Immigration and top income inequality

Immigration and Top Income Inequality
Draft coming soon
Top income inequality rose sharply in the U.S. over the last 35 years. A majority of that can be accounted for by right-skewed salary income. Many hypotheses have been proposed to explain this phenomenon, including creative destruction by entrepreneurs and a decline in top tax rates. This paper proposes an additional channel through which highly skilled immigrants change the underlying talent distribution and thus raise top income inequality. This channel is supported by the empirical observation that immigrants are increasingly represented among top income earners. To quantify the magnitude of this channel, I construct a general equilibrium model with heterogeneous agents and polarized immigration flow as observed in the data. Based on my preliminary calculation, the change in immigration patterns can explain 10 – 15% of the observed rise in top income inequality in the U.S.

I hope Rui Xi will give us the draft soon…

Comments

How many immigrants in the Forbes 400?

It looks like 37 (9.25%) as of 2013:

http://www.forbes.com/sites/andreanavarro/2013/09/18/american-dreams-foreign-born-members-of-the-forbes-400/#4577df3a6df6

I don't think anyone particularly cares if we steal the best and brightest from the rest of the world. That's an American strength, not an American weakness. Bring on the geniuses!

Caveat: correct the political process so political results reflect the will of the people. The last thing we need is to import a new ruling class from the rest of the world, if the rest of the world is so screwed their smartest people all come here.

Actual problem: What's with all these uneducated people that don't speak English? Is it really that important for the construction industry to have a million undocumented workers that cannot communicate with 90% of the American population?

Generally speaking, high skilled immigrants are a net positive for the country. It's the large mass of low skilled, illegal immigrants that are a concern. And even that situation is manageable as long as the rate is low enough for cultural assimilation and that the tax rate on low skilled illegal immigrants is high enough to cover the public sectors costs associate with them and their families.

We're now up to 17.5% of the population Hispanic, which obviously has had an impact in pushing inequality in America toward Latin American levels.

We browns can't help it if you whites are slackers. Quit complaining and get back to work.

What if we take a bird sanctuary, will that help?

How many Nobel Prizes have Mexicans won?

How many Mexican Footballer of the Year awards have Swedes won?

Serious Question.

Excellent answer.

How many have you won, Jim?

In Steve's world, all the white people are from the Upper East Side, not West Virginia

Average IQ of West Virginian population is 99. Average IQ of Mexican population is 89.

If you started a pessimist, you should be pleasantly surprised that developing nation IQ is converging with the developed world

http://www.dailymail.co.uk/sciencetech/article-2975793/Are-humans-intelligent-Research-suggests-IQ-scores-getting-steadily-higher.html

Is it worth it for Mexicans to try harder at school? Or are there more useful skills for them to learn than the ability to perform on some standardized test?>

Go trim those hedges, brah.

Isn't your whole schtick that you think that's a white dude's job?

illegals adding to the left side of the curve, fed asset inflation pushing up the right side of the curve... That's so obvious that it would take a PHD in a social science not to see it.

This should be very apparent to Riu in Palo Alto even if she never left campus or university avenue. Visit any restaurant (organic farm to table, of course) and the contrast between the angel investor table-talk and the very poor Spanish gibberish in the kitchen would point the way.

Word.

And then there's the interaction effect: billionaires overwhelmingly favor more immigration in order to drive down wages (e.g., Mark Zuckerberg's FWD.us).

None of this is terribly mysterious.

Billionaires + Merkel... Well of course she didnt decide this on her own, probably the whole "Bilderberg elite" wants it ....

((((Soros)))) and the ((((Bilderberg elite)))).

I agree with you, Steve. And yet, for the guys who think they're the smartest people in the room, all of this seems extremely difficult to understand.

I'm sure there are many billionaires who want lower wages, but who exactly does Mark Zuckerberg underpay? I doubt he uses H1B visas for his janitorial staff.

Ah, someone either has a new piece of equipment/software, or the person doing the cutting and pasting hasn't learned the ropes yet. I'd go with the second, but then, that's what would one expect from a disloyal reader.

"...one expect from a disloyal reader."

