« The Endorsement | Main | Thing You Learn in the Comments Section »
July 25, 2007
The Minimum Wage vs. Immigration
I'm not terribly clear on where George Borjas sees the data showing small effects from both immigration and minimum wage increases conflicting.
The minimum wage data shows minor or nonexistent levels of employment dislocation because, assumedly, employment is more inelastic than we'd expect, and it's rather costly for companies to operate with fewer low-wage employees. So when you raise the wage, the companies pay it, because the workers are worth more to them than $5.15 an hour. They just liked being able to pay that little.
The immigration data showing a relatively minor effect on wages suggests that immigrants rarely compete directly with native workers (that they are "complementary," in econo-speak), and so their entrance into the labor pool does not mean there's more labor supply for the same jobs, but also more jobs that simply wouldn't exist otherwise, thus reducing the impact on wages. (If there weren't Chinese immigrants, for instance, we wouldn't just have a bunch of Alabamians running the Chinese restaurants. There would simply be fewer Chinese restaurants, and people who liked Chinese food would cook more often.)
It's not clear to me that these two findings contradict. I'm no economist, but it seems that comparing the effects of a wage increase among all low-income workers with the effects of increased labor supplies among some low-wage industries that already have fairly low-native participation aren't in obvious tension. But I could be missing something.
Meanwhile, Giovanni Peri, who's actually conducted some of the research showing immigration has low wage suppression effects, explains his results this way:
On first thought, it might seem that the simple economics of supply and demand would answer the question: What is the effect of immigrants on wages? Immigrants increase the supply of labor. Hence, they should decrease the wages of native workers, reduce their employment opportunities, or push them to other states. The question, however, is more subtle than this, because all workers are not the same: They differ by education, skills, and occupation and perform jobs and productive tasks different from and complementary...
In nontechnical terms, the wages of native workers could increase because the increased supply of migrants is likely to put native workers in jobs where they perform supervisory, managerial, training, and in general interactive and coordinating tasks, which makes them more productive. Moreover, the presence of new workers also implies higher demand for consumption, so that immigration might simply increase total production and demand without depressing wages.
See Bruce Webb's comments, too.
July 25, 2007 | Permalink
Comments
If there are fewer Chinese restaurants, perhaps there will be more other restaurants...
That is not to say that the economy cannot grow larger than the local work force can sustain, thus imported labor allows the economy to grow as it would not otherwise be able to.
Posted by: George | Jul 25, 2007 12:52:54 PM
Funny with all this fear of the great brown, Mexican invasion all the Mexican food restaurants in NYC seem to be run by Asians!
Posted by: Ricky | Jul 25, 2007 1:01:17 PM
Hm. Another possible explanation is that the influx of inexpensive labor into the market simply makes it more cost-effective for employers to start businesses that rely on cheap labor. Capital for business creation would, I would think, be sent in other directions in the absence of large amounts of unskilled immigration.
Posted by: Tyro | Jul 25, 2007 1:02:04 PM
It's Alabamans. But in general I'm against this construct. Gov. Granholm once refered to her polity as "Michiganians", which in addition to being unwieldy isn't even gramatically correct! In some states, like Texas/Texans, New York/New Yorkers, where the phrase is in common usage, fine. But in Connecticut or Tennessee, the only people who use it are pols. More politicians should abandon "Statians" for "people of State", which I think is a better turn of phrase anyway and makes you sound people powered.
Ahem ... sorry for the sidebar.
Posted by: Nicholas Beaudrot | Jul 25, 2007 1:16:30 PM
It may be true that the effect of illegal immigration on wages writ large in the economy is minimal, but in certain sectors it can be pretty significant. I know that in the building trades we have been in an environment where wages should have increased substantially in recent years due to the incredible amount of both commerical and residential construction occurring throughout the country. But in certain trades, bricklaying, painting, tile setting, and the like, where there are significant numbers of competent, albeit illegal, migrants from Mexico and Central America, it has been very difficult to obtain even cost of living increases. I am sure that this is probably true in sectors like meat packing as well.
