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Wednesday, November 30, 2011

Chuck Semiinformed vs. Carl Concerned By Chuck McGlawn 11/30/2011


The Problem
A recent poll taken by New York Times/CBS News poll, revealed that an overwhelming 74 percent of the American people, one of whom is Carl Concerned believe that illegal immigrants weakened the US economy, while there was only 17 percent who said they strengthened it. One must ask; why is there this lopsided result? Especially when over 95% of the people that should and would know, the economist who literally study this subject say, report that illegal immigration strengthens the economy. And they could be an even greater benefit to our economy, if while they are looking for work, they didn’t have to constantly “look over their shoulders”.
The History
How did we get to these contradictory results? A brief history is in order.
My history will glimpse the past through to lens of the free market system.  This teaches that whenever government involves itself in any enterprise, distortions will be the norm. It is as true today, just as it was in years between 1850 and 1880 when the US Government was subsidizing the construction of railroads in the west. Now if the demand for the railroad is spawned by a free market signal, the ability to pay the “going wage” would have been there. However, the US subsidization of railroad expansion and the huge profits to be made at the government trough created a bubble in the demand for labor, 55,000 migrant workers were hurriedlybrought into the former Mexican territories to fill that demand.
Immigration really picked up in 1910 with the Mexican Revolution; over 50,000 Mexican workers immigrated to the United States every year looking for jobs, and our leaders welcomed them as long as there was a need for them-they proved particularly useful during World War I.
It seemed whenever the United States found a reason to close the door on Mexican immigration, a historic event would force them to reopen that door. Such was the case when the United States entered World War II. Domestic labor was either in uniform or siphoned from all areas of US industry and poured into the support of the war efforts. The Bracero Treaty (1942 and 1964) reopened the borders for legal immigration of Mexican laborers to work temporarily on contract to US growers and ranchers. The Mexican work force was critical in developing the economy and prosperity of the United States. Impoverished Mexicans traveled north to work as braceros. It was mainly by the Mexican hands that America became the most lush agricultural center in the world.
The Reality
The overall effect may be positive, but its costs and benefits are distributed unevenly. David Card, an economist at the University of California, Berkeley notes that savings to meatpacking plants in Nebraska, agribusinesses in California’s Central Valley translate into lower prices at the store, but consumers never make that immigrant/lower prices connection?
Native low-skilled workers suffer most from the competition of foreign labor. According to a study by George Borjas, a Harvard economist, immigration has reduced the wages of American high-school dropouts by 9 percent between 1980 and 2000. Among high-skilled, better-educated employees, however, opposition was strongest in states with both high numbers of immigrants and relatively generous social services. That opposition appeared to soften when that fiscal burden decreased, as occurred with welfare reform in the 1990s, which curbed immigrants’ access to certain benefits.
The Agendas
Distorting the effect of immigration on the US Economy is no difficult task. All it requires is an uninformed populace, (no shortage there.) and a problem. The uninformed have a tendency to blame their current problems on the current “Devil” There are many “Devils” simply because there are many problems. If the problem is inflation the “Devil” is the Federal Reserve System.  If problem is the outsourcing of jobs then the “Devil” is greed. However, if your problem is the current recession, low wages and high unemployment your “Devil” is probably Illegal Immigration. The results: up pops a Cottage Industry of forwarding e-mails, and You-Tube videos about some isolated stories about the horrors of immigration. Some of the stories you get are the truth, some are half-truths and some are outright fabrications. Many if not most are the effects observed in an isolated place by a single individual that may have an agenda and he may see things and report his observations in a way that supports that agenda.
This leads to such e-mails as Joe Legal vs. Jose Illegal, which is a complete distortion, at a frightening level of competence.
The premise of Joe Legal vs. Jose Illegal is incorrect. According to Mark Kirkorian, the Executive Director of the Center for Immigration Studies (See below)“Most illegal immigrants work ON THE BOOKS (Emphasis added) They have given a fake or a stolen Social Security number…”  This means they are paying the same Income Taxes that Joe Legal pays, with no hope of getting a refund check if they overpay. This also means that they are paying the same Social Security Taxes as Joe Legal. [Other illegals also work ON THE BOOKS when they apply for and get ITIN (Individual Tax Identification Number) This group volunteers to pay Income and Social Security taxes.
[The Center for Immigration Studies is an organization that not only vigorously opposes illegal immigration they oppose the high level of legal immigration. On their web site they admit that, “The data collected by the Center during the past quarter-century has led many of our researchers to conclude that current, high levels of immigration are making it harder to achieve such important national objectives as better public schools, a cleaner environment, homeland security, and a living wage for every native-born and immigrant worker.”]

