Beat the Press

Dean Baker's commentary on economic reporting

4/16/2006

Immigration: Die at the Border and Open Borders

I want to follow up quickly to a couple of notes on my posting where I referred to the “Die at the Border” policy. I was not arguing for open borders. I don’t think that anyone who has given the issue serious thought advocates open borders, since a literal open border policy would almost certainly imply an inflow of hundreds of millions of people in the next couple of decades.

My point is that we don’t have open borders; instead we have very serious limitations on immigration. Immigration is restricted both by the danger of the border crossing and the prospect of deportation due to a random encounter with law enforcement (e.g. a traffic ticket). These threats ensure that most immigrants will not be well-educated, since well-educated people in the developing world will not take these risks to work in the United States.

This means that less-skilled workers in the United States have to worry about competition from undocumented workers, while the people who design and debate immigration policy (economists, lawyers, reporters) don’t have to worry about professionals from developing countries slipping over the borders and undercutting their wages. The implication of the current immigration policy is that the people who design and debate it are largely its beneficiaries, since they can get low cost home repairs, bargain restaurant prices, and cheap nannies.

We can debate whether this is good immigration policy, but we first have to acknowledge the policy in place. The reason that most immigrants are less educated is not because of any shortage of more educated workers willing to immigrate to the United States, it’s because our policy acts to exclude them.

As far as the evidence of the link between immigration and the declining wages of less-skilled workers, I can point to the papers by Borjas, Katz, and Freeman, but I confess to being more influenced by what I take as the stylized facts. If immigration was being driven by a shortage of people willing to take certain jobs, then we should expect to be seeing sharp increases in the relative wages of the occupations that have large shares of immigrant workers. In other words, we should have expected to see sharply rising wages in construction, restaurant and hotel work, as employers raised wages in a desperate effort to attract more workers. In fact, we see the opposite. Wages in these industries/occupations have fallen sharply relative to the wages of more skilled workers.

In a similar vein, accepting the view that the minimum wage has little impact on employment implies a belief that the demand for labor is relatively unresponsive to changes in wages. (In other words, a 15 percent hike in the minimum wage has little effect on the number of workers that firms are willing to hire.) Those of us who believe that the minimum wage has relatively little impact on employment, have a difficult time explaining how a large increase in labor supply will have little impact on wages. (If the demand for workers does not respond much to changes in wages, then it would take a large decline in wages to keep fully employed a workforce that has grown substantially due to immigration.)

Finally, a note on the immigration/wage studies – none of the studies seem to have examined the possible effect of immigrants on local housing markets. (I am prepared to stand corrected, if someone knows of such a study.) There are substantial differences in housing costs and the rate of rate of growth of housing costs across cities. For example, between 1980 and 2005, shelter costs rose by 181.3 percent in Los Angeles (4.2 percent annually), while they rose by just 133.4 percent (3.4 percent annually) in Detroit. (This is taken from the CPI shelter index.) This is a difference of 0.8 percentage points a year. Of course, Los Angeles has seen a large inflow of immigrants, while the Detroit area has seen a much smaller inflow.

Shelter accounts for 30 percent of family expenditures on average, and a considerably larger share for low-income families. If shelter costs rise more rapidly in cities with large immigration flows, then this would imply lower real wage growth, given the same nominal wage growth. This could have a substantial impact: in the LA-Detroit comparison, the difference in the growth of shelter costs would translate into a difference in real wage growth of 0.2-0.3 percentage points annually, for the same nominal wage growth.

A serious study would have to look at a large set of cities, and ideally at the housing actually occupied by lower income households, since there are likely different rates of housing inflation for different types of housing. However, given the importance of housing in consumption baskets, and the differences in price trends across cities, this could be an important part of the picture.

16 Comments:

  • At 8:55 PM, Anonymous Anonymous said…

    Hey Dean,

    I hope you're well. Like others, I was a big fan of ERR and I'm very sorry to see it go. Very excited about BTP.

    Can you give a little more idea about your new book, e.g., when it might come out? I can't seem to find it on Amazon.

