May 23, 2007

IDS: Immigration Derangement Syndrome

sure affects a lot of economists. For example, Bryan Caplan greets Harvard economist George Borjas's new blog with this classic:

Borjas: What's His Problem?

Well, Bryan, I guess his problem from your point of view that is that, when it comes to immigration, Dr. Borjas has worked very hard to know what the hell's he's talking about. But who needs painstaking empiricism when Ayn Rand has shown us the true way?

What's striking is the constant reminder of what a large proportion of economists are fervent ideologues who, armed with a selective handful of bumper sticker slogans (e.g., Comparative Advantage! but not
externalities), want to preach morality to the unenlightened far more than they want to try to understand reality.

Economists tend to be complete suckers for the most implausible studies supporting their preconceptions about immigration. Simple reality checks are never performed on agreeable-sounding assertions. For example, one of the most celebrated is Giovanni Peri's recent effort, which Caplan's friend Tyler Cowen approvingly summed up: "... if lots of Mexican carpenters move to California, we don't see the non-Mexican carpenters leaving in droves, due to lower wages."

Great point! Except of course that we have seen droves of native-born blue-collar workers leave California. And we sure don't see many American blue collar workers from the other 49 states moving to California. That's an opportunity cost to Americans -- one of those Econ 101 phrases that gets forgotten when economists start burbling about immigration. As I wrote in VDARE.com last year, using Las Vegas as a more up-to-date example of a booming example, but you could use California in the period studied by Peri:

What [many economists don't] grasp is that illegal immigration is denying Americans the traditional wage premium for undergoing the pain of moving to a boomtown.

Imagine you are an American blue-collar worker in Cleveland, making $10 per hour. You know the local economy is stagnant, so you're thinking about relocating to fast-growing Las Vegas. But your mom would miss you; and you're not a teenager anymore so you don't make new friends as fast as you once did; and you really like the wooded Ohio countryside you grew up around and the fall colors and the deer hunting; and there's this girl that maybe you could get serious about, but her whole family is in Cleveland and she'd never leave.

So, you decide, you'll leave home behind if you can make 50 percent more in Las Vegas, adjusted for cost of living. That seems fair.

But, then you look through the Las Vegas want ads and discover you'd be lucky to make 10 or 20 percent more because the town is full of illegal aliens. They're moving from another country, so it's not much skin off their nose to move to Las Vegas rather than some place slower-growing.

Well, forget that, you say. I'll stay in Cleveland.

Unfortunately, too many economists forget that too. They can’t—or won’t—put themselves in other people's shoes and see how the world really works.

That doesn't seem to hurt them professionally. But it can hurt America.

In the comments on Borjas's blog, businessman Peter Schaeffer writes:

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


My published articles are archived at iSteve.com -- Steve Sailer

11 comments:

JSBolton said...

With Peri, and his type of analysis,
does 'complementarity' refer to an effect which adds to gross production within a territory, or to ~per capita~ upward moves?
This is no place to forget the onset of the 'Age of the Fine Print'.
America is more productive from each immigration cohort, say certain economists; but per capita as well as for the territory only? Also, anarcho-libertarians are their own little offshoot of the left, following little or nothing of Rand or anything like rationality.

Floccian said...

ISteve with all do respect because I support stopping illegal immigration as long as we have affirmative action/welfare/food stamps etc. and even government schools.

But if one is an economist and wants to help people he knows that it is far easier to help Mexicans many of whom will do well if just given a green card than to help lowest 10% by income Americans who seem to be hurt by welfare and federal government aid programs and have very intractable problems.

So since the economist wants to be compassionate, they support more immigration.

Also I posted this earlier but again, it feels hypocritical to be against immigration when you are the offspring of immigrants just 2 or 3 generations back, who only got into the USA legally because almost everybody was allowed in at that time.