In my Blog Post, "Who You Gonna Believe The Undocumented E-Mail or Your Lying Eyes.  I was borrowing from a story of a husband denying unfaithfulness after being caught by his wife in bed with another woman by saying the only thing he could say that might delivery him from obvious guilt, by saying, “Who are you going to believe, me, your long time husband or your lying eyes?” All the confirmation that illegal immigration is a NET GAIN to the US economy is everywhere to be seen, but 74% are going to believe the undocumented e-mails.

That Blog Post covering the NET GAIN of illegal immigration, attracted one of the 74% that believe that illegal immigration weakens the US economy. I have named him Carl Concerned.  This Blog Post was inspired by by my exposure to the fourth or fifth in depth study, entitled, The Effect of Immigration on the total output and income of the US economy  I did not understand half of what he said less than 10% of what his mathematical formulas proved. However, I did understand when he said, “Statistical analysis of state-level data shows that Statistical analysis of state-level data shows that immigrants expand the economy's productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

I also understood  when he said his findings could be confirmed by a study of, see Borjas 2006; Card 2001, 2007, 2009; and Card and Lewis 2007. I scanned those studies, I understood even less of what they said. However, the one thing they all said, that being, most economist agree that illegal immigration is a NET GAIN to the US Economy.

Then I read, Why Americans (Wrongly) Think Illegal Immigrants Hurt The Economy ByArian Campo-Flores (Not an economist) I understood almost all of what he said, including, “…the consensus among most economists is that immigration, both legal and illegal, provides a small net boost to the economy.
Before I go on, let me say that I believe Carl is concerned. I further believe that Carl believes that illegal immigration is a drain on our economy.  But alas Carl has had too much propaganda and not enough cause and effect. I believe Carl has had too many undocumented anti-illegal immigration e-mails and not enough objective studies.

Carl Concerned accused me of only giving the positive side of the illegal immigration story, and if I was to be objective I would have to give both sides. Please note, gentle reader who is giving both sides and who is being subjective? When most economist say immigration, both legal and illegal is a NET GAIN to the US economy, that takes in both sides. However when Carl says California alone spends $20 Billion educating the kids of illegals, he does not cover the other side. He is not told that many of the children of illegals were born in the US, making them Citizens. He does not say that embedded in the rent that illegals pay for their apartment or house is money the landlord collects and pays to the State for property taxes, and that half of the property tax goes to support government schools.
The only documented numbers he gave were: the Federation for American Immigration Reform (FAIR) wrote in its Feb. 2011 article said, "Illegal immigration costs U.S. taxpayers about $113 billion a year at the federal, state and local level… The annual outlay that illegal aliens cost U.S. taxpayers is an average amount per native-headed household of $1,117... Education for the children of illegal aliens constitutes the single largest cost to taxpayers, at an annual price tag of nearly $52 billion...
When I asked if I showed the flaw in those statistics would he favor a more open border policy? He declined, just like he declined when he challenged me to name even one modern nation that had an open border policy. When I challenged him to agree with more open borders if I could name more than three, he declined.
Let me say it again, the Federation for American Immigration Reform (FAIR) wrote in its Feb. 2011 article said, "Illegal immigration costs U.S. taxpayers about $113 billion a year at the federal, state and local level… The annual outlay that illegal aliens cost U.S. taxpayers is an average amount per native-headed household of $1,117... Education for the children of illegal aliens constitutes the single largest cost to taxpayers, at an annual price tag of nearly $52 billion... Let me leave it open ended. Does any of the readers see even one of at least four flaw in that statement. And Carl, If I can show four flaws will you be in favor of more open borders????????


