immigration

The National Academy of Sciences released a new report in September that “provides a comprehensive assessment of economic and demographic trends of U.S. immigration over the past 20 years, its impact on the labor market and wages of native-born workers, and its fiscal impact at the national, state, and local levels.” Here are the highlights from the press release:

• Effects on wages: “When measured over a period of 10 years or more, the impact of immigration on the wages of native workers overall is very small.”
• Effects on employment levels: “There is little evidence that immigration significantly affects the overall employment levels of native-born workers.”
• Effects of high-skilled immigrants: “Several studies have found a positive impact of skilled immigration on the wages and employment of both college- and non-college-educated natives. Such findings are consistent with the view that skilled immigrants are often complementary to native-born workers; that spillovers of wage-enhancing knowledge and skills occur as a result of interactions among workers; and that skilled immigrants innovate sufficiently to raise overall productivity.”
• The role of immigrants in consumer demand: “Immigrants’ contributions to the labor force reduce the prices of some goods and services, which benefits consumers in a range of sectors, including child care, food preparation, house cleaning and repair, and construction. Moreover, new arrivals and their descendants are a source of demand in key sectors such as housing, which benefits residential real estate markets.”
• Impacts on economic growth: “Immigration is integral to the nation’s economic growth. The inflow of labor supply has helped the United States avoid the problems facing other economies that have stagnated as a result of unfavorable demographics, particularly the effects of an aging workforce and reduced consumption by older residents. In addition, the infusion of human capital by high-skilled immigrants has boosted the nation’s capacity for innovation, entrepreneurship, and technological change.”
• Fiscal impact of first-generation immigrants (1994-2013): “Annual cross-sectional data reveal that, compared with the native-born, first-generation immigrants contributed less in taxes during working ages because they were, on average, less educated and earned less. However, this pattern reverses at around age 60, when the native-born (except for the children of immigrants) were consistently more expensive to government on a per-capita basis because of their greater use of social security benefits.”
• Fiscal impact of the children of immigration (1994-2013): “Reflecting their slightly higher educational achievement, as well as their higher wages and salaries, the second generation contributed more in taxes on a per capita basis during working ages than did their parents or other native-born Americans.”

I’ve written about the economic literature of immigration before and the NAS findings are pretty consistent with the ones I shared previously. This report could’ve used more exposure, especially given the outcome of Tuesday’s election.

Unfortunately, I doubt it would’ve mattered.

Last week, I made the unfortunate decision to engage in a political/economic debate on Facebook. I rarely do this because (1) it makes friends into enemies, (2) it sucks up a lot of time with continual responses, and (3) it slowly turns me into a hostile person. Nonetheless, one of the topics discussed was immigration. The concerns expressed by my debate opponent were that new immigrants may not be assimilating and could very well undermine the values and culture that make America work. Having already explained what the economic literature says about immigration, I reminded him that there has been surprisingly little research on the effects immigrants have on institutions. But the research we do have suggests that immigrants not only have no negative effects on institutions, but may even have positive effects on institutional quality.

A brand new study published this August could lend support to the findings above. From the abstract:

Using several measures of diversity, we find that higher levels of ethno-linguistic and cultural fractionalization are conditioned positively on higher economic growth by an index of economic freedom, which is often heralded as a good measure of sound economic management. High diversity in turn is associated with higher levels of economic freedom. We do not find any evidence to suggest that high diversity hampers change towards greater economic freedom and institutions supporting liberal policies. The effect of diversity, moreover, is conditioned positively by higher democracy. Our results raise serious doubt about the centrality of social diversity for explaining economic failure, nor is there evidence to suggest that autocratic measures are required under conditions of social diversity to implement growth-promoting policies. This is good news because history and culture seem to matter less than rational agency for ensuring sound economic management.

While this is mainly discussing development economics, I think the correlation between high diversity and high economic freedom is important. Barring members of other ethno-linguistic groups and cultures from entering the country may actually be holding back higher-quality institutions.

You can see an older, ungated version of the paper here.