Posted by: Klein's Tiny Left Nut | Jul 25, 2007 1:19:15 PM
I'm no economist either, but it's clear to me that MassiveImmigration of low-skilled labor has been a boon to all Americans. Except, of course, those meatpacking workers who've seen their former $20+/hour jobs reduced to near minimum wage, and the large number of blacks who are permanently unemployed, and the KatrinaVictims who were sent out of town to be warehoused rather and whose jobs were taken by the IllegalAliens that Bush and the Dems conspired to move in to NO, and...
Meanwhile, Peri was kind enough to respond to a question I emailed him, and he was even kind enough to give me the exact answer I wanted him to give me. I love it when people don't realize they're being set up. I'd suggest turning off the computer and going to the park and thinking through everything that his response implies.
Posted by: TLB | Jul 25, 2007 1:29:23 PM
Nicholas:
I thought they were called Michiganders, but apparently Michiganian, Michiganer, Michiganite, or Michigander are all correct. Well according to Wikipedia. YMMV.
http://en.wikipedia.org/wiki/Michigander
Posted by: IMU | Jul 25, 2007 1:32:40 PM
Yeah, wow, TLB, you really nailed him. I can't believe you caught him with his pants down like that.
Posted by: Fiera | Jul 25, 2007 1:35:42 PM
I thought about his answers. They seemed to imply...nothing. Save that his study was about wages, not about this bizarre contention that the American government is going to turn into a Mexican satellite.
Posted by: Ezra | Jul 25, 2007 1:48:39 PM
Ezra,
The Borjas claim comes from the following logic: if you believe the demand for low wage labor is relatively inelastic (steep slope) then raising the minimum wage will have small negative employment effects. But this also means that with a given increase in supply of workers the wage effects will be relatively large.
The opposing view is that this simple partial equilibrium analysis is missing other effects such as immigrants increasing the demand for goods etc.
Posted by: j | Jul 25, 2007 3:21:51 PM
Ezra:
First, "satellite" is something you made up. However, I've written dozens or more posts about the power that Mexico has been able to obtain inside the U.S. Having direct or indirect links to non-profits like the ACLU and the SPLC or to those who organized some of the major "immigration" rallies is just the tip of the iceberg. For a sorely-needed primer, see this from Heather MacDonald: tinyurl.com/8u2jm
Second, the point is that hacks like Peri and the other "free" marketeers consistently ignore all the "externalities" when publishing studies like this, and the MSM laps it up. If Peri and the rest worked hard at pointing out that they consistently ignore those externalities that would be one thing. But, they do the opposite: they try to point to studies like this to support what is clearly their agenda.
I'm sorry you don't understand that, but I'm sure other readers do.
Posted by: TLB | Jul 25, 2007 4:12:48 PM
To put this another way, first learn what this is:
http://www.startupnation.com/forums/5742/1/1
Then, realize that hacks like Peri, Marginal Revolution, Tabarrok, etc. etc. etc. consistenly omit the minus side of the ledger.
Posted by: TLB | Jul 25, 2007 4:16:19 PM
I'm sorry you don't understand that, but I'm sure other readers do.
That the US is in danger of imminent takeover by the Mexican Government? That the ACLU and the SPLC are their witting or unwitting pawns?
If your criticism of Peri, et al, is that they ignore "externalities", why not specify what those "externalities" are and how they delegitimize the study in question?
BTW, Ezra is correct. Peri's response implies nothing other than his refusal to comment on areas outside of his research. If you think he was unaware of your agenda, you need to think again.
Posted by: WB Reeves | Jul 25, 2007 4:31:33 PM
It should be obvious to everybody that, while increasing the supply of labor may exert downward pressure on wages in general (or at least on the wages of some workers), the mere existence of this pressure doesn't guarantee that wages will actually decrease, because other forces and pressures counteract the increase in the supply of this labor.
In theory, whether a new worker is added to the supply of labor via immigration, or via natural population increase, the effect on wages, ceteris parabus should be the same. An increase in the labor supply is an increase in the labor supply. Period. And yet, over the long term, real wages in the United States have increased, despite a massive increase in the quantity of available workers (I mean, since 1800, the population of the country has increased, like, sixty fold).