Wednesday, November 23, 2011

Joe Legal vs. Jose Illegal (Part 2) by Chuck McGlawn

An unsigned e-mail, “Joe Legal vs. Jose Illegal”, has been floating around the internet for a few years. It is a metaphor for all the legal families and all he illegal families in the US. The Message, Illegal Immigration hurts YOU and YOUR FAMILY.

The e-mail starts with: You have two families: "Joe Legal" and "Jose Illegal". Both families have two parents, two children, and live in California.

The premise: Joe Legal works in construction, has a Social Security Number and makes $25.00 per hour with taxes deducted. Jose Illegal also works in construction, has NO Social Security Number, and gets paid $15.00 cash "under the table".

This premise is followed by comparisons in the results that lead the reader to the conclusion that indeed, Illegal Immigration hurts YOU and YOUR FAMILY.

However, Logic teaches that if your “premise” is correct, and your logic is correct your conclusions will be correct.  However if your “premise” is correct, and your logic is incorrect your conclusions will be incorrect. Surprisingly if your “premise” is incorrect, and your logic is incorrect, you do not know if your conclusions are incorrect or not. Lastly, if your “premise” is INCORRECT, and your logic is correct your conclusions will be INCORRECT

In Joe Legal vs. Jose Illegal the premise is INCORRECT, it states that Jose Illegal also works in construction, has NO Social Security Number, and gets paid $15.00 cash "under the table."

That is not true, says Mark Kirkorian, the Executive Director of the Center for Immigration Studies [This is an organization that not only
vigorously opposes illegal immigration they oppose the high level of legal immigration. On their web site they admit that, “The data collected by the Center during the past quarter-century has led many of our researchers to conclude that current, high levels of immigration are making it harder to achieve such important national objectives as better public schools, a cleaner environment, homeland security, and a living wage for every native-born and immigrant worker.”]

During a debate at the Cato Institute Kikorian said, “Most illegal immigrants work ON THE BOOKS (Emphasis added) They’ve given a fake or a stolen Social Security number…” This means they are paying the same Income Taxes that Joe Legal pays, with no hope of getting a refund check if they overpay. This also means that they are paying the same Social Security Taxes as Joe Legal. (Please remember whatever is taken out of Jose Illegal’s pay is matched by their employer, and sent to the Federal Government.) Jose Illegal does this with no hope of ever collecting any social security money. It means that their Social Security payment goes to the government, and the government uses the money to cover current Social Security checks (maybe yours).

You can see the debate at http://www.cato.org/event.php?eventid=7334. I invite you to watch the entire debate, but you can hear the above quote soon after the 45 min. mark.

So when the E-Mail says, “Joe Legal: $25.00 per hour x 40 hours = $1000.00 per week, or $52,000.00 per year. Now take 30% away for state and federal tax; Joe Legal now has $31,231.00.

Jose Illegal: $15.00 per hour x 40 hours = $600.00 per week, or $31,200.0 0 per year. Jose Illegal pays no taxes. Jose Illegal now has $31,200.00.

That is not true Mark Kirkorian, the Executive Director of the Center for Immigration Studies says, “Most illegal immigrants work ON THE BOOKS (Emphasis added)

Jose Illegal may earn less but working ON THE BOOKS he is subject to the same laws as Joe Legal.

Joe Legal pays medical and dental insurance with limited coverage for his family at $600.00 per month, or $7,200.00 per year. Joe Legal now has $24,031.00.

Jose Illegal has full medical and dental coverage through the state and local clinics at a cost of $0.00 per year. Jose Illegal still has $31,200.00.