    I think I understand your argument about immigration. For regular readers of ERR it's not new. Makes sense to me. So far, though, your claim seem fairly limited, by which I mean that I think you've only asserted it in the context of immigration. But in principle this could be big. It could be a challenge to the whole conventional wisdom "new economy" explanation for the divergence in distribution of income between skilled and unskilled, i.e., that skills are suddenly more valuable because of computer technologies. You have in principle made an alternative argument that could explain this divergence without any bows to the technological wonders of (highly regulated, militaristic, psychopathic) market capitalism. How far do you take this?

    David A.
    (yes it's me, swats-du-um)

     
  • At 9:47 PM, Anonymous save_the_rustbelt said…

    Good to have a fresh face in the blogosphere.

    Based on anecdotal evidence it appears young African-Americans are getting the worst of illegal immigration, like they need to get screwed one more time.

     
  • At 10:03 PM, Anonymous Chris Wage said…

    I don’t think that anyone who has given the issue serious thought advocates open borders, since a literal open border policy would almost certainly imply an inflow of hundreds of millions of people in the next couple of decades.

    Can you give me some idea of why this is a bad thing? On the debate on immigration I am very much inclined to get to the root of things, and I have honestly never gotten a straight answer on what the problem is with a strictly open border policy.

    The best I've gotten is "cultural assimilation" -- that there's only so many people our culture can assimilate at a certain rate.

    But that sounds bunk, to me. It's not like Mexican culture is exactly diametrically opposed to ours. They speak Spanish, they eat more beans. I mean honestly, people, we're not talking about a difficult integration process (xenophobia aside).

    I have not heard a convincing argument against open borders -- either economic or sociological -- and yet everyone treats it as a given. Where is the evidence?

     
  • At 1:24 AM, Blogger Russell said…

    You need to be more clear about your opinion of the minimum wage. *As currently implemented*, small increases in the minimum wage do not cause unemployment. It's quite possible to cause massive unemployment ... just double the minimum wage. But nobody sane is suggesting that we do that.

     
  • At 1:46 PM, Anonymous Amy Traub said…

    This doesn't quite answer your question on immigrants and housing, but the only research I've seen that comes close to addressing this issue is this Harvard study http://www.jchs.harvard.edu/publications/markets/ son2004.pdf has some data. They find that between 1998 and 2001, immigrant homebuyers (presumably including people of a variety of legal statuses) purchased 8 percent of new homes nationwide and 11 percent of existing homes, and made up 12 percent of existing homebuyers in 2001.

     
  • At 9:45 PM, Anonymous Arthur Eckart said…

    The Immigration Act of 1965 increased the number of high skilled and low skilled immigrants, and limited average skilled workers, i.e. the bell curve flattened. I agree, illegal immigration increased the number of low skilled workers. There weren't opportunities for wages to rise in construction, restaurant and hotel work, because the inflows of low skilled illegal immigration have been consistently large (although, it tends to fall in recessions). That's why wages in those industries remain depressed. Many illegal immigrant households are large family households. So, the cost of shelter is lower. Also, in reply to Chris Wage: I doubt you'd want to live in Bombay India. So, why would you want Bombay India to move here? It's all about living standards. I'm sure you'd want to live and work in a rich neighborhood rather than a dump.

     
  • At 4:05 AM, Blogger Fanon the Wretched said…

    In regards to immigration and housing markets, Ivan Light (Sociology, UCLA) has done some work on this. His book "Deflecting Immigration" uses Census data on housing and rents to argue about the mechanisms that send immigrants to new destinations. One of the mechanisms is higher rents, but specifically within immigrant communities. But I havent seen the book or the full paper it's based on, so don't want to claim too much about it. I could be absolutely wrong about his argument.

     
  • At 8:43 PM, Anonymous hmmmm said…

    I'd like to echo Chris Wage's concerns.

    I'm not convinced that there would be an uncontrolable flood of immigration if borders were open.

    People have strong family ties and only the most desparate break them. It's likely that a lot of poeple would opt to work for a few months at a time and send money home. At the very least, open borders would give people more and less-desparate options.

    The driving force behind modern economic theory is that resources will go to where they're most useful. Labor, perhaps, should also be allowed to flow freely. Migrant workers would go where they're likely to be paid and treated well because they're not tied to any partiuclar area once they've already made the choice to leave their homes.

