Do immigrants depress wages?

This paper reviews the recent evidence on U.S. immigration, focusing on two key questions: (1) Does immigration reduce the labor market opportunities of less-skilled natives? (2) Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated? Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts. Nevertheless, data from the 2000 Census shows that relative wages of native dropouts are uncorrelated with the relative supply of less-educated workers, as they were in earlier years. At the aggregate level, the wage gap between dropouts and high school graduates has remained nearly constant since 1980, despite supply pressure from immigration and the rise of other education-related wage gaps. Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant.

That is from David Card, here is the paper.  And there is more:

On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least educated immigrant origin groups have closed most of the education gap with the children of natives.

What do the Iraqi insurgents want?

Rather than employing the classic rebel tactic of provoking the foreign
forces to use clumsy and excessive force and kill civilians, [the Iraqi rebels] are
cutting out the middleman and killing civilians indiscriminately
themselves, in addition to more predictable targets like officials of
the new government. Bombings have escalated in the last two weeks, and
on Thursday a bomb went off in heavy traffic in Baghdad, killing 21

More generally, the insurgency does not appear to have put forward any program or unifying vision; read more here

I have no particular expertise on the empirics, but from a game-theoretic point of view I can think of seven possible "strategies" at work:

1. Chaos is seen as a path to a new Sunni dictatorship.

2. The goal is not to impose a particular solution on Iraq, but rather to punish the U.S. for intervening, by making matters look bad. 

3. The attacks are fundraising events, just as one might hold a cocktail party for donors.  They help the rebels attain focality and make the headlines; the attacks are not domestic political tactics per se

4. Deliberate amorphousness is the best strategy against a determined and powerful United States.  U.S. public opinion must not be able to identify a discernible enemy.  Perhaps the U.S. is most likely to quit Iraq if we view the Iraqis as "crazy," or "not deserving of freedom."  We are less likely to stop thinking about a visible opponent, such as bin Laden.

5. Unlike Bob Lucas’s modeled rational expectations agents, Iraqi insurgents do not hold the "true economic model" in their heads.  Young men at war are notoriously overconfident.  Just as some al Qaeda members thought the U.S. was a weaker opponent than the Soviet Union, the Iraqi insurgency has some similarly crazy view of the world.  What we perceive as failure simply does not deter them much.

6. The insurgency is smaller than we think.  The violent actions we observe are the "noise" of a minority within a minority.  There is no rational explanation, but we had underestimated how much havoc a small group can wreak.

7. The insurgents are simply mad (how’s that for high-powered game theory?), read Jane Galt.

Unfortunately, all of these are possible, and in various combinations.  Nor do they point to any common direction in terms of policy recommendations for a response.

The economics of urban decline

The core intuition is that increases in housing demand boost supply, but supply is durable so declines in demand show up mainly in price.  Given this point, Ed Glaeser and Joseph Gyourko tell us the following:

1. Cities grow more rapidly than they decline.

2. Urban decline is highly persistent (you can be stuck deep in the range where new building is unprofitable).

3. Positive shocks increase population more than housing (there is an option value to not building right away).

4. Negative shocks decrease housing prices more than population (housing supply cannot contract readily).

5. The combination of cheap housing and low labor demand attracts individuals of low human capital to those locations.  Bill Gates does not live in Buffalo.

Here is the paper, a later version of which just appeared in the Journal of Political Economy.  Glaeser also has a recent paper explaining how much and why immigrant segregation has been increasing.

The World’s Banker

Then Suharto looked at [James] Wolfensohn. "You know, what you regard as corruption in your part of the world, we regard as family values."

That is from Sebastian Mallaby’s The World”s Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations.  This study of Wolfensohn is not only the best book on the World Bank, but it is one of the best books on both leadership and the economics and politics of bureaucracy.  It is also the most biting critique of NGOs I have read, and oddly, the most convincing extant defense of the Bank.  Here is Dan Drezner on the book.

I’ve also been reading Orhan Pamuk’s Snow, a fictional tale of Turkish secularization and religious opposition.  I’ll cite Pamuk, Jose Saramago, and W.G. Sebald as the Continental writers of the last thirty years who will still be read fifty years from now.

Will there be social security private accounts?

The betting markets say probably not.  For the contract stretching out to December 2006, the chance has been running about 27 to 29 percent for reform.

Thanks to Chris Masse for the pointer.  And elsewhere on the front, France is now expected to ratify the EU Constitution (running in the high sixties), Bolton is a virtual shoo-in, and, with Shaq on the bench, San Antonio is the favorite to win the NBA title.

Assurance Contracts

Many public goods and club goods exhibit increasing returns.  A lighthouse, for example, is useless unless complete.  It’s difficult to get voluntary contributions to these types of good not only because of the free rider problem but also because contributors fear that their contribution will be wasted if others do not also contribute.  An assurance contract makes contributions contingent on some level of total contribution being reached.

Assurance contracts can help to solve coordination problems.  I agree to contribute to build the lighthouse if and only if enough others also agree so that production is guaranteed. is making assurance contracts easier to implement.  If you want to raise money for a cause you can set up a Fundable group.  Contributions to the group goal are held by Fundable in escrow.  All money is returned unless the group goal is met.  If the group goal is met the funds are paid to the group leader.

It’s a cool idea but even more is possible.  In a paper published a few years ago, I show that the idea of assurance contracts can be extended to what I call dominant assurance contracts.  In a dominant assurance contract if the group goal is not met then everyone who offered to contribute is given their money back plus a bonus.  It turns out that it then becomes a dominant strategy to contribute and the public good is always provided!