Earlier this year, The New York Times reported that “[o]ne of the strongest predictors of Trump support is the proportion of the population that is native-born. Relatively few people in the places where Trump is strong are immigrants — and, as their answers on their ancestry reveal, they very much wear Americanness on their sleeve.” In other words, those opposing immigration the most live in areas with very few immigrants (similar to Brexit voters). A new Gallup study supports these findings. The Washington Post reports, “According to this new analysis, those who view Trump favorably have not been disproportionately affected by foreign trade or immigration, compared with people with unfavorable views of the Republican presidential nominee. The results suggest that his supporters, on average, do not have lower incomes than other Americans, nor are they more likely to be unemployed.” However, while

Trump voters tend to be the most skeptical about immigration, they are also the least likely to actually encounter an immigrant in their neighborhood. 

Rothwell finds that people who live in places with many Hispanic residents or places close to the Mexican border, tend not to favor Trump — relative to otherwise similar Americans and to otherwise similar white Republicans.

Among those who are similar in terms of income, education and other factors, those who view Trump favorably are more likely to be found in white enclaves — racially isolated Zip codes where the amount of diversity is lower than in surrounding areas.

These places have not been affected much by immigration, and Rothwell believes that is no coincidence. He argues that when people have more personal experience of people from other countries, they develop friendlier attitudes toward immigrants.

All this makes yesterday’s outstanding article in The Washington Post all the more important. “For many economists,” the author writes, “it’s the simplest and most effective way to make the world richer and reduce poverty. For those in government, it’s a political landmine.” She goes on to present the case in favor of loosening immigration restrictions:

Some economists have suggested that allowing people to work where their labor is most highly valued — something that is hardly realistic, given the political environment in the developed world— could double the size of the global economy. More than a dozen studies reviewed by economist Michael Clemens, a senior fellow at the pro-immigration Center for Global Development, suggested that eliminating barriers to global mobility would increase world gross domestic product by between 67 and 147 percent.

Clemens says the benefits are huge even for a more modest loosening of restrictions on immigration. His research suggests that allowing just 5 percent of the people now living in poor countries to work temporarily or permanently in richer countries would add trillions of dollars to the global economy. The economic gains would be greater than those from dismantling every remaining barrier to trade and investment around the world.

While some critics like Harvard’s George Borjas reject this kind of optimism, the evidence leans in favor of those pushing for fewer restrictions:

First, the same worker can create more economic value in some places than in others, because of differences in factors that affect the productivity of businesses, such as natural resources, infrastructure, technologies and laws…Differences in productivity are reflected in the vastly different wages people can earn for similar types of work across the world. According to estimates by Clemens, Claudio Montenegro and Lant Pritchett, who examined a data set of more than 2 million workers, the average Peruvian can make 2.6 times as much in the United States as in Peru, while a Haitian can make seven times more.

Second, many economists say that an influx of immigrants can expand an economy, potentially even raising wages for the native born…An expansive study released by the National Academies of Sciences in September found that immigration has mostly helped the U.S. economy in recent decades and had little effect on the wages or employment of native-born Americans. According to the study, the main group negatively affected by newly arriving immigrants was actually earlier waves of immigrants with similar language skills. To a lesser extent, new immigrants also competed for work with the lowest-skilled Americans, such as high-school dropouts. But in general, immigration left the native population slightly better off.

The article concludes:

While Clemens says he is troubled by the idea of discriminating against people based on where they are born, he doesn’t advocate “openborders,” a term that is often used as a synonym for anarchy — no background checks, no deportation and no restrictions on immigration. In reality, few politicians are advocating even moderately higher levels of immigration, and the world won’t see anything like open borders anytime soon. But he says people still should recognize the substantial trade-offs of the current system.

Clemens draws an analogy with the rights of women. In the United States, laws prevented women from owning property, inheriting wealth and entering many professions until the late 1800s. Although some male workers may have suffered from the entry of women into the workforce during the 20th century, no one would deny that it has provided enormous benefits to the country and the economy. Yet restrictions on women had still persisted for millennia.

To borrow the title from Lant Prichett’s book: let their people come.

