Download Five things economists know about immigration

Five things economists know about immigration
Posted by Dylan Matthews on January 29, 2013 at 9:30 am
Few areas of economics have provoked as much fruitful research as immigration, and while disagreements
remain, there are at least a few things we can glean from that literature. Here are just a few of them.
1. It’s really good for immigrants
Undocumented immigrants line up outside a Los Angeles Deferred Action Application Event. (The
Washington Post)
File this one under “duh,” but immigration is a great deal for immigrants, and an even better one than it
was during previous eras of mass immigration. Lant Pritchett, a professor at the Harvard Kennedy School
and author of Let Their People Come, a great book on the economics of immigration, produced this graph
comparing wage gaps between immigrants’ destinations and countries of origins in the 19th century to
those gaps in more modern times:
Source: Lant Pritchett
In the 1870s, workers in Ireland could double their wages by coming to the United States. In the 1990s,
workers in Guatemala could raise their wages sixfold by coming to the Unted States. In another study, the
University of Wisconsin’s John Keenan estimated that completely opening the borders would increase the
average developing country worker’s salary from $8,903 to $19,272 — more than double.
2. It’s very good for the economy as a whole
Open borders would increase GDP so much, everybody’ll be throwing out fliff like they’re sultans. (Brad
Neely)
Economists have tried to put a dollar figure on how much the world economy would grow if we just
removed all immigration restrictions overnight. The answer: a lot. Angel Aguiar and Terrie Walmsley
modeled the effects of three U.S. policy alternatives — full deportation of Mexican immigrants, full
legalization and full legalization with increased border control — and found, unsurprisingly, that full
deportation reduces gross domestic product and the others would add. Deportation reduces GDP by 0.61
percent, legalization with border control increases it by 0.17 percent and legalization without border
control increases it by 0.53 percent.
Pritchett, meanwhile, compared what open borders would do to world GDP, compared to completely free
movement of capital and completely free trade with developing countries. It’s not even close. Open
borders increase world GDP by $65 trillion. Let me repeat that. $65 trillion — with a ‘t’. The others don’t
even come close:
Source: Lant Pritchett
3. It increases innovation
Russian-born Google cofounder Sergey Brin with the Google Goggles he helped create with his enormous
foreign-born brain. (David Paul Morris / Bloomberg)
Businessweek’s Charles Kenny, who’s also a fellow at the Center for Global Development, highlighted a
slew of studies suggesting that high-skilled immigration is key to innovation in America. Foreign nationals
living in the United States accounted for 25.6 percent of all patent applications and founded 26 percent of
start-ups, including a majority of Silicon Valley start-ups. In addition, an increase in immigrants with
higher education diplomas is associated with an increase in patenting. Charles Lin at Rutgers found that
an expansion of high-skilled visas passed in 1998 increased revenue at affected companies by 15 percent.
4. The typical native-born worker probably benefits
Vinod Khosla (left), an Indian-born entrepreneur, and Andy Bechtolsheim (third from left), a Germanborn entrepreneur, with, from left, Bill Joy, and Scott McNeely, their cofounders at Sun Microsystems and
native-born Americans who they helped make exceedingly wealthy. (Source: Sun Microsystems)
There’s a lot of debate on this one. A 2010 white paper by Gianmarco Ottaviano, Giovanni Peri and Greg
Wright found that less expensive immigrant labor has a “positive net effect on native employment.” In
another paper, Peri found that U.S. immigration from 1990 to 2006 increased real wages by 2.86 percent.
Put together, Peri’s research forms the strongest basis for arguing that immigration increases wages for
native-born American workers. Patricia Cortes at Unviersity of Chicago has confirmed his findings, Heidi
Sheirholz at EPI and Raúl Hinojosa-Ojeda at the Center for American Progress, similarly, have found
across-the-board gains from immigration (or, in the latter case, comprehensive immigration reform) to
wages.
George Borjas and Lawrence Katz, two Harvard labor economists who tend to be more skeptical of the
benefits from immigration, beg to differ. Between 1980 and 2000, U.S. workers saw their wages fall in the
short-run by 3.4 percent due to immigration. In the long-run, the economy adjusts such that the overall
effect is minimal, but the short term figures are still a cause for concern.
Unsurprisingly, Peri and Ottaviano dispute Borjas and Katz’s methodology. They argue that Borjas and
Katz inaccurately assume that U.S. and foreign workers are perfect substitutes. That’s a problematic
assumption, since immigrants tend to do a different kind of labor, one which might not even exist in their
absence. “[Immigration opponents] say ‘we Americans could do the job!’ but they don’t say ‘we’ll do the
job at a significantly higher price at which the job wouldn’t exist,’” said Jagdish Bhagwati, a trade and
immigration economist at Columbia and the Council on Foreign Relations. Borjas and Katz also neglect
the indirect benefits that immigration provides to all groups through increasing growth.
But even taking Borjas and Katz at face value, the two groups’ estimates aren’t that far off from each other
when you look at the long-run, as this chart from Michael Greenstone and Adam Looney at the Hamilton
Project shows.
Everyone agrees
that high school grads and people with some college benefit in the long run and despite their short-run
estimates, even Borjas and Katz show a mildly positive overall effect in the long run. The dispute is about
what happens at the low-end.
5. Low-skilled immigrants probably don’t see any effect
Frank Sobotka used to make stuff in this country, build stuff. Now he just takes from the other guy’s
pocket. (Larry Riley / Courtesy HBO’s “The Wire”.)
That’s what Peri’s findings say above, and they’re confirmed in two notable studies, by David Card and
Rachel Friedberg, which found that the Mariel boatlift (which brought upwards of 100,000 immigrants to
Miami in 1980) and the early 1990s Russian Jewish migration to Israel, respectively, did not decrease
native employment or wages. Both were big events. The boatlift increased Miami’s population by 7
percent, and the Russian migration increased Israel’s population by 12 percent.
The advantage of these studies is that they isolate what economists call a “supply shock” to labor. All of the
sudden, for reasons unrelated to other factors in the economy, the supply of labor increased. That makes it
easier to determine what that shock’s effects are, because it’s not itself caused by other factors in the
economy. This increased Card and Friedberg’s confidence that there really wasn’t an effect on wages from
the sudden influx of immigrants. But other studies have found this as well. Peri argues that while lowskilled native workers suffer due to liberalized immigration in the short-run, they aren’t affected in the
long-run.