Oh, I personally think of you as an avid, obsessed anti-fan.

"the change in immigration patterns can explain 10 – 15% of the observed rise in top income" So what he or she is telling us is that it doesnt explain that much.... because you know 85%-90% is not explained by this :D

Bingoooooo. "Red Herring."

Not that the finding is not interesting, but our political conversation revolves around the remaining 90%.

I think that's a valid point, but you can't explain the total very well if you can't break it down to its components. And 10-15% is a significant component.

Immigrants come in a wide variety of talents and economic status, including the highly skilled (physicians, programmers, etc.) and the very wealthy (who have been moving themselves and their assets to the U.S. for safety as well as returns) as well as the low-skilled and poor (Trump knows who they are). While information about the identity of the wealthy may be interesting, it doesn't address the core issue whether a high level of inequality is an economic problem or simply a social problem. Of course, defenders of a high level of inequality would never acknowledge that it's an economic problem because if they did, the game is over - defending excessive inequality would be comparable to defending cancer.

It doesn't help your cause to use immigration to toss bourgeois into unremitting competition with the global rich for housing and education, and proletariat into race to the bottom with global poor for wages.

The notion that inequality cannot become bad for an economy when inequality gets "too high" appears to become a very ideologically intertwined issue for a lot of people.

'immigants! I knew it was them! even when it was the bears, I knew it was them!'

Diminished inequality in the U.S. in the middle of the last century has been attributed in part to the restrictions on immigration adopted in the 1920s, along with higher tax rates for high income earners, falling asset prices, and the adoption of social welfare programs. Kevin O'Rourke, Globalization and Inequality: Historical Trends (2001). Taking a global view of inequality provides a better picture of its dimensions, causes, and consequences, but even a global view is necessarily a snap-shot of a particular time; thus, a paper written in the year 2000 might conclude that globalization diminished both cross-country inequality and with-in country inequality in the developing world and increased with-in country inequality in the developed world, while a paper written in 2010 might conclude that globalization diminished cross-country inequality and increased within-in country inequality in both the developed and the developing world.

one major reason for why the rich get richer as immigration increases is that diversity divides.

Immigration increases diversity.

As the populace become more diverse, the common shared interests decreases.

As the populace become more diverse, the expressed will of that populace become more diffused and weaker.

A homogeneous population has a greater degree of shared common interests with each other, and so therefore the expression opinion of that populace has a high degree of solidarity.

A heterogeneous population has a lower degree of shared common interests with each other, and so therefore the expression opinion of that populace has a low degree of solidarity.

A populace that is united is better able to control their own politicians by holding them accountable.

A populace that is less united is less able to control their own politicians by holding them accountable.

When you have a diverse populace, which cannot control the government, the rich can therefore better control the government and use that government to increase their own wealth.

QED

You may now return to your regularly scheduled pseudo-debate

There's strength in diversity.

Indeed. Similarly, there is peace in war and slavery in freedom.

I heard that monoculture planets thrive at developing advanced civilizations.

there is strength in diversity--for the rich

There's instability and war in diversity.

Well there's also instability in diversity in material sciences, too.

If you're racist, maybe.

When you break down that quote I don't think it really makes sense. Something that is unified tends to be stronger than something that is divided. I mean, you can actually have a significantly larger army than your opponent, but if it is spread into 5-6 equally sized parts, while your opponent has an army 1/2 the size of yours that is unified, he can crush your entire army with fairly minimal losses by overwhelming each of the individual, divided portions with his united force (all else equal).

The 'strength in diversity' phrase is a platitude that's been tossed around for years that doesn't seem to have been deeply thought through. My suspicion is that a society with a coherent mission, able to get the majority of its members marching in lock-step to accomplish said mission will eventually crush a society that emphasizes diversity at the expense of more palpable components of strength.

diversity is strength is a propaganda phrase designed to make the rich richer.

And then there are the people who took first year biology and think the basic logic is a no brainer.

My time in Japan shattered my view of diversity = strength. Here was a country with zero diversity and everyone was racist...and they were doing just fine.

https://www.youtube.com/watch?v=lI0cRfHCfzk

Japan has been one of the most successful societies on Earth over the last 1500 years. It clearly illustrates the advantages of racism and xenophobia.

