Does increasing inequality weaken the case for additional low-skilled immigration?

In general, no.  Let’s assume that the increase in inequality is driven by new technologies, such as automation, or by foreign trade.  Imagine that Chinese competition lowers American middle class wages but gives Apple another export market and thus simultaneously boosts the returns to capital.  For our analytical purposes, the new foreign trade is a “new technology” of some kind or another, so doing trade or technology as the cause of the higher inequality should not make a big difference.

Assume also, as many models do, that capital is more mobile than labor.

In many settings it is then the mobility of capital that determines the domestic wage, not immigration.  If you keep out more immigrants, that just means capital leaves your country for India or China.  Alternatively, letting in more low-wage immigrants limits outsourcing (or automation, as you wish) and keeps more capital in the United States.  It may even boost the number of jobs for native-born Americans, who perhaps drive trucks to and from the factories where the immigrants work.  Here is some evidence on that point, hardly conclusive but certainly not running against immigration.

It is instructive to look at the polar case.  Let’s say American wages were completely determined in global markets.  Letting in more immigrants wouldn’t affect those wages at all.

Immigrants also keep their beneficial economic effects in increasing returns to scale models, with or without high inequality in the domestic wage structure.

There are many different ways you can slice this cake, and I am not suggesting the mechanisms outlined above are always the dominant ones.  Still, they should disabuse you of leveling the immediate knee-jerk charge that higher domestic inequality weakens the economic case for additional low-skilled immigration.

There are two further points of import.  First, if permitted immigration is so high that labor is more mobile than capital, the argument for limiting low-skilled immigration to help domestic workers may become stronger.  Second, the “political and cultural externalities” arguments against low-skilled immigration are still on the table.


Nice article, but if I understood correctly you're assuming that the major differences between manufacturing in China and manufacturing in the US are wages and shipping.

There are many other differences:

I don't think that increasing low-skilled immigration will result in effective industrial organization of those immigrants.

China has an advantage in that they can organize their workforce with an almost military speed and precision. They can hire, fire and displace workers in ways that are completely illegal in the US.


If capital is so mobile, and wages are (mostly?) determined globally, why is there any immigration at all? Why not just sit pretty at home, with friends and family, and wait for the capital to come to you? Isn't trucking going to be automated soon anyway, per your recent book?

"letting in more low-wage immigrants limits outsourcing (or automation, as you wish) and keeps more capital in the United States. It may even boost the number of jobs for native-born Americans"

Every time some low-skilled immigrant comes to US, there will be created >1 job ?
It is the famous truckdriver. And no immigrants wants to or have the skills to drive trucks.

Is "limits outsourcing" really the same thing as "limitis automation" ?
Is the effect the same when it comes to "keeping capital in the United States?

"There are many different ways you can slice this cake, and I am not suggesting the mechanisms outlined above are always the dominant ones"
Not "always". Okay, but are you suggesting that it is most of the time? In the year 2013?

If they get to vote there'd be a permanent D majority that would get rid of the carried interest loophole, jack up cap gains taxes, and expand eitc, pre-k, and medicaid. Which effect would be stronger?

My sense is that for some people, there's nothing that would cause them to support limitations on immigration. No amount of facts and experience seems to sway them. I admit to being torn on the issue, but I tend to be wary of fanatics, which seems to be the dominant strain on the open borders side of the debate.

Agreed that side has fanatics, but to not see the closed borders crowd having fanatics too is laughably obtuse.

Has anyone said anything about the "closed borders" crowd not having fanatics?

Maybe the difference is, that the Open Borders fanatics are high profiled academics, whereas the fanatics of the Closed Borders crowds are already being labelled "extremist" in MSM.

Another major difference: Open Borders is an extreme position, whereas only few people favours the opposite, completely Closed Borders. I guess no one in here wants to close all borders for all immigration.

It is just unfair to compare Tyler/Alex/Bryce-fanatism with those people who are in favour of some immigration but not free immigration.

