Immigration and wages: the latest

by on July 24, 2008 at 1:06 pm in Economics | Permalink

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.

BillWallace July 24, 2008 at 4:01 pm

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.

thebuggyprofessor July 24, 2008 at 4:26 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

Jason Armstrong July 24, 2008 at 7:09 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.

false_cause July 24, 2008 at 7:46 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?

happyjuggler0 July 24, 2008 at 10:13 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.

happyjuggler0 July 24, 2008 at 10:38 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.

the buggy professor July 25, 2008 at 12:28 am

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

mnuez July 25, 2008 at 4:32 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

Pagal_Aadmi_for_debauchery July 25, 2008 at 10:23 am

Steve Sailer about to write a trillion comments on here in 3…2…1…

elvin July 26, 2008 at 2:47 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.

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Thom Westley January 17, 2011 at 11:53 pm

Although the percentages are very small, a conclusion that could be drawn is that, because of the global visas more immigrants with high school or higher degrees were hired. This means an import of intelligence at a lower cost.

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