When the last time Japan ever contributed anything novel to the world that doesn't belong in the category of "weird trends" or "very expensive things with unnecessary frills".

@Kaleb - research composite materials and their performance vs uniform materials like a mono filament metal, then get back to us Kaleb.

There's strength in diversity. And numbers. Mostly however there's economic performance if the economy is open, and that would include open borders. Case closed.

Huh. That must be why Israel is so impoverished: they won't open the borders with Palestine, Lebanon or Syria. Japan, South Korea: people starving in the streets for lack of cheap immigrant labor.

The EU opened its borders. Now they've got over a million unassimilable tax eaters, and about 50,000 more arriving each month.

Diverse societies are always in a cold or hot state of civil war. History is merciless.

"Diverse societies are always in a cold or hot state of civil war. History is merciless."

This seems to be folklore among some, but I've never seen someone actually try to defend the statement with anything related to facts, etc.

If everyone's the same then we go nowhere new.

Capitalism thrives due to the dynamism provided by diversity in a free market. Same goes for people - if we're all the same then it's hard to break new ground.

That post should have been connected to the original post.

Imagine if one country had the top .1% of global talent and pay scaled directly with talent. Since America has 5% of the worlds population, if it sucked up all of the .1% globally then the top 2% in the US would look like the top .1% previously did everywhere else, increasing "inequality". Not to mention that the top .1% is now gone from everywhere else, decreasing inequality there.

I favor a point system for immigration, and yes, this would probably imply "more points" for immigrants than the median native. It follows.

Locally immigrants pay millions in cash for homes (or for those the next level up, offshore corporations pay tens of millions for the homes they live in). It happens, but enough to really move the national numbers for inequality? That would be an interesting result.

So what's the method for testing whether high skilled immigration caused anything, or that the policies and economics shifted to facilitating higher returns to high skill and the high skilled migrants simply benefited?

The former hypothesis is basically "Returns to skill didn't change; just the absolute % of very highly skilled persons (through immigration)" the latter is more like "Highly skilled people actually became increasingly well compensated (and they just happen to be migrants and maybe there happen to be more of them)"

Interesting idea. I look forward to the paper.

I wonder if the study controlled for the following:

1. Family of the Immigrant is in the top 5% of the income distribution in the home country, where he/she is either educated in the country at an elite institution or trained as a doctor, for example, or is on a student visa in an elite institution, with education again funded by the parent.

2. Student then stays in the US and is in the top 5% of the US distribution.

3. Is this the economic mobility that we are assuming immigrants made themselves, without the assistance of money from home. Ask yourself this question: How many immigrants with no education, and whose only possession is a leaf blower, became a person making more than $400 k a year. I know of many doctors whose parents paid their way (at home or abroad), but not many leaf blower immigrants who got to $400k.

4. Maybe we are just looking at transference of elites.

Getting an education from an elite institution does not have to imply that one's family is loaded. To give the example of India, entrance to the elite IIT engineering schools is purely meritocratic (or used to be when I was there in the late 90s), and a lot of students from very modest backgrounds go there. Similarly, attending graduate school in the US (at least in the top tier or two) following such an elite education also requires no self-funding for those who get fellowships, TAs, or RAs.

"including creative destruction by entrepreneurs and a decline in top tax rates."

The Laffer lives.

"This paper proposes an additional channel through which highly skilled immigrants change the underlying talent distribution and thus raise top income inequality. This channel is supported by the empirical observation that immigrants are increasingly represented among top income earners."
Yes, but that does not mean that immigrants may also be over represented among lower income earners. If the distribution of immigrants among income earners is U shaped, wouldn't that mean the total contribution to income inequality is greater than the 10-15% found solely for those among top income earners? Immigration could easily account for as much as a third of total income inequality.

It is an interesting topic, but I hope this new analysis takes into account the reduction of top incomes by taxation and the improvement of low incomes by EITC, SNAP, subsidized housing, Medicaid, Head Start, scholarships, etc. I'd like to know what, if any, effects these programs are having.

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