    Because these workers would be have legal protection, employers would not have incentive to poach on them and would hire more Americans.

    Also, by allowing would-be migrants to "vote with their feet," the origin countries might find incentive to improve their physical and political infrastructure. Both the sending and recieving governments benefit from the current structure, open borders might just breed greater transparency.

    I think, at least in theory, open borders would stabilize a lot of problems.

     
  • At 9:48 PM, Anonymous Arthur Eckart said…

    If the U.S. had open borders, there certainly would be tens of millions of more people from Third World countries living in the U.S.(given how many millions are caught at the Mexican border). Immigration may continue, until wages in the U.S. are roughly the same as the Third World countries, similar to Purchasing Power Parity or the Law of One Price in the goods market. Consequently, wages may fall in the U.S. and rise in the Third World countries. When an equilibrium is reached, immigration may stop.

     
  • At 11:43 PM, Anonymous dale said…

    Until recently I have never run across so many folks who called for open borders- either for some moral reason or to maximize some economic advantage.

    This is such an extreme view I wish proponents would take it upon themselves to more fully explain their position.

     
  • At 4:21 AM, Anonymous Steve Sailer said…

    Open Borders: There are currently 4,976,000,000 people living in countries with lower mean per capita GDPs than Mexico, according to the CIA World Factbook. According to the Mexican government, 1/6th of all Mexicans in the world live in the U.S. (And the Pew Hispanic Trust poll found that over 40% of the remaining 106 million Mexicans in Mexico would like to move to the U.S.)

    One-sixth of 5 billion people is over 800 million.

    You can read more about this topic at http://www.vdare.com/Sailer/050710_five_billion.htm

     
  • At 10:57 PM, Anonymous hmmm.... said…

    open borders:

    morally -- accident of brith confers so much hardships or benefits. borders further exacerbate those arbitrary dis/advantages. i wouldn't be devasted to lose a little of my quality of life to further an ideal i believe in. but, of course, i can't compel anyone else to do the same. thus, i see the problem with this position.

    economically -- i'm not entirely convinced that open borders would lead to mass migration. economics looks at only the quantifiable elements but i think if movement were free, people wouldn't be forced to choose between feeding their family and being with their family --- i'm picturing truck drivers and pilots. Their work keeps them away for a while but they come home. If migrant workers were able to move freely, i think many would opt to live in mexico and work in the US for short stints.

    Free movement would also open the Mexican govt to the idea that they might lose their wrok force, and they will have incentive to improve.

     
  • At 1:07 AM, Anonymous Arthur Eckart said…

    In reply to hmmm...said: Your "moral" argument implies you're willing to help the foreign poor at the expense of the domestic poor, and at the same time help the rich of both countries. Your "economic" argument is basically the same as your moral argument, except you want to give greater flexibility for foreigners to increase domestic income inequality. Mexico is basically shipping its disgruntled workers to the U.S. so it wouldn't have to improve its labor policies. Mexican immigration, to the U.S., reduces the Mexican labor surplus, although labor supply still exceeds labor demand.

     
  • At 10:43 AM, Blogger jeremy said…

    Re: the economic impact of immigration: Many economists have attempted to identify negative effects of immigration on current workers, but they have for the most part not succeeded in doing so. The National Academy of Scientists, for example, concluded in 1997 that “the weight of the empirical evidence suggests that the impact of immigration on the wages of competing native workers is small.” Two years earlier, Friedberg and Hunt found that “the effect of immigration on the labor market outcomes of natives is small.” Even Borjas, whom you mention, Dean, and who believes that immigrants do have a negative effect on current workers, acknowledges that “it has proved surprisingly difficult to demonstrate empirically that immigration has a sizable and significant adverse effect on competing workers.”

     
  • At 2:21 AM, Anonymous Arthur Eckart said…

    In reply to Jeremy said: I doubt immigration directly displaces current American workers. However, it seems, immigration creates fewer choices for American low-skilled workers. It would be difficult to measure lost opportunities, since empirical data don't exist. A better measurement is how the upper, middle, and lower American classes are doing in the job market.

     
  • At 10:56 PM, Anonymous price per head said…

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