The current debate is between people who want to keep to and enforce current law, which allows 1.2 million legal immigrants/yr and refuses to legalize border jumpers and visa overstays, the gang of 8 bill that will increase legal immigration to 3.5 million/yr while legalizing 10-15 million people already here illegally, and those who essentially want open borders. The closed border fanatics as you call them appear to have 0% share in the marketplace of ideas and are a total straw man in this discussion serving only to paint the border enforcement advocates as extreme.

Apparently, in order for Tyler to maintain his open borders position, he has to develop an entirely hypothetical argument for why the law of supply and demand does not apply in the low skilled labor market. As is typical of academic economic arguments these days there is zero empirical support for his position. Would it kill you guys to gather and analyze some actual data every now and then instead of just making stuff up.

Considering that there are already more people in the U.S. than can be indefinitely sustained and that immigration is the sole reason for U.S. population growth since 1970, to me it is a no-brainer: Strictly enforce immigration laws and reduce legal immigration to match emigration.

Assume this. Assume that. Now assume this other thing. Voila: things work out as I said.

Seriously? We're to just accept that capital mobility is the real issue because some, but not all, models suggest it — even though capital movement can be controlled to a large extent?

Most of the mobile unskilled jobs have moved. We're back to supply and demand. The big issue with capital now is not its movement but that every year it makes slightly more capable workers into zero MP workers, horses in human form, and it makes the work of many others less valuable.

Perhaps, rather than using any of the models, with their wopping four and five factors, we should look to, um, real life.

Why does immigration make you stupid? If you can't write smart things without sacrificing invitations to parties you want to attend, just don't write on this issue.

p.s. Your whole cryptic sage schtick, where you write a couple sentences and imply that any sane person will see the Truth if the simply look at the issue through the intellectual framework devised by some medieval Bangladeshi philosopher will not work on this issue because, unlike many topics you write about, many people actually care about immigration enough to know some stuff about it and to research claims you make rather than just thinking, "Hmm. I have no idea what Tyler's talking about. He must be really smart."

We are not economists. We are political scientists, among other things. While we think that all the commenters here legitimately have made salient observations, we lament not one has addressed what many of us think the main problem is: our trade policy.
Current thinking in economic terms is that so called free trade among nations is the legitimate and necessary goal of nations. Furthermore, the main corollary to this theory is that, when nations do not follow and implement free trade practices, the economy of such nations suffer ultimate loss.
We disagree. A legitimate government of, by and for the people who establish such government can and must expect that a balance of fair results for all the interests of the people. That is, a fair result would be that a balance is experienced by all the people. This balance is seen as equal opportunity to achieve by all participants. This includes the interest the people have in business achieving success as well as investors having achieved success. That is to say the people have an abiding interest in the businesses, whether they own some part of such or not, achieving a success which allows for expansion of such businesses. For instance, we all have an interest in seeing to it that our automotive industry is successful even though we neither work for nor invest in such industry.
Therefore, our trade policy must be designed to not float the interest of bankers and investors alone; a legitimate interest must include the interest of the body politic. Thus a policy which rewards investors and bankers but not the "people" must necessarily become suspect. Therefore, we, the people, have no interest in seeing to it that speculators in Outer Mongolian securities, for instance, are successful. Since there is no benefit to our economy, then, to the extent that it is true, we cannot adopt policy that either benefits or encourages investment in such speculation.
Neither should we adopt policies that allow for the destruction of our industrial bases in favor of speculation that such a move will benefit us in the future development of a new industry here. Thus, we should not have participated in the destruction of our machine tool industry. At the same time, attention must be paid to the military needs or our country. Is it ever a good idea to "out source" the manufacturing of weapons? We think not. We believe it is essential to keep on shore the manufacturing of all major weapon systems. We need laws protecting the secrets of such industries and shield them from competition from off shore sources. Furthermore, in light of our current problems with oil producing nations, we need export taxes, with appropriate concession to friendly states, on all energy related items including oil, natural gas, LP gas, coal, coal related products, et al. Concurrently, we need to subsidize the rapid development of fracking and related production and distribution considerations: we need a rapid development of natural gas stations and to subsidize the production of natural gas engines for our fleet of vehicles.
These are but a few of the geo political based moves that we propose.
One might well ask why we as the Tea Party Immigration Coalition would want to weigh in on trade. We do so because trade policy impacts directly and indirectly on illegal and legal immigration concerns. For instance, if manufacturers here were legitimately protected from unfair and uneven alien competition, then there would not be the same pressure to reduce labor costs by the hiring of illegal and legal aliens.
Our insane policies have led to the need to supplant Real Americans in favor of low cost illegal and legal aliens. Our education policies have led us to produce a plethora of poorly educated and motivated new workers. We have too few and under rewarded STEM candidates. We have isolated them from our society, treating them as social outcasts when it is they who may be part of our future. As a result, we now have cries for an increase in H1B visas.
Our unwillingness to retrain our workers has led us to become a nanny state that is forlornly hoping that illegal aliens will some how save the underserved lifestyle to which many of us have become accustomed.
This is but a taste of the ideas that we would hope generate a new discussion of our Trade Policies. We have sacrificed our Republic on the altar of "Free Trade". While we love the word free, we hate what the proponents have done to it and to us. Our trade policy is neither free or fair. It honors and rewards our enemies, here and abroad, while destroying investment and jobs of both our friends and our own people.
What we need is a trade policy that recognizes these needs. We have some general and some specific ideas that beg debate, at the least.

