Channeling Krugman

Paul Krugman had a very interesting blog post about trade yesterday. Here’s some of what he said (but it’s definitely worth reading in full):

Much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization…, hand-waving away the large distributional effects that are what standard models actually predict…The conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins…But it is fair to say that the case for more trade agreements…is very, very weak.

I sent the copyedited draft of my forthcoming book, We Wanted Workers, back to Norton a couple of weeks ago, and I couldn’t help but have a feeling of déjà vu as I read Krugman’s take on the elite argument for free trade. Sections of my book, particularly the policy discussion in the final chapter entitled Who Are You Rooting For? read just like Krugman’s post–except I need to change a word here and there. Here’s my rewriting, where I’ve underlined my changes:

Much of the elite defense of immigration is basically dishonest: false claims of inevitability, scare tactics (if you disagree, you are a racist or a xenophobe), vastly exaggerated claims for the benefits from immigration,…hand-waving away the large distributional effects that are what standard models actually predict…The conventional case for more immigration relies on the assertion that the government could redistribute income to ensure that everyone wins…But it is fair to say that the case for more immigration…is very, very weak.

We are living in interesting times indeed.

UPDATE: Some people seem to have totally missed the point of this post and interpreted it as saying that Krugman had written something similar to what I had written. Perhaps I didn’t phrase the post carefully, but that is a completely wrong interpretation. Note that I introduce the last quote in the post as my “rewriting” of what Krugman wrote. The point I am trying to make is that the exaggerations that people make in defense of trade (and that Krugman so nicely captured) are the same as the exaggerations made in defense of immigration.

High-Skill Immigration: The H-1B Program

In previous posts (here and here), I argued that we should care about high-skill immigration because of the possibility that high-skill immigrants import knowledge and capabilities that “rub off” on the rest of us, thereby increasing our productivity. I also showed that there is evidence for such spillovers in the “experimental” context (such as the sudden dismissal of renowned Jewish scientists by the Nazi regime), but the evidence is restricted to cases where the immigrants have exceptionally high skills, where there is close personal contact between the exceptional immigrants and the native workers, and where the number of high-skill immigrants is sufficiently small relative to the market.

Obviously, such flows of truly exceptional immigrants are rare. The political argument for high-skill immigration is instead presented in the context of something like the H-1B visa program, which allows employers to import 65,000 (mostly) high-tech workers annually. In the H-1B context, “high skills” typically mean that the immigrant has at least a college degree.

Continue reading “High-Skill Immigration: The H-1B Program”

High-Skill Immigration: Experimental Evidence

A couple of weeks ago I promised to summarize the evidence on whether high-skill immigration generates the productivity spillovers that would produce large economic gains for natives. I apologize for taking so long to get back to this discussion, but I have so many other projects on my plate these days that it’s hard to keep up.

By far the most convincing studies that attempt to document the existence of spillovers are those that look at natural experiments. In a series of important papers, Fabian Waldinger has looked at what happened in Nazi Germany after Hitler fired all the Jewish professors . In 1933, shortly after it took power, the Nazi regime passed the Law for the Restoration of the Professional Civil Service, which mandated that all civil servants who were not of Aryan descent be immediately dismissed. That meant that Jewish professors like John von Neumann, Richard Courant, and Albert Einstein were fired from their university posts. Many of these stellar scientists found jobs abroad, particularly in the United States.

In his 2010 JPE paper, Waldinger showed what happened to the productivity of the doctoral students stranded behind in German universities after their exceptional mentors were dismissed. The productivity of the students stranded behind in the departments most affected by the dismissals suffered. In his 2012 RESTUD follow-up paper, Waldinger looked at what happened to the productivity of the colleagues of the dismissed scientists. The surprising answer is: Not much.

Continue reading “High-Skill Immigration: Experimental Evidence”

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.

Continue reading “Republicans and Immigration”

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”