Economics of Immigration

Lloyd Green has an article out attacking immigration reform for undermining the American working class, and wonders why either party, but especially the Democrats, the supposed party of the working class, would support such a bill:

The legislation crafted by New York Democrat Chuck Schumer and Florida Republican Marco Rubio looks to grow the economy by suppressing take-home pay for those workers least able to afford it. Under their bill, “average wages would be slightly lower than under current law through 2024,” according to the Congressional Budget Office. So American workers, who have been battered by three decades of wage stagnation and now by a recent payroll tax hike, are being asked to take still another decade for the team…

Immigration has now become the latest example of the GOP ignoring its voting base. Silicon Valley and the denizens of Gucci Gulch are clamoring for a comprehensive fix, but Middle America does not view immigration as a national imperative. In fact, Middle America is poised to be hurt more than helped by this attempt at bipartisanship insofar as immigration will further test an already strained social safety net and drag down already stagnant wages.

From Green’s article it is not clear at all why either party would support a comprehensive immigration bill. However, this apparent paradox has a rather simple solution–Green’s article contains a number of distortions or misconceptions that misrepresent the benefit of immigration reform to the American people as well exacerbates the economic harm that would befall (only some) groups of current American workers as a result of immigration reform.

Green’s first mistake comes when he argues that immigration would be bad for the American working class because average wages under the comprehensive immigration reform bill would be lower at the end of the next decade than under current law. This seems to contradict economic research (nicely summarized by Matthew Yglesias) that demonstrates that immigration raises the average wages of current American workers. What explains the discrepancy? It’s pretty obvious…the CBO calculation involves both a numerator (income) and a denominator (number of workers). Immigration will raise wages for (almost) every group of current American workers, raising average wages for this group overall. However, immigration also (by definition) involves many immigrants that will come to work in America, and if immigrants come in and work primarily low-wage jobs, you can see how wages could rise for all current workers in America but average wages could drop in 2024 because of the influx of low-wage workers.

What’s so perverse is that working low-wage jobs would actually be a net gain for the immigrants as well (relative to the wages they could earn in their home country), and immigration drives down the cost of consumer goods and services, which is good for all American workers. Not to mention the fact that increasing the tax base will help to shore up transfer programs that depend on a large working base, like Social Security and Medicare.

It should be noted that immigration isn’t good for every incumbent group of American workers (from Yglesias):

Borjas also says that immigration of Mexican workers raises average
wages of American workers. But it lowers the wages of the ~12 percent of
American adults who don’t have a high school degree…

So, immigration isn’t good for low-skill American workers, which makes sense because that is precisely the group that would be competing with immigrant workers for jobs. However, the picture is even more complex than that:

the population of American workers includes many people who were born in Mexico and Mexico-born Americans are disproportionately likely to fall into the low-skill category…

Indeed, according to Heidi Sheirholz Mexican immigration raises the wages of the typical US-born high school dropout.

It turns out that immigration is good even for US-born American workers without a high school degree. This is because low-wage workers with different skill-sets are complementary; that is, an influx of low-skill immigrant workers all of a sudden makes something like speaking English a labor-market ‘skill.’ And if you increase the supply of non-English speaking, low-skill workers, you also create more opportunities for low-skill service jobs that require the use of the English language. As such, the only group of workers in America that loses out as a result of more immigration are prior immigrant workers.

This really gets to the heart of the most damning critique of Green’s piece–for Green sees an economic calculus at play in the debate over immigration reform; but, if that were truly the driving force behind immigration reform, retirees in America and medium to high-skill workers in America would be demanding open borders, while groups of past immigrants would be demanding a halt to immigration reform. Instead, as Yglesias argues, you get the reverse scenario, whereby support or opposition to immigration reform is driven by cultural affinity or phobia rather than economic calculus.

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One thought on “Economics of Immigration

  1. Pingback: Immigration Redux | lil stevie's econ blog

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