Finally I think that your view of the future impacts of immigration seems skewed to the negative. IMO it will not be as good as say Arnold Kling would project but not nearly and bad as you project. Almost all negative projections in the past concerning the USA where wrong. From Paul Erlich, to the effects of peak oil, to global warming, to going off the gold standard, to German immigration in the early 19th, century to the Italian immigration.

For one thing if you look at immigration today from southern Italy you would project that a just a small rise in income in Mexico could dramatically slow migration north.

One the other thing I think that we perhaps should warn Mexicans of the dangers to their children of migration to the USA. We should warn them that without a lot of family around them their children could end up in gangs and in jail. And we should tell them thus that most should stay in Mexico if they have enough to eat. It is not all good in the USA.

Also evangelical Christians are likely to support immigration even if it hurts them and even if it hurts most of the immigrant because the immigrants are more likely to become evangelical Christians in the USA than in Mexico. Immigration gives evangelical Christians a chance to be missionaries without having to leave home. Not to mention the verses about strangers in the bible.

Anonymous said...

Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California...

If one takes into account housing costs, Calfornia is considerably more expensive than the US as a whole and real wages corresponding lower...

This is all a huge win-win for established California elites. They get the re-introduction of de facto chattel slavery [Esmeralda, be a dear, and run get me another piƱa colada, would you please?], and, at the same time, that army of little brown wage slaves drives the values of their existing real estate holdings right through the stratosphere.

By the way, a little known fact of the California real estate market is that in addition to having the "immigrants" drive up the DEMAND for California real estate, the elites have also restricted the SUPPLY of California real estate, via the Williamson Act:

http://www.google.com/search?safe=off&q=williamson+act

If you ever take the PCH north of Santa Barbara [which has some of the highest real estate prices in the known universe], then you'll see that suddenly all of the development stops completely, and you're out in the middle of strawberry fields for as far as the eye can see.

And you wonder to yourself why the development community doesn't build up there, so as to ease the cost of real estate down in Santa Barbara, and of course the answer is that the Williamson Act prevents the old farmland & ranchland from being divided into parcels smaller than 100 acres.

So the elites have artificially inflated the demand for real estate, and artifically strangled the supply of real estate, and, thanks to Howard Jarvis, exempted their property holdings from taxation, ergo - la voila! - they're all gazillionaire land barons.

PS: This is also the primary reason that California wine is so darned expensive, relative to e.g. Spanish, Italian, or even French wine. The Williamson Act presents a massive barrier to entry for would-be small vintners, who might be able to make a go of it with only five or ten acres - but instead, the California wine market is dominated by the mega-millionaires & corporate megaliths who can afford the millions of dollars necessary to purchase a 100+ acre parcel of California soil.

PPS: And notice how the elites tax the wage slaves at 30% to 40% on the dollar [20+ points income tax, 13+ points social security, 3+ points medicare, etc etc etc], but they only tax themselves 20% on capital gains, and Prop-13 their way out of property tax obligations?

And almost none of those capital gains taxes are making their way into the welfare trough that Robert Rector has written about so much lately.

So they get the cheap labor, they tax themselves at a far lower tax rate than everyone else, and, because capital gains taxes don't go into the same pot as social security & medicare taxes, they don't have to foot the bill for the $19K per year that the cheap labor costs the social welfare system.

Quite the scam they've got going there.

Must be nice to be an oligarch - funny how everyone pays lip service to the ideal of "equality before the law", but nobody actually believes in it.

jody said...

i knew a 22 year old carpenter in vegas, and he had to be an electrician part time to pay the bills, because mexican carpenters kept him out of lots of jobs. their work is also sloppy more often than american work.

i noticed the sloppy work that many mexican mechanics were turning out too. another thing i discovered in vegas was that mexicans tried to get body shop work by stopping you in parking lots and offering to fix your car for cheap at their garage. they were aggressive and annoying.

the republicans have gone crazy, but what are the democrats thinking exactly on this issue? aren't they the party for the little guy? aren't they supposed to stick up for the blue collar man? instead they want to smash him. they want to destroy him with massive immigration.

joshrandall said...