This. Just This.

There are places on Earth where it's cheaper to hire a dozen ditchdiggers than one guy with a backhoe. I wish professional economists would move there instead of lobbying to import that model here.

Except in those places can't support the number of rent seeking of professional economists that we have.

New technologies use to decrease the hours people worked per week and increase wages enough so incomes increased. What has changed that makes it reasonable to assume that it now lowers American middle class wages I do not see how it can explain this

Capital is more mobile than labor? Really? Anyone who thinks that has never run a business. A business will buy real estate or sign a long term lease while employees can easily find another job close to their employer. The employee clearly can move easier.

"Capital is more mobile than labor? Really?"

Across international borders, yes. If you've figured out a way to more conveniently hire a foreigner (or to be hired as a foreigner) than to borrow money from a foreigner, please let me know.

Uh, buy something made outside the US? Am I missing something here? I don't need to be the one signing the paychecks to have foreigners do my laboring.

I believe that is part of the capital-is-more-mobile-than-labor concept. It is quite easy for American capital to invest in a foreign factory and hire foreign labor. Thus, allowing low-skill immigration into the US does not lower wages because, if immigration was restricted, those would-have-been-immigrants could be still be employed by the same capital in their home countries. At least, I think that is Tyler's point. The choice is between employing foreigners in foreign countries or employing those same people as immigrants in our country. That seems to me to apply pretty well for manufacturing jobs, less so for service jobs.

It still does lower wages because 1) there are some jobs that can't be outsourced and 2) bringing in more workers means the supply of labor increases and the price of labor therefore goes down.

It would be interesting to compare the wages of Japanese unskilled workers to the wages of US unskilled workers over the years. Unlike us, the Japanese have been denying themselves the fun and excitement of a growing underclass--and this makes NY Times editorial writers angry.

Well, to be fair, the Japanese have been denying themselves the fun and excitement of growing at all for a while now.

Well, to be fair, the japanese low-growth period is hardly due to the lack of low-skilled immigration.

Imagine, even without "Diversity", Japan is home to some of the most innovative companies and top universities in the world.

Japanese GDP per capita growth has been nearly as high as US GDP per capita growth. The main difference is that Japan has a slightly decreasing population and the US has a rapidly growing population.

The other difference is that Japan has seen continued gains for labor, whereas working people are getting poorer every year in the US.

Japan's "no-growth" economy outproduces us in ships, steel, and electronics, and is very competitive with us in autos, all the while maintaining excellent wages for workers of all skill levels. It would take that "no-growth" economy over our "growing" economy any day.

