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Do immigrants depress existing wages?

The New York Times Sunday Magazine today carried a long article, “The Immigration Equation,” By Roger Lowenstein. Much of the article focuses on the debate about whether Hispanic immigration has depressed wages in the United States. I have posted several times on this – citing the major “yes” academic, George Borjas of Harvard, and the most prominent “no” academic, David Card of U.C. Berkeley. Here, I will excerpt some interesting passages. I include a summary of Card’s study of the labor market effect of a large shift of Cubans to southern Florida (the 1980 Mariel boat lift), and another researcher’s study of the effect of Russian immigration to Isreal. Both studies concluded that the effect was neutral to positive for the income of the existing workforce. This is not surprising to me because, in my judgment, a pretty healthy modern market economy can be very creative about the use of new resources (labor, capital, land, bananas, etc.) without seriously harming any large stakeholder.

How the skill mix of immigrants differs significantly from the 1880-1921 period of high immigration to the current period:

During the previous immigrant wave, roughly from 1880 to 1921 (it ended when the U.S. established restrictive quotas based on country of origin), the immigrants looked pretty much like the America into which they were assimilating. At the beginning of the 20th century, 9 of 10 American adults did not have high-school diplomas, nor did the vast majority of immigrants. Those Poles and Greeks and Italians made the country more populous, but they did not much change the makeup of the labor market.

This time it's different. The proportion of foreign-born, at 12 percent, remains below the peak of 15 percent recorded in 1890. But compared with the work force of today, however, the skill mix of immigrants is lopsided. Mexicans have far fewer skills. And Mexicans and other Central Americans (who tend to have a similar economic background) are arriving and staying in this country at a rate of more than 500,000 a year. Their average incomes are vastly lower than those both of native-born men and of other immigrants.

Native-born workers: $45,400
All immigrants: $37,000
Mexican immigrants: $22,300

The reason Mexicans earn much less than most Americans is their daunting educational deficit. More than 60 percent of Mexican immigrants are dropouts; fewer than 10 percent of today's native workers are.

Burden on publicly funded systems is not high except in California

With the exception of a few border states, however, the effect of immigration on public-sector budgets is small, and the notion that undocumented workers in particular abuse the system is a canard. Since many illegals pay into Social Security (using false ID numbers), they are actually subsidizing the U.S. Treasury. And fewer than 3 percent of immigrants of any stripe receive food stamps. Also, and contrary to popular wisdom, undocumented people do support local school districts, since, indirectly as renters or directly as homeowners, they pay property taxes. Since they tend to be poor, however, they contribute less than the average. One estimate is that immigrants raise state and local taxes for everyone else in the U.S. by a trivial amount in most states, but by as much as $1,100 per household per year in California. They are certainly a burden on hospitals and jails but, it should be noted, poor legal workers, including those who are native born, are also a burden on the health care system.

The Mariel boat lift study by Card

Card decided to study the 1980 Mariel boat lift, in which 125,000 Cubans were suddenly permitted to emigrate. They arrived in South Florida with virtually no advance notice, and approximately half remained in the Miami area, joining an already-sizable Cuban community and swelling the city's labor force by 7 percent.

To Card, this produced a "natural experiment," one in which cause and effect were clearly delineated. Nothing about conditions in the Miami labor market had induced the Marielitos to emigrate; the Cubans simply left when they could and settled in the city that was closest and most familiar. So Card compared the aftershocks in Miami with the labor markets in four cities — Tampa, Atlanta, Houston and Los Angeles — that hadn't suddenly been injected with immigrants.

That the Marielitos, a small fraction of whom were career criminals, caused an upsurge in crime, as well as a more generalized anxiety among natives, is indisputable. It was also commonly assumed that the Marielitos were taking jobs from blacks.

But Card documented that blacks, and also other workers, in Miami actually did better than in the control cities. In 1981, the year after the boat lift, wages for Miami blacks were fractionally higher than in 1979; in the control cities, wages for blacks were down. The only negative was that unemployment rose among Cubans (a group that now included the Marielitos).

Unemployment in all of the cities rose the following year, as the country entered a recession. But by 1985, the last year of Card's study, black unemployment in Miami had retreated to below its level of 1979, while in the control cities it remained much higher. Even among Miami's Cubans, unemployment returned to pre-Mariel levels, confirming what seemed visible to the naked eye: the Marielitos were working. Card concluded, "The Mariel influx appears to have had virtually no effect on the wages or unemployment rates of less-skilled workers."

Although Card offered some hypotheses, he couldn't fully explain his results. The city's absorption of a 7 percent influx, he wrote, was "remarkably rapid" and — even if he did not quite say it — an utter surprise. Card's Mariel study hit the cloistered world of labor economists like a thunderbolt. All of 13 pages, it was an aesthetic as well as an academic masterpiece that prompted Card's peers to look for other "natural" immigration experiments. Soon after, Jennifer Hunt, an Australian-born Ph.D. candidate at Harvard, published a study on the effects of the return migration of ethnic French from Algeria to France in 1962, the year of Algerian independence. Similar in spirit though slightly more negative than the Mariel study, Hunt found that the French retour had a very mild upward effect on unemployment and no significant effect on wages.

Study of Russian immigration to Isreal by Rachel Friedberg

Rachel Friedberg, an economist at Brown, added an interesting twist to the approach. Rather than compare the effect of immigration across cities, she compared it across various occupations. Friedberg's curiosity had been piqued in childhood; born in Israel, she moved to the U.S. as an infant and grew up amid refugee grandparents who were a constant reminder of the immigrant experience.

She focused on another natural experiment — the exodus of 600,000 Russian Jews to Israel, which increased the population by 14 percent in the early 1990's. She wanted to see if Israelis who worked in occupations in which the Russians were heavily represented had lost ground relative to other Israelis. And in fact, they had. But that didn't settle the issue. What if, Friedberg wondered, the Russians had entered less-attractive fields precisely because, as immigrants, they were at the bottom of the pecking order and hadn't been able to find better work? And in fact, she concluded that the Russians hadn't caused wage growth to slacken; they had merely gravitated to positions that were less attractive. Indeed, Friedberg's conclusion was counterintuitive: the Russians had, if anything, improved wages of native Israelis. She hypothesized that the immigrants competed more with one another than with natives. The Russians became garage mechanics; Israelis ran the garages.

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