What I want immigration restrictionists to answer is this: if increasing the supply of labor exerts such a strong downward effect on wages, why are wages higher now than they were in 1950, or 1885, or 1710 -- when there were far fewer workers available than today?
Posted by: Jasper | Jul 25, 2007 7:40:35 PM
This is one of these times where I agree with the premises but not the conclusion. I actually don't think it's a good thing to choose to have an economy in which one of the most favorable investments you can make is in small businesses that depend on lots of cheap, unskilled labor.
I do think it's true that the existence of a large number of unskilled immigrants doesn't crowd out the job market but rather creates a market for jobs that wouldn't exist otherwise-- but I don't think it's a good idea for the economy to be creating those kinds of jobs. I'd prefer that the pool of investment capital for small businesses be directed elsewhere, but as it is, our current immigration policies favor those sorts of investments.
Posted by: Tyro | Jul 25, 2007 7:46:59 PM
I have looked at the immigration work of Peri for some time now. Recently, Peri has published a new paper, Immigrants’ Complementarieties and Native Wages:Evidence from California (http://www.econ.ucdavis.edu/faculty/gperi/Papers/california_wp_dec06.pdf). This paper attempts to show that immigration has raised the real wages of workers in California, even high school dropouts. A few notes:
1. The empirical data (Figure 3, Change in Real Wage of U.S. natives, by Education group 1990-2004) actually shows large declines for high school dropouts. -17.6% in California versus -15.1% nationwide. Peri does not attempt to explain the large decline in wages of low skill workers (as best I can tell) or why wages fell faster in California.
2. As best I can tell, Peri uses a aggregate production function that would make it very difficult for immigration to ever adversely impact the incomes of natives in general, although that might not be true for specific groups. For reasons stated below, this does not appear to be realistic for California and perhaps not the nation.
3. Peri assumes that immigrants are almost entirely complementary to natives, even at the low end (but less so). He is quite aware that this is a contentious point and attempts to defend his methodology and conclusions. I can neither support nor refute his assertions.
4. Peri appears to be aware that his work is deeply contra factual, although this is never explicitly stated. Natives have been net leaving California in vast numbers (millions) for quite some time now. If immigrants were complementary, this should either not be happening or immigrants should be net leaving as well. Obviously this is not true. Peri attempts to refute this critique via a regression of some type. He offers no other explanation as to why natives would be fleeing California.
5. Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California. Peri deflates California wages using a national CPI, not a state one. This is highly contrafactual in my opinion. California’s population would be much lower (30% of California’s population is foreign born) without immigration and housing correspondingly more affordable. I cannot quantify the impact of immigration on housing costs in California, however it is certainly large. Note that the Census (but not the BLS) shows California housing to be roughly twice as expensive as the national average.
6. If one takes into account housing costs, Calfornia is considerably more expensive than the US as a whole and real wages corresponding lower. Indeed, California emerges as one of the poorer states (43rd) in the nation, if the local cost of living is taken into account. Given the linkage between immigration and prices, it would appear that immigration has markedly reduced real wages in California. Of course, this would account for the native outflux contra Peri.
Thank you
Peter Schaeffer
Posted by: Peter Schaeffer | Jul 25, 2007 9:15:16 PM
Jasper,
I suggest you look up "technological change".
However, you might also want to examine the BLS real wage data for "production workers" from 1950 to present. The peak was more than 30 years ago. Wages are back to levels last seen roughly 45 years ago.
What happened 30+ years ago? Mass immigration resumed.
Posted by: Peter Schaeffer | Jul 25, 2007 9:17:59 PM
It'd be really nice if the degsme/sanpete/WB Reeves type(s) didn't force me to have to point out that they're misstating my argument.
The issue is that the MexicanGovernment has political power inside the U.S., and that's growing. Bush even made a pledge to that government, for gosh sake. Over time, if they keep sending us people, they may eventually gain some sort of de facto condominium with the U.S. over some part of our current territory. I realize that's a big, grown-up thing to think about, and I realize that paid and amateur hacks try to handwave or misrepresent such concerns, but perhaps honest, non-corrupt adults should discuss it.