Doesn't increased lower skilled immigration increase the measured inequality simply due to Simpson's Paradox (if all boats are being lifted)? Why should this inequality be a problem for libertarians proposing further immigration? It's only a problem for progressives and leftists who care about measured inequality as well as about foreign low skilled labor.

I don't see why it's an issue for liberals either, unless their notion of inequality stops at the border.

The 50th percentile in America is correctly seen as 'rich' by most Earthlings.

Whatever political group you are talking about, it's still much more common to talk about intra-country inequality.

If we want to think purely in terms of the income boost immigration gives immigrants it would make the most sense to import the poorest of the poor; e.g. not Mexicans but sub-Saharan Africans.

Tyler asks and answers:

"Does increasing inequality weaken the case for additional low-skilled immigration?

"In general, no. Let’s assume that the increase in inequality is driven by new technologies, such as automation, or by foreign trade."

Excellent self-parody! Assume your desired conclusion -- that low-skilled immigration isn't one of the causes of increasing inequality --and then prove, based on your assumption, that increasing inequality doesn't weaken the case for low-skilled immigration.

Here's a question: How many readers get Tyler's joke?

This is truly a terrible argument. Let's assume capital is more mobile than labor. So what? Capital is still not perfectly mobile. There are advantages to locating a factory in the region you plan to sell the goods. And there will be preferences based on the legal regime as well. So if capital movement is not 100% frictionless you still have a situation where changes to immigration policy could have an impact on low wage job competition. The website is called marginal revolution after all! No, the questions to ask are, how bad is current income inequality such that we need to do something? does extra immigration actually lower wages for domestic workers and if so what types? and finally, how much does limiting extra immigration help and is it really a just solution? I see that you are hoping to sidestep these harder questions, but the argument fails.

The Ottaviano and Peri paper you refer to states "offshoring has no effect on native employment in the aggregate".

It's amusing how few people get the meaning of "income diversity". I mean, attach "diversity" to anything and it becomes a euphemism, or something.

Translation: I currently pay my Guatemalan gardener $7 per hour. Wouldn't it be cool if we increased 3rd world immigration so much that I only had to pay him 5 dollars an hour?

Also, I hate American proles because they don't increase America's culinary diversity.

Of course, by this reasoning widget manufacturers also benefit by the entry of new low-cost competitors into their markets. The overall reduction in the price of widgets is compensated for by the fact that although fewer widgets are sold by existing widget makers, capital, at least in the form of widgets, is more readily available.

Actually, no. The analagous question is whether prices charged by US widget manufacturers would drop if foreign widget manufacturers moved their widget factories to the US.

US widget manufacturers face competition from other widget manufacturers whether those manufacturers move to the US or stay in their home countries. US native-born workers face competition from foreign workers whether those foreigners immigrate to the US or whether they stay in their home countries.

Suppose you care about world-wide inequality and are indifferent to inequality in your own nation/city-state/tribe or..... (There are obvious reasons to care about both, but just suppose the concern is only with overall inequality.) Tyler’s conjecture suggests that reducing barriers to immigration might lower inequality within the nation. Does it follow that those same policies might raise world-wide inequality?

Gee, I think it was about week three in Econ 101 that I learned about externalities.

Imported shirts don't require housing, new roads, schools to attempt to educate their children, don't (eventually) vote, don't direct subsidies like 'free' school breakfasts and lunches for all their children and pro-rated housing, WIC, SNAP and other benefits for their US born kids, don't require more police and fire resources to maintain the same level of per capita protection, etc etc.

BTW, in immigration inundated LA, the trucking industry (esp. at the port) has been taken over by Mexicans.

Oops, my bad, didn't read (or absorb) that last sentence. I stand by the substance, but apologize for the snark.

yet more simpleminded mental masturbation.

yes, immigration is bad. Period. And the major effects are not just felt on lower wage americans. And yes it is causing inequality. But inequality in and of itself is not the end-all be-all of the immigration question.

