A new paper on immigration and wages

It is basically pro-imigration, finding positive wage effects for most U.S. workers and only slight negative effects for the unskilled.  It uses a general equilibrium model related to that of Borjas, but models physical capital more explicitly.  I’ve yet to read it.  Find it here.  Hat tip to New Economist blog, here is the abstract.


immigration seems like the economist's version of the perpetual motion
machine. Bringing another human into the system is a biologically
inefficient move. She will use less than one percent of sustaining
energy for any particular output. When resources were bountiful this
could be justified. Now we need to reduce the numbers of top predators.

†Eight years ago, she and her family moved to Kentucky, where a friend said there was more work and were fewer Mexican immigrants bidding down the wages for unskilled jobs.’

Sounds like immigrants are competing with immigrants.

Now please tell me why we should allow Open Borders to “break† all of America they mass immigration has wrecked California.

Perhaps to allow folks like those in the story to better themselves rather than sentence them to the lives they left in Mexico? I suspect Kentucky will do well with an influx of eager new blood.

Of course, California suffers from the kind of wreckage much of the rest of the country aspires to. And is generally priced to match such demand.

I think Peter Schaeffer is usually a crank on this issue,
and seems to ascribe unwarranted blame on immigration for changes
we've seen in labor markets; changes that have many causes.

However, when I looked at Schaeffer's comment on high scool
graduation rates and looked at the paper, I realized something.

Yes, 90% of people in the labor force have high school degrees,
as Ottaviano and Peri contend, but that just shows that native
high school dropouts leave the labor force in higher numbers.

It looks to me like Ottaviano and Peri make no adjustment for the
selection effect of discouraged native workers leaving the labor
force. At least a quick search on the word "selection" in the pdf
didn't show anything.

If that's the case, then Ottaviano and Peri are probably
overestimating the wage gains from immigration and underestimating
the wage losses.

I think Ottaviano and Peri make an important contribution by
estimating a general equilibrium model, but because they
have no adjustment for discouraged native workers, their estimates
likely provide an upper bound estimate on the wage benefits from

Eventually, somebody will have to combine a general equilibrium
model with some sort of selection model. Sounds hard to me.
Good luck, PhD students!

With a <50% high school graduation rate, and decades of declining wages for American workers, it is NOT just a matter of immigrants competing with immigrants.

Why should the government subsidize citizens and legal immigrants who can't be bothered to finish high school with job protectionism?

By the way, Americans don’t aspire to turn their states into California’s. 50 years ago they did. That was before the devastation of Open Borders became unbearable.

Kentucky, as California, has open borders. The fantastic thing about the concept is that it regulates itself. The way people flocked to CA to persue economic dreams, they now leave to other places. Should folks have been restricted from coming to CA in the first place? The notion that central planning can take care of such market forces is silly.

Of course the notion that CA is now somehow unbearable is a drama not matched by reality.

The fundamental flaw is thinking of the US economy as a zero sum game.


The schism between the P/O native labor force high school graduate fraction (90%) and the overall high school graduation rate (70%) is only partially explained by differential labor force participation. It is true that college graduates have higher LFP (77.6% according to the BLS) than high school dropouts (45.9%). However, that doesn’t account for all or even most of the 20 point spread. The real problem is that the BLS is treating GEDs (General Equivalency Diploma) as high school graduates. Numerous studies have shown that GEDs have life trajectories comparable to dropouts, not high school graduates. See Jay Greene for a detailed discussion of the subject.

A deeper point (as stated above) is that a high fraction of high school “graduates† aren’t. Students with below basic reading and math skills may be handed a diploma. However, that won’t enable them to participate in the economy at a high school level any more than me getting a PhD in physics, from a diploma, mill would qualify me for a position as a postdoc.

Let me commend you for pointing out the rather large population P/O exclude from their study, who are in direct competition with unskilled immigrants. The BLS identifies 28 million adults (some of whom are immigrants), 25 and over, with less than a high school diploma. Only 12.9 million are in the labor force. Raising their LFP to the high school graduate level would add 4.8 million workers to the labor force. Raising their LFP to the college level would 8.9 million workers.

Ian E,

The externalities associated with the current generation of low-skill immigrants are negative and quite large. See "Seeing Today’s Immigrants Straight" by Heather MacDonald over at the Manhattan Institute (http://www.city-journal.com/html/16_3_immigration_reform.html). Section 4 contains the ugly truths that PC advocates of immigration don't dare talk about. Key quote

"If someone proposed a program to boost the number of Americans who lack a high school diploma, have children out of wedlock, sell drugs, steal, or use welfare, he’d be deemed mad. Yet liberalized immigration rules would do just that. The illegitimacy rate among Hispanics is high and rising faster than that of other ethnic groups; their dropout rate is the highest in the country; Hispanic children are joining gangs at younger and younger ages. Academic achievement is abysmal."

The details put Heather's succinct summary to shame.

Advocating low-skill immigration in America today requires blinkers and the thickest rose colored glasses known to man. It is act of creationist faith.

Thank you

Peter Schaeffer

If you haven't yet read Sam Quinones's great LA Times article on the illegal immigrant with triplets and quadruplets, drop everything and read it now:


Christopher Rasch,

I am not sure if I personally benefit or suffer from low-skill Hispanic immigration, measured in economic terms. Frankly, I have never thought about the issue that way. Since you asking, I can not claim any wages losses. I do gain from cheaper services, but also pay higher taxes. In California, the income statement would be negative. However, Texas doesn’t have an income tax, so the tax burden is presumably diminished. I would guess that I all still a net loser (of course, I pay Federal taxes).

I do not object to Hispanic immigrants. I object to high-cost, low-skill immigrants from anywhere/everywhere. Indeed, you can find a paper by Edward P. Lazear (“Mexican Assimilation in the United States†) that demonstrates that United States is simply importing the wrong Mexicans. Summary quote:

“By almost any measure, immigrants from Mexico have performed worse and become
assimilated more slowly than immigrants from other countries. Still, Mexico is a huge country, with many high ability people who could fare very well in the United States. Why have Mexicans done so badly? The answer is primarily immigration policy.†

To be honest, no amount of money would persuade me to accept the status quo. My concern is that my children grow up in safe, stable, prosperous, and unified country. My increasing fear is that the nation they will inherit will be a giant barrio turn asunder by tightly linked fault lines of class, race, and language. Such considerations are beyond price.

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