That is not true Mark Kirkorian, the Executive Director of the Center for Immigration Studies says, “Most illegal immigrants work ON THE BOOKS (Emphasis added)

There are laws covering mandatory group coverage for full time workers if the company employees a certain number of employees. The law covers everyone. However, since Jose Illegal has given an invalid or stolen Social Security number in order to work on the books, his vital medical history is being stored under someone else’s name. So, if the US ever adopts a realistic guest worker program Jose Illegal will not have the benefit of a medical history when receiving future medical services.


Joe Legal pays rent of $1,200.00 per month, or $14,400.00 per year. Joe Legal now has 9,631 .00.

Jose Illegal receives a $500.00 per month federal rent subsidy. Jose Illegal pays out that $500.00 per month, or $6,000.00 per year. Jose Illegal still has $ 31,200.00.

That is not true Mark Kirkorian, the Executive Director of the Center for Immigration Studies says, “Most illegal immigrants work ON THE BOOKS (Emphasis added)

If you do not see by now that the author of the e-mail has an agenda. STOP ILLEGAL IMMIGRATION. He may truly believe immigration is destructive, but he is wrong. Almost all economists agree that immigration, both legal and illegal provide a NET GAIN to the US.

Joe Legal has to make his $7,231.00 stretch to pay utilities, gasoline, etc..

Jose Illegal has to make his $31,200.00 stretch to pay utilities, gasoline, and what he sends out of the country every month..

This statement reveals the authors agenda. Remember the premise Jose Illegal’s parents, wife and kids are here in the US "consuming all of our free goodies", who does he have in his homeland to whom is he sending money???




I am not saying that no one is hurt by illegal immigration. It is bound to happen. I will say this when government involves itself in immigration control you will have distortions that are the source of the destructiveness.





Editors Note: All are invited to comment on what I have said in this article which goes out under my name. I can verify what I say. I cannot verify what you think I said.

Saturday, November 19, 2011

Joe Legal vs. Jose Illegal (Part 1) by Chuck McGlawn

An unsigned e-mail has been floating around the internet for a few years. Perhaps it has landed in your in-box a time or two, maybe a time or six. You are coaxed to open the e-mail  by the Subject, “Joe Legal vs. Jose Illegal” Even if you do not read the entire e-mail the message it conveys becomes very clear, very soon. That very clear message being, “Illegal Immigration hurts YOU and YOUR FAMILY”. The heading just above the comparisons reads, “DO YOU THINK THIS IS FAIR? THIS IS YOU, THE LEGAL”. That statement casts you as Joe Legal. If you read the entire e-mail you will see that “Joe Legal” and “Jose Illegal” are metaphors for all the legal families and all he illegal families in the US.

The e-mail starts with: You have two families: "Joe Legal" and "Jose Illegal". Both families have two parents, two children, and live in California.

Joe Legal works in construction, has a Social Security Number and makes $25.00 per hour with taxes deducted.

Jose Illegal also works in construction, has NO Social Security Number, and gets paid $15.00 cash "under the table".

Seems very clear Jose Illegal is not paying his fair share of the Income Taxes. However, a closer look will reveal that Jose Illegal is responsible for MORE INCOME TAXES not less. The more taxes that Jose Illegal is responsible for are Federal Income Taxes

If Jose paid income tax he would pay the lowest rate of 15%. Fifteen percent of $15.00 is $2.25. That means Jose would pay $2.25X40 hours. That would net the Federal Government $90.00 per week or $4,680.00 per year.

However, by working off the books at $15.00 per hour, Jose he adds $10.00 for every hour he works to the profit of the job on which he is working. His boss pays the highest tax bracket of 35%. Thirty five percent of $10.00 that Jose adds to the profit from the job is $3.50. So, by being paid under the table Jose actually generates an extra $1.25 in Federal income tax revenue for every hour he works. That would be $1.25X40 hours=$50.00 per week, times 52 weeks =$2,600 per year. Multiply that by the 12,000,000 illegals $31.2 billion. Look closer at statistics about illegal immigration, a few are true, a few are false, most are only half true. And the half-truths are the ones that really mislead.