The real issue is how mass immigration decreases democracy and social capital. There are many ways that mass immigration does this. For one, mass immigration increases factionalization of the populace. The more factions, the less unity,.The less unity, the less able the populace is to unite against those at the top. Thus the majority cannot control the government. That means the corporations and plutocrats have yet more control.
Diversity is strength....for Capital. But it is weakness for Labor.

Social Capital? Dr Putnam's BOWLING ALONE research showed how diversity robs neighborhoods, cities, etc of social capital, of social cohesiveness.

And yes, in more pure economic terms (i.e., taking a simpleminded approach), supply and demand of Labor is a factor ignored by the corporate media.

I could go on and on....

If jobs are lost to automation, the capital is deployed in automation and wages rise. When capital leaves to build factories overseas, there is a net loss in capital and wages in the "losing" country.

These unemployed workers do not want to take jobs much further down the wage scale, so they become permanently unemployed. Some might be older workers taking early retirement. Low skill labor is imported to do the low wage jobs, but the children of these workers will not work for the same wages. Also, continued trade policies will mean more industry moves abroad, putting further pressure on wages and increasing permanent unemployment. Debt and asset values (home, 401ks) are used to maintain living standards, but when a cyclical downturn occurs, there is an more volatile adjustment that moves the economy to a new equilibrium of fewer people working and more people using government assistance. This trend will continue until the final adjustment, when asset values collapse, unemployment soars and the government can no longer maintain assistance. The currency collapses and the nation is unable to import consumer goods, struggling even to import energy. The result is a massive redevelopment of industry, probably high tariffs to protect the now developing industries, very low unemployment, high savings rates. In contrast, the "winner" countries now have massive overcapacity. The loss of export markets leads to crushing deflation and extremely high unemployment rates that are difficult to solve.

Those low wage jobs wouldn't be so low wage if there weren't so many workers being imported to do them.

Assume also, as many models do, that capital is more mobile than labor.

But is it? Money is more mobile than labor, certainly, but in most industries, there has to be some physical capital, which is often rather hard (expensive) to move once it's been installed. There's also a lot of "social" capital which affects productivity - roads, power distribution, local markets, support businesses - which are also hard (if not impossible) to move once installed. How easy would it be for an American manufacturer to "move" a maquiladora? It's not hard to close one, and opening a new one is just a matter of money, but how often is significant amounts of actual equipment moved?

The biggest concentrations of capital have a fairly limited number of countries it can move to. For example, semiconductor fabs require a country with a skilled citizenry, stable government, highly reliable utilities, a safe environment.

So this assumption that capital is more mobile than labor is false.

If technology is cutting the demand for low skilled labor (and it is) then bringing in more people to be unemployed and living on the dole is a really bad idea.

It strikes me the extent to which the economic profession's immigration-enthusiasm is requiring them to rewrite standard doctrines in the field. For example, it was an article of the free trade faith that getting rid of low-value added jobs (like clothing manufacture) via trade was a 'good thing for the economy'(tm). That is, the first step on the move up the industrialization ladder was to shuffle such industries of onto your still developing neighbors and start building, oh, motorcycles.

Now we are too believe that an advanced, post-industrial economy like the US is somehow benefitting by importing workers to enable it to hang on to low wage, low value added industries. Not only that, but by establishing such industries in places they have historically never existed, and which have relatively high living costs, like immigrant-inundated Los Angeles.

I think the argument is to let market forces determine where to locate the low wage, low value added industries, not to force the importation of workers to "hang on" to these industries. Removing immigration restrictions is different from coercing immigration.

Then the argument is wrong. Classical trade theory holds land, labor and capital fixed for a reason. Industries come nowhere near internalizing the costs of their imported workers. That's why California has one of the highest, if not the highest, tax burden in the country. People are not machine tools that a company can important, set up on it's own property, and forget about.

"Alternatively, letting in more low-wage immigrants limits outsourcing (or automation, as you wish) and keeps more capital in the United States. "

The biggest weakness in this argument is that most of the jobs immigrants take in the US are things that can't be outsourced - farm labor, construction, janitorial, food service, landscaping, meat no, they aren't stopping outsourcing or saving jobs for natives, They're taking some of the few blue collar jobs that can't be outsourced.

Once people come here, they don't go back. Should that not make us very cautious about increasing immigration? Many of the effects if mass immigration are relative slow to develop and the population increases caused by immigration build up over decade and centuries.

They cannot be reversed, not without taking drastic action like China's one-child policy.

Why do the 1% (and the people who want to live like them, with low paid and typically illegal immigrant nannies and housekeepers) in so many rich countries insist on bringing in more people? Why do so many of the 99% in these disagree?

Why we are insisting that we will make America's population in 2050, 2100 and 2150 far larger?

We have no idea what people then will want.

Future Americans can always bring in more immigrants, if they want.

Some of our richest and smartest Americans show great concern about the fate of immigrants in America and increasing the number of new immigrants that can come here in the future. And yet these same people show little to no concern about how American citizens are doing and what the future will hold for them.

Now what does that tell you?

"Future Americans can always bring in more immigrants, if they want."

Not without loosening immigration laws. We are yesterday's future Americans.

Who knows what immigration laws will be in 100 years.

The current Senate bill would greatly increase future legal immigration. And that would be on top of legalizing the currently illegal, and on top of the overseas relatives the newly legalized would bring in.

Immigration laws can be changed, by Americans today or Americns in the future.

I don't really understand what your point is.

It would be a lot of fun if Tyler had the courage to answer just a few of the 30-40 critical comments above.

Howcome a professor of economics cannot explain the benefits of massive low-skilled immigration to his reader?

Are we all just stupid and with no understanding of economics? We just dont know what is best for us?
But our economist do, but the economic truth about all the benefits of immigrationis is so complicated that it cant be explained?

What is the Koch position on this issue?

All you need to know.

Wrong. More immigration means more workers, and more workers means lower salaries and wages. That is supply and demand, and for those who are concerned about maintaining a strong middle class, that is a very powerful argument against more immigration.

Your argument here is based on pure numbers of workers, not cultural background or wage differences. Are American wages higher or lower as a result of having open "immigration" across state borders and across city boundaries? My guess is higher due to more gains from specialization of labor. If "more workers means lower salaries and wages", then we could increase our incomes by preventing people from moving from one city to another.

"If “more workers means lower salaries and wages”, then we could increase our incomes by preventing people from moving from one city to another. "

Which is exactly how Singapore and Hong Kong keep their relatively high wage economies. And I'll bet a lot of industrial workers in the midwest would dearly have liked to stop a lot of industries from moving to the sunbelt.

We have a polity -- I personally think it is too big, but there it is -- we don't need to expand our labor pool beyond the polity.

"""More immigration means more workers, and more workers means lower salaries and wages."""

It also means cheaper goods and services. Why don't the two don't offset?

Bad times are discouraging our own people from having kids.

The injustice of creating conditions that discourages working class and middle class Americans from having children -- but forces them to pay to educate and take care of immigrants and their children who are the tools the elite uses to drive down wages and keep them low -- is grossly unfair.

It largely negates their sacrifice. They didn't have a child so they could take better care of the one(s) they already had. But instead their rising taxes will cut into their savings.

America, what a country!

"In general, no. Let’s assume that the increase in inequality is driven by new technologies, such as automation, or by foreign trade."

Low-skill immigration increases inequality because low-skill immigrants have lower skills than the average American, meaning they will earn less and live worse than the average American. Am I missing something here?


What jobs do immigrants from South of the border work at?

I've worked most all of the jobs dominated by South of the Border immigrants and these jobs have almost nothing to do with capital intensive, exportable industry -- the jobs are agriculture, food packing, construction, domestic labor, restaurant labor, landscaping, etc


many low-skilled jobs are in agriculture or service sector. Thus even if it might be true that for the exportable industry sector the alternative would be to either keeping american low-skilled jobs with immigration or having these industries migrating abroad, it remains true that more immigration means more pressure for the wages of low-skilled workers.

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