Re the so-called "hypocrisy" business,Steven Colbert did a funny line(I think at the Bush thing last year),something like,"Immigrants built this country,but now its built so we dont need any more!" He was obv making fun of the nativist types(like me!:D )but he made an inadvertant good point:Is immigration for the benefit of the immigrant,or for the benefit of the target country? If the former,(which would be insane)than we should open our borders up wider than Paris Hilton at an orgy!If the latter,than we need to restrict! The onslaught of Latinos,asians and Africans is undoubtedly to THEIR beneit but will go a long way toward destroying our country and hurting our people profoundly! So,yeah,the country HAS been built and we gotta be careful who we let in!

Udolpho said...

I know it's just a joke but Colbert's crack pisses me off, you hear it all the time. Most people are ignorant of the history of immigration in America and think it was hundreds of years of anything goes and now the nasty racist rednecks want it to shrink to nothing.

Also, it's like the end of Back to the Future: it's not you, it's your kids.

Roy said...

Floccian,

You write that you feel hypocritical being against immigration when your the offspring of immigrants . . .

There is no reason to feel guilty about supporting a policy that benefits the grandchildren of those Americans who were nice enough to let your grandparents in.

Roy said...

Floccian,

There is no reason to feel hypocritical about being against immigration just because your grandparents were immigrants.

Just think of it as supporting the grandchildren of those Americans nice enough to let your grandparents in.

This is the thing that annoys me so much about all the Irish and Jewish Americans who feel their history means they have to support open borders. Why harm the decendents of the very people who gave so many Jews and Irish a chance at a better life.

Anonymous said...

Jews and the Irish who use their ethnicity to validate their pro-Open borders agenda are LYING to the American people. Ditto for any other group who uses their "history" to do this.

It's their Socialism and Liberalism that motivates them. I'm Catholic and of German, Irish, and even Jewish extraction. a 3rd generation immigrant on my Dad's side, too! But I'm fiscally and morally conservative AND THAT MAKES ALL THE DIFFERENCE.

As a pro-life activist I've noticed the following things:
1. When I was a political novice, I quickly saw that tradionalist politicans rarely got into moral trouble. The adulterer is almost always pro-choice. Yeah, no brainer that one.

2. Catholic bishops who are passionate about "Immigration rights" will be passionate about socialist issues and rarely have the fire in the belly for "family" issues. For example, when Terri Schiavo was being starved in our diocese, my bishop was out of the country and when he finally issued a statement, it was the most namby-pamby crap about how both sides should respect each other. Meanwhile, church donations have made their way to A.C.O.R.N. and He is not shy about "Undocumented Rights".
Anyways, what I've noticed over the years is this: Socialist bishops are the ones who move the pedophile priests around while the tradionalist ones exise them.
IF YOUR BISHOP IS A REGULAR AT THE "MARCH FOR LIFE" RALLY, YOUR CHILDREN ARE MORE THAN LIKELY SAFE. BE WARY IF HE'S OUT TRYING TO BRING ABOUT THE SOCIALIST PARADISE.

(I do think that for some of the Church laity, increasing parishioners plays a part in the immigration scheme, but I don't think that plays as big a role as most assume. If you're a Liberal, being a Liberal comes first. I think that for most of the liberal laity, increasing Democratic voters is more important than increasing Catholics. Remember the liberal laity in Europe who gave sanctuary to Muslims, who tend to make up the underclass!)

Mark said...

I do think that for some of the Church laity, increasing parishioners plays a part in the immigration scheme, but I don't think that plays as big a role as most assume.

I think it's fascinating that the media has done approximately 12 million stories on the gap betwen the church and the laity on issues like abortion, birth control, and female ordination, but I've yet to hear of one about the number of Catholics who are angry about the Church's stance on immigration.

Floccina said...

'By the way, a little known fact of the California real estate market is that in addition to having the "immigrants" drive up the DEMAND for California real estate, the elites have also restricted the SUPPLY of California real estate, via the Williamson Act:'

This is the biggest problem.