Thursday, November 3, 2011

Who You Gonna Believe The Undocumented E-Mail or Your Lying Eyes. By Chuck McGlawn

Distorting the effect of immigration on the US Economy is no difficult task. All it requires is an uninformed populace, (No shortage there.) a bump up in unemployment, (Even if the bump-up is localized.) and a shrinking press looking for a scandal to report, (Unemployed news writers are plentiful.) and up pops a Cottage Industry of forwarding e-mails, and You-Tube videos about some isolated stories about the horrors of immigration. You know this you have received them and you have become part of the transmission belt by forwarding them. 

Some of the stories you get are the truth, some are half-truths and some are outright fabrications. Many if not most are the effects observed in an isolated place by a single individual that may have an agenda and he may see things and report his observations in a way that supports that agenda. Let me invite you to look at a more complete picture. 

Giovanni Peri an associate professor at the University of California, Davis, and a visiting scholar at the Federal Reserve Bank of San Francisco has conducted comprehensive research on “The Effect of Immigrants on U.S. Employment and Productivity” His research covered the effects of immigration on the total output and income of the U.S. economy. 

This is accomplished by comparing output per worker and employment in states that have had large immigrant inflows with data from states that have few new foreign-born workers.
Statistical analysis of state-level data shows that:
Ø    Immigrants expand the economy's productive capacity.
Ø      Stimulate investment.
Ø      Promote specialization.
This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

Immigration in recent decades has significantly increased the presence of foreign-born workers in the United States. The impact of these immigrants on the U.S. economy is a mixed bag hotly debated.
Ø      Some stories in the popular press suggest that immigrants diminish the job opportunities of workers born in the United States.
Ø      Others portray immigrants as filling essential jobs that are shunned by other workers.
Economists who have analyzed local labor markets have mostly failed to find large effects of immigrants on employment and wages of U.S.-born workers (see Borjas 2006; Card 2001, 2007, 2009; and Card and Lewis 2007).

The information that follows summarizes recent research by Peri (2009) and Peri and Sparber (2009) examining the impact of immigrants on the broader U.S. economy.
Ø      These studies systematically analyze how immigrants affect total output.
Ø      Income per worker.
Ø      Employment in the short and long run.
Consistent with previous research, the analysis finds no significant effect of immigration on net job growth for U.S.-born workers in these time horizons. This suggests that the economy absorbs immigrants by expanding job opportunities rather than by displacing workers born in the United States.
 
At the state level, the presence of immigrants is associated with increased output per worker. This effect emerges in the medium to long run as businesses adjust their physical capital, that is, equipment and structures, to take advantage of the labor supplied by new immigrants. Finally, immigration is associated with an increase in average hours per worker and a reduction in skills per worker as measured by the share of college-educated workers in a state. These two effects have opposite and roughly equal effect on labor productivity.

Immigration effects on employment, income, and productivity vary by occupation, job, and industry. Nonetheless, it is possible to total these effects to get an aggregate economic impact. Here we attempt to quantify the aggregate gains and losses for the U.S. economy from immigration. If the average impact on employment and income per worker is positive, this implies an aggregate “surplus” from immigration. In other words, the total gains accruing to some U.S.-born workers are larger than the total losses suffered by others. (It is from “losses suffered by others” group that all the negative stories are generated.)
First, there is no evidence that immigrants crowd out U.S.-born workers in either the short or long run. Data on U.S.-born worker employment imply small effects, with estimates never statistically different from zero. The impact on hours per worker is similar. We observe insignificant effects in the short run and a small but significant positive effect in the long run. At the same time, immigration reduces somewhat the skill intensity of workers in the short and long run because immigrants have a slightly lower average education level than U.S.-born workers.

Second, the positive long-run effect on income per U.S.-born worker accrues over some time. In the short run, small insignificant effects are observed. Over the long run, however, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.
 
So please, stop with the stories of your next door neighbor’s Uncle’s School teacher’s brother in law lost his dry walling job to an immigrant. Because it is just as true or just as false, that my cousin’s exercise instructor’s room mate’s brother replaced an immigrant at a Hardware Store job.

