Monday, April 17, 2006
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The exaggerated externalities of illegal immigration
Via Kevin Drum, I see that Eduardo Porter has a myth-busting piece in the New York Times on the effects that illegal immigration has had on the wages of the least educated Americans. Here's how it opens:
California may seem the best place to study the impact of illegal immigration on the prospects of American workers. Hordes of immigrants rushed into the state in the last 25 years, competing for jobs with the least educated among the native population. The wages of high school dropouts in California fell 17 percent from 1980 to 2004.And here's how it closes:
"If you're a native high school dropout in this economy, you've got a slew of problems of which immigrant competition is but one, and a lesser one at that," said Jared Bernstein of the Economic Policy Institute, a liberal research group.Read the whole thing. Illegal immigration poses significant policy problems -- but those problems have little to do with economics. posted by Dan on 04.17.06 at 05:41 PM
It's likely the study corrected for this, but I'm almost certain the cost of living increased a lot more in California than in Ohio between 1980 and 2004 (mostly due to housing costs).posted by: Dave on 04.17.06 at 05:41 PM [permalink]
Given that the United States consists of a single economy and allows freedom of movement, depressing unskilled wages in one part of the country will inevitably depress wages for that form of labor throughout the entire country. Unskilled workers leave areas they can't afford to work in and move to better-paying areas, swelling the workforce and depressing wages. Indeed, my sister left Southern California for that very reason -- she couldn't earn a living as a line cook here. For the time being, at least, line cooks can earn more in Tennessee than in California, and don't have to be fluent in Spanish to communicate with their coworkers either. :)posted by: Dan on 04.17.06 at 05:41 PM [permalink]
Dan, I'm not sure that you've thought this post through completely. You're suggesting that Mexican and Central American workers will migrate many hundreds of miles based on economic differentials, but Ohio workers won't?
Don't forget "The Grapes of Wrath": Migrant workers flee poverty in Oklahoma to chase relatively better wages picking fruit and vegetables in California. What we're seeing in the study cited by Porter may be that illegal immigrants have driven down agricultural wages in California to the point where there's no longer any economic advantage to undertaking the migration from Ohio to California.posted by: Tom T. on 04.17.06 at 05:41 PM [permalink]
This is the kind of superficial, tendentious comparison that abounds in the blogosphere and that Dan of all people should recognize on sight.
California's least skilled workers enter an economy with many jobs demanding few skills, including landscaping, construction and agriculture. Manufacturing, the mainstay of Ohio's least educated workers for several generations, has declined substantially since 1980 -- and Ohio's farm economy is dominated by row crops and dairy, which require many fewer workers than California's vast fruit and vegetable sector. In short the two state's economies are so different that comparing immigration's impact on them is an exercise beyond the scope of "myth-busting" newspaper articles.
I'm not sure how much contact employees of the University of Chicago have with the people most apt to hire illegal immigrants, but having had a bit of it myself let me suggest a different problem that the availability of immigrant labor in large quantities highlights, though it does not cause it. In the Atlanta area homebuilders and developers hire many Mexican laborers, partly because they work for modest wages but mostly because they work longer and harder than American -- in that area, mostly black -- workers and come with less baggage: less absenteeism, less drug use and so forth. Now perhaps what I've heard is all wrong and metro Atlanta's mostly white development community prefers Spanish-speaking Mexicans to local African Americans out of simple racism. But unless it is all wrong what this suggests is there is a segment of the American labor force that brings so many problems with it that employers will hire almost anyone else just to avoid dealing with them.posted by: Zathras on 04.17.06 at 05:41 PM [permalink]
You could make a lot of money by selling one of your kidneys. Sell both and make twice the amount!
Along the same lines, here are some of the downsides of illegal immigration:
Maybe there are hidden costs, eh?posted by: TLB on 04.17.06 at 05:41 PM [permalink]
Picking Ohio is a load of crap, because Ohio is in the 5th year of a 1 year recession. Trust me, I'm sitting in it.
