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

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.

Peri, Giovanni. 2009. “The Effect of Immigration on Productivity: Evidence from U.S. States.” NBER Working Paper 15507.

End All Minimum Wage Laws By Chuck McGlawn

The statement of a “Greedy Capitalist”, or is it a step toward more freedom? In this, the “Age of Polarization”, if you are generally called a liberal or progressive you accept the first answer. If you are called a conservative or a Tea Partier you would favor the second. If you were an economist of either stripe, you may say neither, followed by, “However, minimum wages do increase unemployment.”

OK, if almost every economist agrees and it is a given that laws that increase the minimum wage always increases unemployment. Then, on what segment of the labor force does it have the most effect. The answer to that question is a surprising, “it affects the least skilled, and then every skill level above the least skilled.”

It is easy to conceptualize that when minimum wage laws raise the minimum wage some of the least skilled workers may lose their jobs, even if the job is the least demanding menial tasks. Employers may think some of their employees and the jobs they do are not worth the mandatory wage raise. However, it is also true that the job they had been doing may still occasionally need doing. This means a more skilled employee is pulled off his more productive activity to do the menial jobs occasionally.

As occupants of more skilled levels must move downward, it follows that employees of the next higher skill level will be moved downward to fill in for work not completed by the lower skilled.

Let’s turn this thinking upside down, with a simple thought experiment. We are going to imagine just one company and one job center. There 100 people employed at four skill levels: 10% at the lowest skill level, 60% employed at the second level, 20% at the third level and top management constitutes the upper 10%. There is a minimum wage in effect. The company is able to compete in the marketplace. The product or service they provide or produce is selling at a level that provides enough profit to keep the investors satisfied. There is at every skill level one employee that is ready and eager for promotion but is held back because management is not sure the increased cost added to the increased production the result of four promotions are executed will have a market. In this thought experiment we are dealing with very high unemployment rate for certain segments of the population. It is as high as 50% for high school dropouts especially minorities. The reason for high unemployment are the minimum wages that must be paid. This prevents a willing buyer of labor and a willing seller of labor to connect because government prevents it.

Into this mental exercise let us eliminate the minimum wages. Now the willing buyer can contract with the willing seller and a single low skilled person is hired. This will free up the most skilled at every level to be promoted to the next level. Increased production  with very little increase in production cost making the company more profitable. In this example four people are gaining skills and experience not available to them when minimum wage laws prevent the lowest skilled from ever getting a job to get these experiences.