The point isn't that Peri's study per se is wrong; I'm not an economist. The point is that he had to have known that his study would be used to advocate for MassiveImmigration, and he should have worked overtime to assure that it wasn't used ForSuchPropaganda. He should have pointed out that simple fiscal matters are not the entire argument, and that there are fiscal and non-fiscal matters that are frequently ignored. By not doing that, he's simply part of the PropagandaMachine of those who profit from MassiveIllegalActivity.
Posted by: TLB | Jul 25, 2007 9:51:15 PM
I suggest you look up "technological change".
Peter: I don't need to. I'm well aware of the effects of capital investments on productivity. That's exactly my point: increases in the quantity of labor respresent one possible downward pressure on wages. There are many other countervailing upward pressures, some of which are enhanced and invigorated by that very increase in the quantity of available labor. Shorter Jasper: take a low-productivity Polish or Sicilian or Guatemalan peasant, and add American capital and managerial talent, and you've just created a high-productivity American worker.
Also, everything you mention about California is nullified by the experience of Florida (and lots of other states, I might add), which has experienced huge inflows of both natives and immigrants in recent years. California's problem isn't too much immigration. California's problem (like England's) is too few new houses.
Posted by: Jasper | Jul 25, 2007 9:57:04 PM
My 0.02 $
In 1978 I was making 9.25 USD as Union Laborer. Laboring was hard work, but it allowed me to save some dough. Between that saved dough, the US Army and city college night school I was able to earn an engineering degree from a prestigious university.
Next door to me [I can hear them through the open door as I write this...it's 7:35 PM] a crew of 3 Mexican roofers are putting a roof on a house that is for sale. If you call the number on the side of the truck [I did earlier]you get a secretary who sounds white...and a guy who sounds white. I went over to the lead and asked the crew if they would do some work for me...how much would they charge for the crew on a per hour basis? Answer 35.00 USD.
Let me be clear here:
Giovanni Peri is full of cow dung, he has cherry picked numbers to support his preconceived ideas that everything is fine with unlimited immigration, but as I said earlier:
"...Many liberals seem to know people are struggling in this country, however, when it comes to the effects of immigrants on native born working folks they turn a blind eye.
...When you have a winner take all system, competition at the lower rungs is brutal and if you haven't lived it you ought to give it a try before blissfully commenting... I just happen to believe this is a blind spot for many liberals because they have not been forced to compete at the lower rungs of society.
Posted by: S Brennan | Jul 25, 2007 10:37:26 PM
S. Brennan,
I have no problem with your personal observations. I am confident you are correctly stating the facts. However, you are badly misreading Peri.
Peri doesn't cherry pick data, he pulls it out of thin air. He doesn't claim that wages have gone up based on empirical analysis. He claims that a theoretical model predicts that they should have gone up. The fact that his own actual data doesn’t match his model doesn’t appear to be a problem.
Read his paper. Figure 3 shows declining real wages for unskilled labor nationwide and in California (a somewhat greater decline in California). Of course, all of his data overstates real wages because he is using a national CPI, rather than a California price index. The data would be drastically worse using California CPI data to determine real wages in California.
Posted by: Peter Schaeffer | Jul 26, 2007 1:03:43 AM
S Brennan,
I should have also stated that Peri's model can only yield wage gains to natives. Basically he assumed his conclusions.
Posted by: Peter Schaeffer | Jul 26, 2007 1:04:55 AM
Jasper,
Perhaps you didn’t notice my use of national BLS data. The BLS data shows large nationwide wage declines since 1973, not just in California. As for Florida, please try to find a better example. Florida incomes are quite low (based on the BEA state GSP data) and the cost of living is slightly above the national average. The state ranks 37th in COLI adjusted incomes.
Oh yes, 22.6% of folks in Florida don’t have health insurance compared to say 9.8% in Minnesota. Should I point out that living standards in Minnesota are much higher than in Florida?