Ohio is still losing jobs and our manufacturing base is still being peddled overseas. Ohio has been a consistent leader in personal bankruptcies and home foreclosures since 2000.
So comparing anything to Ohio provides a really phony comparison.
There are, by the way, illegals here. Some are seasonal and follow the truck crops (tomatoes, pickles) while others are permanent, largely dumping African-Americans out of low skill jobs.posted by: save_the_rustbelt on 04.17.06 at 05:41 PM [permalink]
"Migrant workers flee poverty in Oklahoma to chase relatively better wages picking fruit and vegetables in California."
Actually they weren't all migrants, many were permanent residents who couldn't find work and couldn't afford to rent and who lost their homes.
My folks were Okies who were too poor to move to California, some years later my father made it to Ohio looking for opportunity.posted by: save_the_rustbelt on 04.17.06 at 05:41 PM [permalink]
Here is Steve Sailer's take on Eduardo Porter's NYT article. Steve claims that Mr. Porter did not take into account the cost of living when he compared the wages of California and Ohio high school dropouts in their respective states, thus obscuring the real wage differences between the two populations.
According to the data gathered by the nonprofit organization ACCRA, which measures cost of living so corporations can fairly adjust the salaries of employees they relocate, California has the highest cost of living in the country with an index of 150.8 (where 100 is the national norm). Ohio is below average at 95.4. So, relative to the national average cost of living, high school dropouts in Ohio average $8.77 versus $5.78 for the equivalent in California. That means they are 52% better off in Ohio.posted by: Cody on 04.17.06 at 05:41 PM [permalink]
Please elaborate, Professor Drezner—this sentence deserves a post of its own!posted by: c on 04.17.06 at 05:41 PM [permalink]
Take a look at internal migration patterns within the US. Unskilled whites flee high immigration areas.(they are being displaced) The relocate in the south east and mountain west. Unskilled Americans are voting with their feet!
posted by: centrist on 04.17.06 at 05:41 PM [permalink]
But hey, why should I worry....I own Tyson somewhere in my holdings and I like cheap pepperoni on my pizza.posted by: centrist on 04.17.06 at 05:41 PM [permalink]
Dave, to answer your question a little more precisely, cost of living doesn't matter for the analysis. The actual paper compares the wage gap between high school graduates and non-graduates (the overwhelming majority of illegal immigrants). So the wage ratio will be constant for each state regardless of the adjustment.
Zathras, I think you should have read the underlying academic article - one of the reasons Card doesn't find offsetting unemployment in high-immigrant areas (and the same reason Borjas had to lower his estimate on wage reductions for high school dropouts) is the exact reason you are giving for dissing Dan: industry/employment composition adjusts to make enough jobs available.
Rustbelt, Ohio is an extreme example (as is California I guess) - the conclusion of the article isn't that illegal immigrants RAISE the wages of our dropouts (though they do for our graduates and college attendees) like would be implied by the 17 and 31% figures. It is that, after looking at 250 metro areas including some in Ohio and California, wages weren't hurt. I think the work stands up to your criticism.posted by: Matt on 04.17.06 at 05:41 PM [permalink]
If a high school dropout make 8.77/hr in ohio with a cola deflator of 95 that comes out 9.23/hr in real terms.
Compare that to Ca. dropout with a wage of 5.78/hr with a deflator of 150 you end up with 3.85 per hour when adusted for the cost of living difference.
That means the high school drop out is 285% better off in low immigrant ohio than in high immigrant Ca.posted by: centrist on 04.17.06 at 05:41 PM [permalink]
According to the data gathered by the nonprofit organization ACCRA, which measures cost of living so corporations can fairly adjust the salaries of employees they relocate, in 2004 California has the highest cost of living in the country with an index of 150.8 (where 100 is the national norm). Ohio is below average at 95.4. So, relative to the national average cost of living, high school dropouts in Ohio average $8.77 versus $5.78 for the equivalent in California. That means they are 52% better off in Ohio than in California!
