Republicans and Immigration

I’ve been watching the civil war over immigration in the Republican party with ever-increasing interest. And let’s be honest–this really is a war for the soul of the party as there is almost nothing in common between some of the approaches that the candidates advocate. I’m sure that I’ll have much more to say as the year wears on. (Full disclosure: I am not affiliated with any political party).

Let me start by noting that I really liked this very insightful piece by John O’Sullivan. The article touches on how Donald Trump changed the dynamics of the immigration debate by emphasizing some of the losses from mass immigration. Inevitably, the discussion is leading to increased questioning of the parameters that should reflect the Republican Party’s immigration policy. O’Sullivan notes:

Globalization has struck the bourgeoisie. Increasing legal immigration levels and extra H1-B visas for occupations for skilled occupations mean that computer programmers are quite as likely as low-paid restaurant workers to see immigration as a threat to their jobs and pay levels. And they are more likely to be vocal about it…

One of the internal contradictions of Kemp-style ideological conservatism was the attempt to combine mass immigration with the scaling back of entitlement programs: Keeping wages down through immigrant competition is incompatible with moving away from state welfare entitlements to market provision…More widely, mass immigration builds up a large new constituency for state welfare programs of every kind. ​

As a New York Democrat once remarked, the Republicans have a choice: They can either change their policy on immigration or their policies on everything else. Trump stumbled on that insight earlier this year; it may have transformed American politics forever. Or not.

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Why Is High-Skill Immigration Beneficial?

A few days ago I was having a discussion about high-skill immigration with some people who should know better. It suddenly struck me that even though everyone favors more high-skill immigration, there is a lot of confusion about why one should be in favor of it.

Suppose all workers are alike. (This is not a trivial assumption, but the argument pretty much carries through if we allowed workers to be different; it’s just harder to explain. I’m also going to focus on the productivity effects of high-skill immigration and ignore the important fiscal impact on the welfare state).

In the textbook model of the labor market (read: supply and demand), immigrants enter the country, and the wage falls in the short run. It is this wage drop that generates the “immigration surplus”–the increase in the size of the economic pie accruing to natives. Over time, the economy adjusts–firms expand, for example–and the wage goes back to what it was in the pre-immigration era (assuming constant returns to scale), and the immigration surplus dwindles down to zero.

Note I said nothing about whether workers are low-skill or high-skill. Regardless, the wage of competing workers falls in the short run, the economy adjusts over time, the wage goes back to what it used to be, and the immigration surplus disappears.

In order for high-skill immigration to be beneficial in the long run, we need to deviate from this textbook model. The deviation that will do the trick is that high-skill immigrants generate “productivity spillovers.” In other words, “we” natives learn stuff from them, becoming more productive in the process. It is this rubbing off of what high-skill immigrants possess that makes high-skill immigration beneficial.

Is there evidence proving the existence of such spillovers? In some cases of high-skill immigration: Yes. In other cases: No. Over the next few posts, I will summarize what I think is the strongest evidence in favor of such spillovers, and why that evidence may not really say all that much about the impact of the type of high-skill immigration we have in mind when we talk about changes in immigration policy.

Incentives and Food Stamps

The one thing that economics teaches us over and over again–and the one lesson that those who don’t like the implications ignore over and over again as well–is that incentives matter.

Robert Rector and his colleagues at the Heritage Foundation have written a number of important reports over the years showing how participation in welfare programs respond to changes in incentives. And their latest one is a nice addition to the collection.

In response to the growth in food stamp dependence, Maine’s governor, Paul LePage, recently established work requirements on recipients who are without dependents and able-bodied. In Maine, all able-bodied adults without dependents in the food stamp program are now required to take a job, participate in training, or perform community service.

So what happened?

In the first three months after Maine’s work policy went into effect, its caseload of able-bodied adults without dependents plummeted by 80 percent, falling from 13,332 recipients in Dec. 2014 to 2,678 in March 2015.

It’s evidence like this that restores my faith in humankind. We’ll always do what is best for us.


The Slowdown in Immigrant Assimilation

The second paper of mine that got published in the past few weeks deals with trends in the economic assimilation of immigrants–the rate at which their earnings catch up with those of native workers. The initial draft of this paper was written quite a while ago, but it was presented at a conference and it took years for that issue of the journal to come out.

My initial interest in immigration research decades ago was sparked by the question: What does it mean to say that immigrants who arrived in the country a long time ago do better than immigrants who have just arrived? The conventional interpretation was that this difference in economic outcomes represented assimilation.

I thought that perhaps something else might be at work. This idea led to my 1985 Journal of Labor Economics paper that examined how cross-section measures of assimilation were contaminated by cohort differences in wage levels. In other words, the average immigrant in some immigrant waves was more productive than the average immigrant in other waves, even at the time of arrival. The wage difference between new and old immigrants might say little about assimilation, but might instead represent a difference in productivity between the two waves.

My new paper returns to this question and documents that there are also cohort differences in the rate of wage growth. The earnings of some waves grow faster than the earnings of other waves. How important are these differences?

Immigrant Assimilation

Continue reading “The Slowdown in Immigrant Assimilation”

Cracks in the Wall

David Autor, David Dorn, and Gordon Hanson have been producing a steady stream of very important papers that examine and measure the labor market impacts of trade. Their latest NBER working paper is a really nice one. Let me quote from the abstract:

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income.

I was struck by how the very slow adjustment reduces the short-run gains from trade to nearly zero:

The mobility costs that rationalize slow adjustment imply that short-run trade gains may be much smaller than long-run gains…Using a quantitative theoretical model, Caliendo, Dvorkin, and Parro (2015) find that in the immediate aftermath of a trade shock, constructed to mimic the effects of growth in U.S. imports from China, U.S. net welfare gains are close to zero.

This reappraisal about the net benefits from trade is happening concurrently with a reappraisal of the gains from immigration, that other aspect of globalization that generates even more controversy. A recent post by Branco Milanovic entitled “Migration’s Economic Positives and Negatives” shows the scope of the rethinking.

Migration, by raising incomes of the migrants…, is the most potent force for the reduction of global poverty, as well as for the reduction of global inequality…

However, I think that this is not so simple. There may be also some negative economic effects to consider. I see three of them. First, the effect of cultural or religious heterogeneity on economic policy formulation…Second, cultural differences may lead to the erosion of the welfare state…Third, migration might have important negative effects on the emitting countries…

We have, I think, to take into account also the negative economic effects of migration.

I am not so sure that Milanovic identified the most important adverse effects that we need to consider, but they are certainly effects worth pondering. It is the possibility that migration has many unintended consequences, and that some of these consequences might not be so beneficial, that I tried to address more formally in my recent JEL paper.

There is a very simple starting point for trying to understand the strange dynamics of the 2016 electoral cycle in the United States (and the ongoing political upheaval in Europe). Why exactly did it take so long for the obvious insights offered by the “new” trade literature and the reassessment of immigration to filter up the food chain and penetrate elite thinking?

By the way, this all reminds me of a very good and prescient book written by my colleague Dani Rodrik back in 1997: Has Globalization Gone Too Far?