Monday, 1 July 2013


This is another one of those blog-post I meant to write a long time ago and never quite got around to doing it. In this case, though, there is more than mere procrastination at play.

Immigration and trade are difficult areas for me - I generally favour positions away from most of the mainstream economists and from what is classically termed 'the liberal elites', a group I would feel I naturally belong to if it wasn't for my lack of an upper class income.

Still, I shall soldier on and hope that, despite contradicting and disagreeing with everyone, I don't end up making a fool of myself. Since we're in the middle of the US Congress attempting to reform its immigration policies, I will first concentrate on the issue of immigration.

It is often said that both the business elites and the urban 'liberal elites' are pro-immigration because they benefit financially. Businesses get cheap labour and 'liberal elites', on top of some warm feelings for their open-mindedness, get cheap hired help. On the other hand, many pro-immigration would admit or concede that low-skilled natives might indeed suffer from the increased competition for low-paid jobs.

Another trope is that developed countries, be they the United States or Europe, can stand to benefit from highly skilled migration but have little to gain from unskilled migrants.

Economists go further, often on both fronts.

With the immigration reform looming in the background, there has been several studies trying to show that all natives benefit from immigration and that all forms of immigration, both low-skilled and highly-skilled, contribute.

An ardent supporter of this thesis is Matt Yglesias: This post, this post (a quirky funny article about Vietnamese and manicure in California) and this one are full of references to articles showing that ALL immigration is beneficial, for ALL. As Matt explains, 

"there's a whole line of research that's much more optimistic about the impact of low-skilled immigration on the wages of native-born Americans. The key issue here theoretically is "skill complementarities" — an influx of taco makers can create jobs for the guys who deliver pallets of soda to restaurants, or an influx of Spanish-speaking hotel maids can create jobs for English-speaking front-desk attendants. A key empirical issue here is to be careful what population exactly you're talking about. There's pretty strong evidence that the marginal low-skilled immigrant depresses the earnings of other immigrants, but concern for the economic welfare of immigrants seems like a perverse reason to restrict immigration.

So to get at complementarities you might be interested in a study like this one from Jack Strauss that looked at how black employment in a given metro area is altered by the level of Latin American immigration to that metro area. Since a strong local economy could simultaneously create jobs for black people and draw in Latino migrants, the question is a bit difficult to answer statistically. But he slices and dices the numbers in a range of different ways and reaches the conclusion that "results strongly support one-way causation from increased immigration including Latinos to higher black wages and lower poverty." In other words, complementarities dominate".

I would object that this results is predicated on [some] jobs being available in the first place. To take Matt's example, if there is no need for extra taco makers then there are no extra pallet delivery jobs to be created as a consequence and thus the wannabe taco-makers may well end up trying to grab pallet delivery jobs by undercutting existing wages.

Basically, it's a nice supply side story - and I am willing to believe it - but it still needs an AD component.

That being said, there are other studies, showing the classic effect you expect: Immigration depress the wages of the bottom 20% and, through creating a surplus captured by people higher up the food chain, raise the wages of the top percentiles, with an overall slightly positive effect.

In general, as with raising of the minimum wage, I think there are at least 2 effects which are contradicting each others. First, immigration, by increasing the pool of available Labour, depresses wages (supply and demand 101). But the secondary effect is that, through complementarities and other mechanisms such as increased labour flexibility and mobility, AD may eventually be increased, leading to more jobs and thus possibly higher wages down the line. I compare this with the minimum wage because, while it is clear that raising the minimum wage has a disemployment effect (first effect), the increased AD resulting from such raise (the secondary effect) may more than compensate.

To know which effect dominates is not easy, given the issues with measurements and 'ceteris paribus' problems. It may well be that a growing economy benefits from immigration - the first effect is not painful (labour supply is tight) and the second one is quickly activated (a growing economy generates many opportunities for all) while a contradicting economy doesn't actually do - its problems, whatever they are, are not a tight labour market.

The fact that a growing economy most probably benefits from immigration doesn't strike me as a big theoretical economic discovery.

These days, though, few economies are growing or growing fast and neither the US or Europe are really constrained by a lack of willing workers (even if my conservative friends are right that some jobs do seem to be so dirty, difficult or dangerous - and badly paid -  to deter most natives i.e. most natives prefer unemployment to picking veggies and fruits).

Still, if my economy is not growing, is it a good idea to add yet more bodies? Whether qualified or low skilled? The already well-off will always benefit but what about the rest of us? And, my answer, frankly, is that I do not see it. As with off-shoring and trade, it seems to me that, if you're already in a recession or if your economy is suffering from an AD deficit, immigration just cannot help as a lack of Labour is not the binding constraint.

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