So, the Law of Supply and Demand hasn't been repealed after all...
One obvious cause of this huge difference in the cost of living is that during the same 1980 to 2004 period, housing inflation in California was 315% versus 155% in Ohio, according to the Laboratory of the States.
Even failing to adjust for the striking disparities in the inflation rate between Ohio and California, one obvious differences is that high school dropouts used to be paid a lot more in Ohio, probably due to greater unionization. In contrast, Southern California was traditionally anti-union. The 1980 wage in Ohio was $12.13 versus $10.49 in California. Obviously, the decline in unionized heavy industry jobs hit rust belt Ohio harder than growing California, which had fewer unionized heavy industry jobs to lose.
The point that is constantly overlooked is that American citizens ought to be compensated with higher wages for the inconvenience of leaving family and friends behind to move from their native state to fast growing states to meet the demand for labor. But, instead, illegal immigrants are beating them to the boomtowns, driving down wages.posted by: Steve Sailer on 04.17.06 at 05:41 PM [permalink]
Maybe Porter would like to revise his study to claim that illegal immigration causes the cost of living to be higher in California than in Ohio. That would make just as much sense.posted by: withrow on 04.17.06 at 05:41 PM [permalink]
I feel like I'm talking to a brick wall here ...
Cost of living changes are irrelevant to the point that wages haven't been affected. This is because the wages are already in relative terms.
The migration issue that Steve raises is interesting, however. Unusual (nothing wrong with that) that it is coupled with his alternative explanation that immigrants are taking jobs - usually one side argues bloody job competition and the other side argues that immigrants flow to booming local economies with (relative) labor shortages.
A final point - why is it so surprising that an annual flow of .3% of the population wouldn't hurt wages, especially when global capital flows are taken into consideration? We can absorb much more than that in an increase in investment, so the capital/labor ratio need not change at all. The USA is a very efficient economy, and more labor will inevitably lead to more (foreign or domestic) capital seeking high returns.posted by: Matt on 04.17.06 at 05:41 PM [permalink]
Withrow writes: "Maybe Porter would like to revise his study to claim that illegal immigration causes the cost of living to be higher in California than in Ohio. That would make just as much sense."
Of course illegal immigration makes the cost of living higher in California. It increases demand for housing, which has helped drive housing costs to the highest in the country. Four counties in Southern California now have median home prices over $500,000.posted by: Steve Sailer on 04.17.06 at 05:41 PM [permalink]
The cost of living compiled by ACCURA is for an upper middle class corporate manager-executive and will differ massively from the cost of living for a low wage employee. For example, the housing component for the two groups will have little resemblance.posted by: spencer on 04.17.06 at 05:41 PM [permalink]
Dan, I'm not sure that you've thought this post through completely. You're suggesting that Mexican and Central American workers will migrate many hundreds of miles based on economic differentials, but Ohio workers won't?
No, that is not what I'm suggesting. But unless they leave the country (and where are they going to go? Australia?) displaced American workers are just going to end up moving to another part of the United States, increasing the supply of unskilled labor *there* and lowering wages.
Illegal immigration increases the supply of unskilled labor in the United States. That lowers the wages for unskilled labor throughout the United States -- not just in states with lots of illegal immigrants -- unless people are somehow physically prevented from seeking work in other states.
Don't forget "The Grapes of Wrath": Migrant workers flee poverty in Oklahoma to chase relatively better wages picking fruit and vegetables in California.
Er... is that really the example you want to use? The "Okies" were treated little better than slaves upon their arrival in California. Local workers deeply resented the competition and regularly harassed the migrants. When they could find work at all it was for starvation wages.posted by: Dan on 04.17.06 at 05:41 PM [permalink]
One reason it is surprising is because the annual flow of .3% of our population is not the whole story. Hispanics have children at higher rates than americans as a whole, and those children, generations on, still average bad high-school dropout rates.