I appreciate that California’s immigration disaster is an embarrassment to the Open Borders crowd. However, it is also the future reality of our nation if we don’t end mass immigration. It easy to say that California needs more houses. However, without mass immigration California’s housing stock would be more than adequate. And of course, California doesn’t have the resources (water, freeways, political support, etc.) to substantially expand its housing supply. Instead, we have people living in “converted” garages.
Of course, California’s immigration disaster doesn’t end with low wages and unaffordable housing. How about dead/dying public schools? Massive taxpayer costs? Perpetual gridlock? Water shortages? Power shortages? Ever rising inequality? The Death of the American Dream?
As anyone familiar with the West knows, California’s immigration driven problems are rapidly spilling over and becoming America’s nightmare. A nightmare that will only start to end when we recognize the inevitable disaster of mass immigration.
Posted by: Peter Schaeffer | Jul 26, 2007 1:23:13 AM
S Brennan,
"...Many liberals seem to know people are struggling in this country, however, when it comes to the effects of immigrants on native born working folks they turn a blind eye."
Is that ever true. Of course, the liberals who write Op-Ed pieces and the like tend to be upper class types who profit from cheap servants and the like. The WaPo and NYT editorial pages are the apogee of this kind of thinking.
However, the truth is always worse. Barney Frank was quoted a while ago as saying that ‘the arrival of additional immigrant workers is bad for blue-collars", but it didn’t bother him too much because immigrants vote for the Democratic party. Nice, sell out your own constituency for votes. By the way, he has a F- voting record on immigration issues. (http://news.nationaljournal.com/articles/070516nj1.htm)
Teddy K showed his concern for the working man by claiming that meat packing workers could never be paid $10 or $15 an hour. I quote
“I would like the chicken pluckers to pay $10 or $15 an hour. They do not do it. They are not going to do it. Who are you trying to kid? Who is the Senator from North Dakota trying to fool?” (http://wonkette.com/politics/dept'-of-grumpy-old-men/ted-kennedy-cares-about-the-chicken-pluckers-262969.php)
Of course, meat packing workers were paid considerably more than $10/$15 an hour before mass immigration was used to break all of the unions. What does Teddy K. think about all of this? He wants more mass immigration.
Posted by: Peter Schaeffer | Jul 26, 2007 1:45:18 AM
Peri does not attempt to explain the large decline in wages of low skill workers (as best I can tell) or why wages fell faster in California.
Why should he? How is that relevant to his project?
Peri uses a aggregate production function that would make it very difficult for immigration to ever adversely impact the incomes of natives in general, although that might not be true for specific groups.
If this means anything more than what you say in your other points, you'll have to explain why you believe this.
Peri assumes that immigrants are almost entirely complementary to natives, even at the low end (but less so). He is quite aware that this is a contentious point and attempts to defend his methodology and conclusions. I can neither support nor refute his assertions.
He presents his results using a range of assumptions about this that appear to be cover the range of the controversy, so I don't see any ground for complaint.
Natives have been net leaving California in vast numbers (millions) for quite some time now. If immigrants were complementary, this should either not be happening or immigrants should be net leaving as well.
It isn't necessarily so that immigrants would be leaving in the same numbers if they were complementary. You would have to compare similar groups of natives and immigrants, and control for other possible differential influences, such as the large Spanish-speaking/immigrant communities established in California (not as common elsewhere, of course, as English-speaking communities are). Natives leave California for a variety of reasons, but one big one is that older natives leave the smog and crowding with their savings to go where they'll buy a lot more. That's something that is much less common with immigrants. Etc.
He offers no other explanation as to why natives would be fleeing California.
Why should he? Was the explanation offered insufficient?
Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California.
See here.
Housing is expensive in California because people are willing to pay high prices for it.
He doesn't claim that wages have gone up based on empirical analysis.
Baloney.
Kennedy wants to treat immigrants decently. I've seen nothing to indicate he wants mass immigration.
Posted by: Sanpete | Jul 26, 2007 4:50:23 AM
The comments to this entry are closed.