A new IMF publication finds that “[t]he waning pace of trade liberalization over the past few years and the recent uptick in protectionist measures could be limiting the sustained policy-driven reductions in trade costs achieved during 1985–2007, which provided a strong impetus to trade growth (Evenett and Fritz 2016; Hufbauer and Jung 2016)” (pg. 63). Their suggestion? “[R]esisting all forms of protectionism and reviving the process of trade liberalization to dismantle remaining trade barriers” in order to “provide much-needed support for trade growth, including through possibly kicking off a new round of global value chain development” (pg. 86). The Wall Street Journal reports,

Rising protectionism, record debt levels and a continuing economic malaise in wealthy countries will drag on global growth next year despite a turnaround in several key emerging markets, the International Monetary Fund said Tuesday. Global growth should only marginally pick up in 2017 to 3.4% from 3.1% this year, the fund said in its latest World Economic Outlook, despite policy makers pushing central bank stimulus into uncharted territories…A political backlash against the perceived negative effects of globalization threatens to undermine an already-weak and precarious recovery, the IMF warned.

“Subpar growth at recent levels risks feeding on itself through the negative economic and political forces it is unleashing,” IMF chief economist Maurice Obstfeld said, referring in large part to the surge in trade barriers around the world and the rise in opposition to free trade and immigration in the politics of the U.S. and Europe. Fearful of a trend toward protectionism when the global economy is already struggling with deflation risks, the IMF highlighted the potential shocks to growth from a sudden increase in tariffs and other trade barriers.

…The IMF also took pains to caution policy makers against the temptation to revert to protectionism as trade growth stalls in the low-growth era. Such anti-trade trends risk tilting the world economy deeper into a long-term funk. The fund estimated that a surge in trade barriers around the globe that pushed up import prices by 10% could sap nearly 2 percentage points off world growth over five years, force a 15% decline in exports and pull investment down by more than 4%.

This makes the anti-trade rhetoric of politicians all the more frightening. For example, take Donald Trump’s ill-conceived anti-NAFTA stance, especially in regards to the automobile industry. The WSJ again:

U.S. automotive competitiveness is highly dependent on global free trade. According to the Mexico City-based consulting firm De la Calle, Madrazo, Mancera, 37% of the U.S.’s imported auto components came from Mexico and Canada in 2015. This sourcing from abroad is important to good-paying U.S. auto-assembly jobs. But parts also flow the other way. U.S. parts manufacturers sent 61% of their exports to Mexico and Canada in 2015.

This synergy has made the U.S. auto industry attractive for investment. In the aftermath of the 2008 financial crisis investment in the auto sector contracted. But from 2010-14 almost $70 billion was invested in the North American automotive industry. Mr. Trump claims that investment is going to Mexico but two-thirds of it went into the U.S., according to a January 2015 report by the Michigan-based Center for Automotive Research.

This investment dynamism helped generate 264,800 new U.S. jobs in motor-vehicle production and parts between January 2010 and June 2016, according to the Bureau of Labor Statistics. That’s a 40% increase in employment despite the increasing trend toward robotics in the industry. Shut down Nafta and these workers and future job seekers will pay.

The kind of protectionist rhetoric and policies we’ve seen in both Europe and the U.S. is worrisome to IMF managing director Christine Lagarde and World Bank president Jim Yong Kim, with Lagarde going so far as to call it “economic malpractice.”

Let’s hope these recent populist movements are just a blip amongst the increasing economic freedom worldwide.

With Donald Trump making waves (again) via his immigration speech last week, I thought I’d highlight an NBER paper from last year on immigration’s impact on local economies. The abstract reads:

Most research on the effects of immigration focuses on the effects of immigrants as adding to the supply of labor. By contrast, this paper studies the effects of immigrants on local labor demand, due to the increase in consumer demand for local services created by immigrants. This effect can attenuate downward pressure from immigrants on non-immigrants’ wages, and also benefit non-immigrants by increasing the variety of local services available. For this reason, immigrants can raise native workers’ real wages, and each immigrant could create more than one job. Using US Census data from 1980 to 2000, we find considerable evidence for these effects: Each immigrant creates 1.2 local jobs for local workers, most of them going to native workers, and 62% of these jobs are in non-traded services. Immigrants appear to raise local non-tradables sector wages and to attract native-born workers from elsewhere in the country. Overall, it appears that local workers benefit from the arrival of more immigrants.

Maybe we should want taco trucks on every corner.