This approximate 50% share of national population growth will rise rise far into the future, due to american born hispanics increasing percentage of the population + higher birthrates.
The Civil Rights Project at Harvard:
The article cites the asian high-school graduation rate as 77%.
see Abc news:
The growth in hispanic native born increase the drop-out rate, and thus competition for drop-outs as well. They are here to stay, but as for future immigration, which we can actually do something about, .3% of our population added a year is not the whole story on hispanic immigrations impact.posted by: PJGoober on 04.17.06 at 05:41 PM [permalink]
"....No, that is not what I'm suggesting. But unless they leave the country (and where are they going to go? Australia?) displaced American workers are just going to end up moving to another part of the United States, increasing the supply of unskilled labor *there* and lowering wages....."
This is the Greg Mankiw theory, just pack up the rustbelt workers and move them. Pictures of Okies. He also thinks rustbelt cities should just rot, progress you know.
"Illegal immigration increases the supply of unskilled labor in the United States. That lowers the wages for unskilled labor throughout the United States -- not just in states with lots of illegal immigrants -- unless people are somehow physically prevented from seeking work in other states."
Exactly, thank you for saying this.posted by: save_the_rustbelt on 04.17.06 at 05:41 PM [permalink]
I think it's pretty clear that illegal immigration drives down wages because it alters the balance of negotiations between employer and employee to workers' detriment. Folks should note that David Card's study involves legal immigration, the Cuban boat exodus. These intercity studies strike me as far less useful.
All immigration will increase housing prices, which make up a large share of low-income workers' spending in booming markets. It's a double whammy that low-income native workers have to deal with lower wages caused by illegal immigration AND higher housing prices caused by all immigration. I like immigration personally, but we need to figure out a way to deal with legalization issues.posted by: withrow on 04.17.06 at 05:41 PM [permalink]
Being the son of legal immigrants from India, I never could understand why Hispanics believe that they are entitled to simply crossing a border, while members of my family had to stand in line, deal with surly American consular officials, pay exorbitant fees and legal charges (by developing world standards), and ever-changing rules and shifting departments.
Mexico is not a poor country. I'd say the average Mexican probably enjoys a better standard of living than the average Indian, but the average Indian is not fortunate enough to live next to a developed economy like the U.S.
For those who believe that illegal immigration poses no threat to wages, let's open all professions as well to illegal immigration - such as lawyers, doctors, or academic faculty? No need for anti-market forces like bar associations, medical boards, etc.
Legal immigration has rejuvinated many parts of the U.S., and given opportunities to many (like my own family) that found their own countries unwelcoming. But not taking some measures to curb illegal immigration will increase the risk that more severs steps will be taken.posted by: KXB on 04.17.06 at 05:41 PM [permalink]
Is "externality" the word you wanted to use in this case? That would mean that all competition is an externality. It ain't.
A fall in price (in this case the wage) because of an increase the number of suppliers (in this case, workers) is not an externality.
When a shoe manufacturer in Maine sees prices for shoes fall because trade protections are removed and more foreign shoes come we don't call that an externality. Why use the word here?posted by: John B. Chilton on 04.17.06 at 05:41 PM [permalink]
Matt -- the New York Times story, which is what most people will read, implies that the study is based on wage differentials across states. States are the unit of analysis, the independent variable is percentage of illegal population, the dependent variable is wages of native-born high school dropouts. Nowhere in the first paragraphs of the Times story is the wage gap between highschool and drop outs mentioned. The only hint of this is the mention of a study about wage inequality at the bottom of the economy, and here there are no details given. Given the above, the story should have corrected for cost of living.
Second, externalities are not confined to wage rates (if wage rates are even externalities at all--it depends on your frame of reference). Externality generally refers to costs of production that are not borne by a firm but externalized to the public.
