Friday, November 04, 2005

The surprising economics of unsanctioned immigration

When, on the cartoon South Park, unwanted immigrants from the year 4035 began using a time machine to come work for low wages (with interest-bearing accounts, the practice made them wealthy in their own time), the hysterical rallying cry from verklempt locals was, "They took our jobs." If a new study is correct, though, they could have added, "And gave us better paying ones."

It turns out, not only do more Americans have friends who are immigrants, those friends may be making them better off. A new, more sophisticated model of the economic effects of immigration shows that, counterintuitively, it may actually lift wages, reports the New York Times ("Yes, Immigration May Lift Wages," Nov. 3). Here's the argument:

In "Rethinking the Gains From Immigration: Theory and Evidence From the U.S.," Gianmarco I. P. Ottaviano of the University of Bologna and Giovanni Peri of the University of California, Davis estimate that immigration in the 1990's increased the average wage of American-born workers by 2.7 percent. (The paper is available at

Although it still relies on a highly stylized model of the economy, their paper adds two complexities that bring it closer to reality.

First, the two economists assume that businesses can make additional capital investments to take advantage of the expanded supply of workers. Companies may open new restaurants or stores, add new factory lines or build more houses.

In their model, as in the real world, "investment adjusts not to keep fixed the amount of capital but to keep fixed the return to capital," Professor Peri said. As long as businesses can profitably add new production, they hire more workers, and wages do not necessarily go down. Instead, he said, "more workers means more business."

As businesses expand, hiring foreign-born workers to do one job may also require hiring more native-born workers with complementary skills. Immigrant engineers, for instance, may create demand for native-born patent lawyers and marketing executives.

That is the paper's second refinement. It assumes that immigrants do not always compete for the same jobs as American-born workers. The two groups are not "perfect substitutes," even when they have similar education and the same occupation. A Chinese cook is not the same as a Texas barbecue chef.

Immigrants often bring different skills to the American labor force, and concentrate on different occupations from natives. Among high school dropouts, the paper notes, the "foreign-born are highly overrepresented in professions like tailors (54 percent were foreign-born in 2000) and plaster-stucco masons (44 percent were foreign-born in 2000)." By contrast, American-born workers make up more than 99 percent of all crane operators and sewer-pipe cleaners.

The same is true at the highest educational levels, where foreign-born college graduates make up 44 percent of all medical scientists but only 4 percent of lawyers. (Immigrants tend to be concentrated at the highest and lowest levels of income and education.)

If that's right, then it's hard to justify the polticized anti-immigrant bashing that the New Republic says has become a "marquee political issue in the South" ("Immigration migrates: Going South," Nov. 3). The immigrants picking up jobs at day labor sites aren't taking jobs from Americans -- they're creating small businesses for the guys in pickup trucks hiring them. Once again I find myself wondering, exactly what's the big deal?

No comments: