Immigration

Brad DeLong does a great service by posting on his blog a kind of online crash course in various economic issues for journalists. Always worth reading. Today he has a crash course on immigration, which links to a piece by Alan Krueger that is worth reading. Highpoints from Krueger's piece:

One of the clearest and most compelling studies of the effect of immigration on natives’ labor market opportunities was conducted by David Card of the University of California at Berkeley and published in Industrial & Labor Relations Review in 1990. Specifically, Professor Card examined the effect of the Mariel Boatlift — which resulted in 125,000 new Cuban immigrants arriving in southern Florida between May and
September of 1980 — on the labor market in Miami. This sudden and unexpected wave of immigration increased the city’s labor force by 7 percent. Most of the new workers were unskilled. Yet Professor Card found that the wages and employment opportunities of unskilled workers who already lived in Miami were not hurt by this large inflow of immigrants. “Even among the Cuban population,” he concluded, “wages and unemployment rates of earlier immigrants were not substantially affected by the arrival of the Mariels.” He reached his conclusions by comparing Miami with other cities that were not affected by the Mariel Boatlift. This study, which is a model for research, was specifically mentioned in Professor Card’s citation when he was awarded the Clark Medal, a prize given by the American Economic Association every other year.

What a great study! And this:

Studies that claim to find a deleterious effect of immigration on natives’ wages are typically based on theoretical predictions, not actual experience. These theoretical predictions are very sensitive to their underlying assumptions, which are often controversial. Existing theoretical predictions typically do not factor in relevant
consequences of immigration, such as an increase in demand for goods and services produced in the U.S. that results from greater demand due to immigrants. They also do not account for entrepreneurship of immigrants. Those studies that predict the largest adverse impacts of immigration on natives’ wages assume that as new workers are added to the U.S. labor market, the size of the capital stock remains unchanged. More realistically, as workers come to the U.S., the capital stock is likely to expand, particularly in the industries where immigrants are most likely to be employed. An increase in investment would mitigate the effects of increased immigration on workers as a whole. Existing theoretical simulations that take investment into consideration show very small effects of immigration on low skilled natives and on average a small positive effect for U.S. residents as a whole.

For those students who have recently taken intermediate macroeconomics: Draw the Solow model graph. A one-time influx of immigrants constitutes a one-time reduction in the economy's capital-labor ratio which moves the economy off the steady state point. At this new capital-labor ratio the level of gross savings per worker exceeds breakeven investment so the capital-labor ratio rises. It keeps rising until it retains its original steady state level, so output per worker returns to its original level as well. In equilibrium real wages are proportional to output per worker, so in the end there should be no change in the real wage.

For those students who stopped at introductory economics: Draw a labor supply and demand graph. If capital is fixed, an increase in labor supply causes a shift in the supply curve and a reduction in real wages as the economy moves down the labor demand curve. But firms will respond by increasing investment, pushing the capital stock up and shifting labor demand to the right, causing wages to rise back to their original level.

Either way, undergraduate-level theory sez immigration does not reduce wages in the long run!