For example, California had to relax environmental regulation in order to deal with power outages a few years back. But the power outages were due, in part, to growing population --almost all of that driven by immigration. All of use are paying a small but real cost in increased polution. Traffic is another classic externality -- one that anyone driving in SoCal will know. Education is a big cost that people are afraid to measure. It makes sense that a teacher with foreign, limited english proficiency students is going to have to spend more time with them, to the detriment of the natives. But according to Peter Brimelow, no one has ever studied this problem out of fear of the results.
"Read the whole thing. Illegal immigration poses significant policy problems -- but those problems have little to do with economics."
If true, we must inform the various business lobbies counting on the profits of wage depression to stop! Stop donating money to politicians, stop making promises to Senators with presidential aspirations, stop funding and creating ethnic pressure groups! This waste is harming the economy!
Really, a study based on "drop outs?" How about looking at individual wages for jobs, carpenters, meat packers, etc. All such studies show depression.
And why the animosity to "drop outs?" There's a whiff of class hatred in these "who cares about them" stories about these Americans.
I might as well speculate that the pool of "high school dropouts" has shrunk meaning the remaining are more represented now by the mentally challenged, the bored, and other supposed no-goodniks.
Opting for Ohio in particular raises obvious questions about cherry picking stats.
We will see more of these quickly whipped up stories responding to concerns raised by the people I suspect. Gives cover to politicians working for their benefactors faced with noisy citizens (but the New York Times says otherwise!) and high-minded liberal elites alienated from the concerns of the average people of this country.posted by: Tark on 04.17.06 at 05:41 PM [permalink]
Mitchell, the fact remains that the studies calculate differentials the way I described it. So while Ohio may have fared better than California adjusted for cost-of-living (which should give you pause right there), illegal immigration is (one of several) independent variable(s) of a wage ratio.posted by: Matt on 04.17.06 at 05:41 PM [permalink]
There is only one thing i am certain of in this debate: any plan that relies on businesses enforcing immigration law isnt a serious plan. That will never happen, because the government will never seriously enforce it, because business keeps government (well, politicians anyway) running (small pun). Not to mention it would require another huge governmental bureaucracy at least the size of the ATF to even make a dent. Its not going to happen.posted by: Mark Buehner on 04.17.06 at 05:41 PM [permalink]
California is a part of the United States of America, and is in no way connected to Mexico.
I am an Australian, and am astounded at the American situation with illegal migrants. I am at a complete loss to understand why the US Government supplies welfare, health, and education benefits to them. If any illegal migrant makes any contact with the government in Australia, they're quickly deported. I know an American who overstayed his visa here - immigration found him (I suspect they got his details from his landlord), and he was gone within 2 days.
People always underestimate the dangers of high numbers of illegal immigrants. They can't vote, can't complain to regulatory authorities about occupational abuses, and don't pay tax. They form criminal underclasses, as since they're already breaking the law by being here, and are very poor, why not commit a few lucrative crimes too.
The citizen must pay tax, and is entitled to governmental protection from employer abuses - hence, there is no way a citizen can compete with illegal immigrants in unskilled jobs if unscrupulous employers are willing to take illegals.
Some people propose that the illegal migrants be given amnesty. Wonderful. Reward them for their illegal acts, encouraging more to come. Never mind that they didn't pay tax on their earnings. Meanwhile, legal migrants waited in long queues, paid high fees, and paid tax on their earnings.
It's crazy. I honestly believe that this whole migration issue is a much larger threat to America's future than international terrorism, because by condoning illegal immigration, America's corporations, institutions, and governments rot from within.posted by: Kim Mason on 04.17.06 at 05:41 PM [permalink]
I live in ohio. I am a former Restuarant Manager, at a a place i worked at there were illeagal aliens ...they were not working the "low" jobs they were some of the highest paid cooks in the store. they took jobs from americans. I have nothing against immagrants...i just think we should help our people first.
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