The third result is that the long-run increase in income per worker associated with immigrants is mainly due to increases in the efficiency and productivity of state economies. This effect becomes apparent in the medium to long run. Such a gradual response of productivity is accompanied by a gradual response of capital intensity. While in the short run, physical capital per unit of output is decreased by net immigration, in the medium to long run, businesses expand their equipment and physical plant proportionally to their increase in production.
How can these patterns be explained? 

The effects identified above can be explained by adjustments businesses make over time that allow them to take full advantage of the new immigrant labor supply. These adjustments, including upgrading and expanding capital stock, provide businesses with opportunities to expand in response to hiring immigrants.
This process can be analyzed at the state level (see Peri and Sparber 2009). The analysis begins with the well-documented phenomenon that U.S.-born workers and immigrants tend to take different occupations. Among less-educated workers, those born in the United States tend to have jobs in manufacturing or mining, while immigrants tend to have jobs in personal services and agriculture. Second, within industries and specific businesses, immigrants and U.S.-born workers tend to specialize in different job tasks. Because those born in the United States have relatively better English language skills, they tend to specialize in communication tasks. Immigrants tend to specialize in other tasks, such as manual labor. Just as in the standard concept of comparative advantage, this results in specialization and improved production efficiency. 

Figure 1
Communication/manual skills among less-educated U.S.-born workers
Communication/manual skills among less-educated U.S.-born workers
Sorry the graph did not copy.

Note: The data on average communication/manual skills by state are from Peri and Sparber (2009), obtained from the manual and communication intensity of occupations, weighted according to the distributional occupation of U.S.-born workers.

If these patterns are driving the differences across states, then in states where immigration has been heavy, U.S.-born workers with less education should have shifted toward more communication-intensive jobs. Figure 1 shows exactly this. The share of immigrants among the less educated is strongly correlated with the extent of U.S.-born worker specialization in communication tasks. Each point in the graph represents a U.S. state in 2005. In states with a heavy concentration of less-educated immigrants, U.S.-born workers have migrated toward more communication-intensive occupations. Those jobs pay higher wages than manual jobs, so such a mechanism has stimulated the productivity of workers born in the United States and generated new employment opportunities.

To better understand this mechanism, it is useful to consider the following hypothetical illustration. As young immigrants with low schooling levels take manually intensive construction jobs, the construction companies that employ them have opportunities to expand. This increases the demand for construction supervisors, coordinators, designers, and so on. Those are occupations with greater communication intensity and are typically staffed by U.S.-born workers who have moved away from manual construction jobs. This complementary task specialization typically pushes U.S.-born workers toward better-paying jobs, enhances the efficiency of production, and creates jobs. This task specialization, however, may involve adoption of different techniques or managerial procedures and the renovation or replacement of capital equipment. Hence, it takes some years to be fully realized. 

Conclusions
The U.S. economy is dynamic, shedding and creating hundreds of thousands of jobs every month. Businesses are in a continuous state of flux. The most accurate way to gauge the net impact of immigration on such an economy is to analyze the effects dynamically over time. Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity. Consistent with previous research, there is no evidence that these effects take place at the expense of jobs for workers born in the United States.
References
Borjas, George J. 2006. “Native Internal Migration and the Labor Market Impact of Immigration.” Journal of Human Resources 41(2), pp. 221–258.
Card, David. 2001. “Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration.” Journal of Labor Economics 19(1), pp. 22–64.
Card, David. 2007. “How Immigration Affects U.S. Cities.” University College London, Centre for Research and Analysis of Migration Discussion Paper 11/07.
Card, David. 2009. “Immigration and Inequality.” American Economic Review, Papers and Proceedings 99(2), pp. 1–21.
Card, David, and Ethan Lewis. 2007. “The Diffusion of Mexican Immigrants during the 1990s: Explanations and Impacts.” In Mexican Immigration to the United States, ed. George J. Borjas. Chicago: The University of Chicago Press.
Peri, Giovanni, and Chad Sparber. 2009. “Task Specialization, Immigration, and Wages.” American Economic Journal: Applied Economics 1(3), pp. 135–169.