Why I believe David Card’s results on immigration and wages
As MR readers will know, a famous David Card paper shows that the presence of many immigrants in a city does not much lower wages, if at all.
The obvious rejoinder is that cities with growing wages might attract more immigrants. The new immigrants will cause local wages to fall back down, resulting in a lack of regional correlation between wages and immigration. Without the immigrants maybe those locales would have had higher wages. So what does the Card paper really show?
Keep three points in mind:
1. The skeptical story does not consider all possible adjustments. Had there been no new immigrants in the growing cities, American workers would have moved in to take advantage of the higher wages, thereby pushing wages back down again. The U.S. has the most mobile labor supply of any developed country. So the net wage depression effect of new immigrants — taking all supply adjustments into account — still would be zero or very small for many places.
Note that this point, while it responds to Card skeptics, also creates some problems for the Card paper. It suggests that the labor market is defined at the level of the nation as a whole rather than the city or region. It is then no surprise — no matter what your view of immigration — if local labor conditions do not much correlate with local wage levels.
But invoking this point about the national scope of the labor market also blunts fears about how immigrants depress wages. Suddenly the question is not how many Mexicans are pouring into Texas, California, and Arizona. The question is rather how many Mexicans are pouring into the United States. But the larger the relevant market size, the better a job we will do absorbing immigrants. And the smaller the effect on domestic wages we should expect. To run a contrasting thought experiment, just try putting them all in Geneva, or better yet Soglio.
2. Have I mentioned capital mobility? Foreign capital flows into the U.S. all the time. Even when the Chinese buy T-bills, this frees up domestic private capital to put more people to work. Having more immigrants encourages more capital to flow in. If both labor and capital enter the country, there is no reason to expect immigration to lower domestic wages.
3. Are rising wage levels the key factor in drawing Mexicans to a region? El Paso appears to be one counterexample. In many cases proximity to the border and clustering effects seem to be more important. In that case the Card test has less of a problem with endogeneity. Still, I do not know the formal evidence on this point, so in the comments please pass along your expertise…
Measuring sports performance
Yesterday I learned the following:
1. Team payroll and team wins are not strongly correlated in the major U.S. sports.
2. Labor disputes and lock-outs do not have a long-run negative effect on attendance and receipts.
3. Problems of competitive balance come from the distribution of playing talent, and sports leagues do not much remedy the problem by salary caps and the like.
4. In the NBA, team wins attract crowds more than does star power.
5. The great NBA players do less to make their teammates better than is often supposed; in fact many great players make their teammates worse.
6. In statistical terms, the better players do not play much better, if at all, during the NBA playoffs. (TC: But for sure they try harder, especially on defense.)
7. NBA decision-makers do not seem to understand the value of players. In particular they tend to overvalue scoring.
All of that is from the new The Wages of Wins: Taking Measure of the Many Myths in Modern Sport, by David Berri, Martin Schmidt, and Stacey Brook. Here is the book’s home page. Here is the book’s blog. Here are my early season NBA predictions.
Addendum: Here is Malcolm Gladwell’s review.
Tim Harford on the arts
I searched the internet for “Don Giovanni abridged”. It turns out,
incredibly, that such a work exists and was performed in New York this
month. Emperor Joseph II, take note.
There is more, including a discussion of Kelvin Lancaster and also yours truly.
How and why Virginia Postrel gave her kidney
Markets in everything, part I
I was pawing through the archives, and I found the very first installment of "Markets in Everything."
Sensation seekers trade stocks more frequently
This study analyzes the role that two psychological attributes–sensation seeking and overconfidence–play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor’s tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.
Here is the full paper.
Family day in Ohio
"Tim Harford says we shouldn’t buy rental car insurance!" That was not The Economist in the Family, that was Natasha (!).
Which Mexicans end up coming here?
Here is a long and valuable paper on the topic. From the abstract:
Consistent with positive selection of emigrants in terms of observable skill, emigration rates appear to be highest among individuals with earnings in the top half of the wage distribution.
There is much more along those lines. To be frank, I know this paper will not convince most of the skeptics. They will say, or perhaps think, "Yikes, what must the others be like?" But at the very least evidence should improve a debate. The next time you hear it argued that we receive "the dregs" of Mexico, send along this link.
The paper also finds that wages tend to rise in parts of Mexico where many people leave. You could argue this one of two ways. First, it might cause you to doubt David Card’s view that wage effects in the U.S. are small (although the U.S. is a much bigger economy and thus the labor shift should have a smaller impact here). Second, it raises our estimate of how much Mexico benefits from emigration.
Thanks to Eric Husman for the pointer. Here is another relevant paper on Mexican emigration, forthcoming in the Journal of Economic Literature. Full of facts, as they say.
Bryan Caplan speaks
"Direct observation of immigrants leads to more reasonable beliefs about the effects of immigration."
Bryan offers evidence that living near many immigrants is more likely to make you pro-immigration.
A contrarian look at CEO pay
Here is my latest New York Times column (non-gated). Excerpt:
Their [Gabaix and Landier) core argument is simple. If we look at recent history,
compensation for executives has risen with the market capitalization of
the largest companies. For instance, from 1980 to 2003, the average
value of the top 500 companies rose by a factor of six. Two commonly
used indexes of chief executive compensation show close to a
proportional sixfold matching increase (the correlation coefficients
are 0.93 and 0.97, respectively; 1.0 would be a perfect match).
By the way, Japanese CEOs are paid much more than many popular or Internet sources indicate. American CEOs are paid about three times more than their Japanese counterparts (on average), but not forty or so times more.
Rockonomics
"Early on in the entertainment industry, it’s in the interest of the business to think of themselves as throwing a party, not selling a product. I think they attract more of a following that way," he said.
"But over time, the industry takes more the form of a market and is driven by market forces. The Superbowl initially felt like it was rewarding its fans. But then it becomes established and the League finds it in its interest to push up prices."
That is Alan Krueger, from this BBC article on his work on the economics of rock music. Hat tip to EconBall blog.
Markets in everything, literary edition
A first-time author has bypassed the traditional route of getting an agent, and is publishing a collaborative thriller on eBay. The novel is being written one page at a time, one writer to a page. As each installment is finished, the chance to create the next is offered for auction on eBay. So far, 17 pages have been completed, with 234 to go, and while the quality of the writing might charitably be described as variable, there is no shortage of plot.
By the way: "Money generated from page auctions goes to Macmillan Cancer Support."
Mexico fact of the day
Currently, 451,000 Mexican students are enrolled in full-time undergraduate [engineering] programs, vs. just over 370,000 in the U.S.
That is from Business Week, 22 May 2006, p.47.
Evidence on Latino assimilation
Here is one good short piece. Try this also. If you have comments, please leave them on the previous thread on assimilation.
Bordeaux bleg
Next week I am headed to Bordeaux for the inaugural meeting of the Society for Quantitative Gastronomy. How will they react to hearing I am not (yet?) much of a wine drinker? They will be talking of Michelin stars and the econometrics of wine prices; I will be harping on Texas barbecue, Sichuan peppercorns, and why Hyderabad has the best Biryani.
Your suggestions for Bordeaux, wine or otherwise, would be most welcome. I might have a free day or two for a side trip as well.