pointer I thank Anecdotal.

Mask Mandate Costs

by  Tyler Cowen in

There is now an NBER working paper on this topic:

This paper presents the results from a hypothetical set of questions related to mask-wearing behavior and opinions that were asked of a nationally representative sample of over 4,000 participants in early 2022. Mask mandates were hotly debated in public discourse, and though much research exists on benefits of masks, there has been no research thus far on the distribution of perceived costs of compliance. As is common in economic research that aims to assess the value to society of non-market activities, we use survey valuation methods and ask how much participants would be willing to pay to be exempted from rules of mandatory community masking. The survey asks specifically about a 3 month exemption. We find that the majority of respondents (56%) are not willing to pay to be exempted from mandatory masking. However, the average person was willing to pay $525, and a small segment of the population (0.9%) stated they were willing to pay over $5,000 to be exempted from the mandate. Younger respondents stated higher willingness to pay to avoid the mandate than older respondents. Combining our results with standard measures of the value of a statistical life, we estimate that a 3 month masking order was perceived as cost effective through willingness-to-pay questions only if at least 13,333 lives were saved by the policy.

That is by Patrick Carlin, Shyam Raman, Kosali I. Simon, Ryan Sullivan, and Coady Wing.  A few comments:

1. Willingness to be paid magnitudes are often much higher than willingness to pay numbers.  Especially when issues of justice and desert are involved.  I know some people who might say: “I have a right to refuse a mask.  I’m not going to pay anything not to wear one, but you would have to pay me a million dollars to put it on.”  There are less extreme versions of this view, noting that even in quite normal laboratory circumstances WTBP can be 5x higher than WTP.

2. For many people the value of masking — either positively or negatively — depends on what others do.  Some might feel “I guess I can wear a mask, but if you make everyone do that, that is a gross Orwellian dystopia.”  Others, perhaps leaning more to the political left, might say: “I am willing to do my share, but of course I expect the same from everyone else.  Let us sing this collective song and with our masks dance to the heavens!”

3. Why not just look at what private sector establishments chose when the force of law was not present?  Don’t they have the best sense of how to internalize all the different factors behind what their customers want?  Of course the answer here will vary, depending on what stage of the pandemic we are in.

*Shock Value: Prices and Inflation in American Democracy*

by  Tyler Cowen in

That is the new and very useful book by Carola Binder, mostly a very good economic history.  Here is one excerpt:

The [Nixon price controls] were seen as necessary to support the third component of the Economic Stabilization Program, an expansionary fiscal package that included tax reductions to promote business recovery.  The Council of Economic Advisers wrote in its annual report that “action to make fiscal policy more expansive had been limited by the need to avoid intensifying any inflationary expectations and stepping-up the inflation. The establishment of the direct wage-price controls created room for some more expansive measures, because it provided a certain degree of protection against both the fact and the expectation of inflation.”

The ties of the dollar to gold had been cut recently as well, as Bretton Woods turned into floating exchange rates.  1970s macro was a strange thing!

The book is recommended, you can pre-order here, most of American monetary history is covered.

Will Sri Lanka have gdp-linked bonds?

by  Tyler Cowen in

Negotiations to finally bring an end to Sri Lanka’s long-running $13bn debt default could result in an innovative new type of bond that would link payouts to economic growth and governance reforms, a long-held aim of emerging market bond investors.

The bankrupt south Asian nation and its creditors have agreed in principle to replace the debt, which it stopped paying in 2022 following a currency crisis, with so-called macro-linked bonds that would track the country’s recovery.

The inclusion of GDP-tied payouts into bonds that could be included in major indices is a big step forwards in trying to develop debt structures that will lure international investors back to riskier emerging market nations desperately in need of financing, say analysts…

In return for taking a roughly one-third haircut on their original debt, creditors have proposed a new $9bn bond with payments adjusted higher or lower in 2028 depending on the average US dollar GDP that Sri Lanka achieves. The country has put forward other ways of setting GDP-linked payments and is also assessing a creditor proposal for a separate governance-linked bond. This would cut coupon payments if the country raises tax revenue collection as a share of GDP and passes anti-corruption reforms.

As they emerge from defaults, countries such as Ukraine and Uruguay have handed out equity-like warrants, which promise extra money based on factors like movements in the price of commodities that the country produces or GDP, as a way of getting creditors to swallow debt losses.

Here is the full FT story by Joseph Cotterill, here is an earlier Alex post on Bob Shiller and related ideas.

Addendum: Brad Setser comments critically.

Thwarted markets in everything, antiquities remain underpriced

by  Tyler Cowen in

An auction house has withdrawn 18 ancient Egyptian human skulls from sale after an MP said selling them would perpetuate the atrocities of colonialism.

Bell Ribeiro-Addy, the chair of the all-party parliamentary group on Afrikan reparations, believes the sale of human remains for any purposes should be outlawed, adding that the trade was “a gross violation of human dignity”.

The skulls of 10 men, five women, and three people of uncertain sex, were listed by Semley Auctioneers in Dorset, with a guide price of £200-300 for each lot.

They were originally collected by the Victorian British soldier and archaeologist Augustus Henry Lane Fox Pitt-Rivers, who founded the University of Oxford’s Pitt Rivers Museum in 1884.

Here is the full Guardian story, indirectly via Samir Varma.

Saturday assorted links

by  Tyler Cowen

1. Incels vs insings, “Half of Malmö Consists of Guys Who Dumped Me.”

2. Will agentic work flows lead to more and better training data?

3. Critique of feminism, not by BC.

4. The New Atlantis, call for submissions, on what we should be building.

5. Chilean births down 20% over the last year.

6. “I make over $2,500 a month from focus groups.”

7. The actor behind Jar Jar Binks (NYT).