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.

But before concluding that immigrants are undercutting the wages of the least fortunate Americans, perhaps one should consider Ohio. Unlike California, Ohio remains mostly free of illegal immigrants. And what happened to the wages of Ohio's high school dropouts from 1980 to 2004? They fell 31 percent.

As Congress debates an overhaul of the nation's immigration laws, several economists and news media pundits have sounded the alarm, contending that illegal immigrants are causing harm to Americans in the competition for jobs.

Yet a more careful examination of the economic data suggests that the argument is, at the very least, overstated. There is scant evidence that illegal immigrants have caused any significant damage to the wages of American workers.

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.

Mr. [Lawrence] Katz agreed that the impact was modest, and it might fall further if changes in trade flows were taken into account specifically, that without illegal immigrants, some products now made in the United States would likely be imported. "Illegal immigration had a little bit of a role reinforcing adverse trends for the least advantaged," he said, "but there are much stronger forces operating over the last 25 years."

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




Comments:

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:

  • * increased corruption in the U.S. as companies that profit from illegal immigration donate to politicians who look the other way
  • * increased numbers of low-wage workers coming into a high cost of living country (resulting in people living in garages or even tents in backyards)
  • * lowered wages for our own low-wage workers, many of whom have simply stopped looking for work
  • * increased chance of worker abuse and workplace injuries and deaths (much higher for illegal aliens)
  • * entrenching the corrupt Mexican government rather than forcing them to reform
  • * assisting the government of Mexico meddling in our internal politics
  • * assisting attempts to weaken U.S. citizenship and sovereignty
  • * foreign citizens marching in our streets demanding rights to which they aren't entitled
  • * helping build a disenfranchised proletariat that some far-left groups might attempt to use (see ANSWER's near-riot in Baldwin Park for an example)
  • * among other diseases, drug-resistant tuberculosis
  • 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]



    Read the whole thing. Illegal immigration poses significant policy problems -- but those problems have little to do with economics.

    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!


    I want to tell a little story about how "JOBS AMERICANS WONT TAKE" are created. Take a unionized meat packing plant in a high wage high social service state like wisconsin. The plant was family owned, and is sold to Tysons. The labor contract comes due, the company locks the workers out. How in a "tight labor" market like that area has can they do this? Tyson simply buses in illegals until the union is broken. The labor contract goes from $15/ hour plus health insurance and pension to $7/ hour w/o benefits! Viola, $7/ hour w/o benefit.....of course localS wont line up to do the job!!! NOW THAT FACTORY NEEDS ILLEGALS, because "american won't do those jobs"
    Illegals can have an impact on labor market even in areas that dont have many.

    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]



    Cody,
    Great post. I think your math understates how bad it is for unskilled labor in high immigrant ca.

    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]



    Matt writes:
    "A final point - why is it so surprising that an annual flow of .3% of the population wouldn't hurt wages"

    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.

    http://www.census.gov/Press-Release/www/releases/archives/population/005164.html
    [...Hispanics, who may be of any race, accounted for about one-half of the national population growth of 2.9 million between July 1, 2003, and July 1, 2004. The Hispanic growth rate of 3.6 percent over the 12-month period was more than three times that of the total population (1.0 percent).]

    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:
    http://www.urban.org/publications/410936.html
    [...According to the report, while 75 percent of white students graduated from high school in 2001, only 50 percent of all Black students, 51 percent of Native American students, and 53 percent of all Hispanic students got a high school diploma in the same year. The study found that the problem was even worse for Black, Native American, and Hispanic young men at 43 percent, 47 percent, and 48 percent, respectively. ]

    The article cites the asian high-school graduation rate as 77%.

    see Abc news:
    "The Dropout Epidemic:
    http://www.abcnews.go.com/GMA/story?id=1825814&page=1&gma=true&gma=true
    [....Minority communities are hit particularly hard by the problem. Nearly half of African-American children and more than half of Hispanic children never graduate from high school. It also appears that despite the federal government's contention that the dropout rate is less than 10 percent, the dropout rate of one-third goes back at least 20 years.....]

    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.

    posted by: Mitchell Young on 04.17.06 at 05:41 PM [permalink]



    "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.
    There is a border between the two, and it is meant to be crossed in a legal manner.
    If a person enters the United States with no legal right, then that person is committing a crime.
    Those who are committing these crimes, are the very people that California is putting up with.
    Better known as illegal aliens, they are the people who are making you wait for long periods of time in hospitals because they over-crowd waiting rooms with no means in which to pay for health care.
    They have no legal rights to work, housing, education, and welfare, and yet we give them part, most, or all of those things at your expense.
    Illegal means to break the law.
    These people are breaking the law by even being in California!
    Why are we paying their way?
    There is increasing crime in our schools, on the streets, and even on our properties because of illegal aliens who come here with little or no money, and who do not care.
    We now have teachers who speak the many languages of these illegal aliens because they do not speak english.
    WAKE UP PEOPLE!!
    This is America!
    We speak english!!
    If they can't speak our language, then what are they doing here?
    Every time they cross the street they break the law because they are illegals, and that means against the law!
    An elderly American woman was given a ticket in Los Angeles because she could not make it from one side of the street to the other on time, due to her age.
    Yet we allow every illegal to cross every street.
    This is insane.
    Where are our leaders?
    Why are our borders open while we are at war?
    Why are we putting up with this?
    While I write this, I must point out that many of my friends over the years have come from other countries.
    They are the Latinos and others who came here under legal means.
    They are hard working, good, honest people who are proud to call America their home.
    I am just as proud to call them my friends!
    They are angry at those who come here expecting a free pass.
    This should not be happening.
    We want answers from Sacramento, Washington, and our town and city leaders.
    This is an election year, and if we do not get answers from those in office about the questions of why there are illegals here, and why are we paying their way, then we will take it upon ourselves to clean things up, by sweeping those in office, out of office, and replace them with people who put the interests of California first!
    I am,
    George Vreeland Hill

    posted by: George Vreeland Hill on 04.17.06 at 05:41 PM [permalink]



    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.

    posted by: Chris on 04.17.06 at 05:41 PM [permalink]






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