AI for $13

I was skeptical when my wife handed me a small plastic toy saying, "think of something, after twenty questions it will guess."   But twenty questions later it answered correctly.  Weird and a little freaky.

20Q is featured today in Kevin Kelly’s Cool Tools.  He provides some interesting brackground information:

Burned into its 8-bit chip is a neural net that has been learning for 17
years. Inventor Robin Burgener programmed a simple neural net on a DOS machine
1988. He taught it 20 questions about a cat. He than passed the program around
to friends on a floppy and had them challenge the neural net with their yes/no
answers to the object they had in mind. The neural net learns only when it plays
a game; no data is added except for the yes/no answers of visitors. So the more
people who test it, the more they teach it. In 1995 Burgener put the now robust
neural net onto the new web where anyone could play it (that is, train it) 24
hours a day. And they did. Burgener’s genius was to turn the hard tedious work
of training a neural net into a fun game for humans.

Last year, after 1 million rounds of 20 questions online, the neural net had
accumulated 10 million synaptic associations. It has a 73% success rate of
guessing what you thought. Burgener then compressed the 20Q code to run on a
chip, and had the neural net select 2,000 of the most popular 10,000 objects it
then knew about. He then had the neural net select out the most useful 250,000
synaptic connections related to those 2,000 objects, and hard wired that
learning into the chip in the orb….

The toy is remarkable. Because it is so small, so autonomous, its
intelligence is shocking to the unprepared. Most children can’t stump it, and if
you stick to objects it will stump smart adults about 80% of the time with 20
questions and most of the time with an additional 5 questions. I love to watch
people’s reactions when they think of a "hard" thing, and after a seemingly
irrational set of questions you are convinced are dumb, the sly ball tells you
what you had in mind….

right now, for ten bucks, you can get an amazing little artificial
intelligence, about as smart as an insect — but an insect which specializes in
guessing what object you are thinking of. And in that part of the brain, it’s
smarter than you are.

Thanks also to Boing Boing Blog for the link.

What’s going on in the global economy?

Nouriel Roubini lays out five different views.  I think he overrates the degree of adherence to the specified "consensus" point of view, but the post makes for instructive reading.  You’ve heard my opinion before.  Yes the current situation is dangerous but we won’t gain from a revalued yuan until our fiscal house is in order, which I don’t expect anytime soon.  And as for the "consensus," it is embodied in market prices, which suggest that nothing terrible will happen soon.

No Representation Without Taxation

Nevada’s legal brothels are practically begging the state to tax them, hoping the extra revenue for schools, parks and health care will endear them to the public and give them more political security and, ultimately, more business.
    But the politicians are not interested…
"The governor just thinks it’s a local government issue and not part of his agenda," spokesman Greg Bortolin said. "He thinks, as well, that he would be affirming the industry if he came out in support of the bill."
    Nevada is the only state where prostitution is legal. But the state keeps the industry at arm’s length. It does not levy a business tax on houses of ill repute; it bars them from advertising; and it doesn’t allow them in the state’s largest urban area, Las Vegas.

Here is the story.

Why did the baby boom occur?

We should thank Clarence Birdseye.  Improvements in household technology, starting in the 1920s and 1930s, made kids easier to raise:

The mystery of the baby boom has not been cracked in economics.  The fact that the baby boom was an atypical burst of fertility that punctuated a 200-year secular decline adds to the enigma.  Conventional wisdom ascribes the baby boom to the effects of the Great Depression and/or World War II.  This story has several shortcomings.  First, for the U.S. and many OECD countries, it is hard to detect a strong structural break in fertility due to the Great Depression.  Second, fertility in the U.S. and many OECD countries started to rise before World War II.  Third, at the peak of the U.S. baby boom the most fertile cohort of women was just too young for the Great Depression or World War II to have had a direct effect on them.

The story told here attributes the secular decline in fertility to the tenfold rise in real wages that occurred over this time period.  This increased the cost, in terms of foregone consumption, of raising children.  The baby boom is accounted for by the invention of labor-saving household capital or other labor-saving household products and management techniques, which occurred during the middle of the last century…the increase in the efficiency of the household sector needed to explain the baby boom is not that large.

So let’s say you think demographic aging is a problem today.  What is the policy implication?  Subsidize complex robots?  Let people genetic engineer their kids?

The above passage is from "The Baby Boom and Baby Bust," by Jeremy Greenwood, Ananth Seshadri, and Guillaume Vanderbroucke, American Economic Review, March 2005.  Here is a free and earlier version of the paper.

The Canary is Dead

United Airlines, which is operating in bankruptcy protection, received
court permission yesterday to terminate its four employee pension
plans…The federal agency that guarantees pensions, the Pension Benefit  Guaranty Corporation,  will assume responsibility for the plans, which cover about 134,000 workers.

retirees could see sharply lower pension payments as a result; others
will see little change in benefits, depending on a variety of factors.
Some retirees at US Airways, which has terminated its plans, have seen
benefits drop by as much as 50 percent….United plans to switch its current employees from traditional
retirement programs, which are called defined-benefit plans, to
defined-contribution plans like 401(k) programs

Now, let’s review.  A large organization counts on its younger workers and continuing high revenues to fund the pensions and medical care of its retired workers but finds that rising health care costs, longer life-expectancy, and its own inability to control spending force it to cut pension benefits and switch to personal accounts.

Kinda makes you go hmmm…doesn’t it?