Blacks and Immigration

About a year ago, Jeff Grogger (at the University of Chicago), Gordon Hanson (at the University of California at San Diego), and I decided to write a paper examining the impact of immigration on African-Americans. The fruits of that research are now summarized in the latest issue of the NBER digest. (Click here for a copy of the--be forewarned!--very technical paper in pdf format). Here's part of the NBER summary:

Almost everybody knows that in the past 40 years, the real wages and job prospects for low-skilled men, especially low-skilled minority workers, have fallen. And there is evidence –– although no consensus –– that a rising tide of immigration is partly to blame. Now, a new NBER study suggests that immigration has more far-reaching consequences than merely depressing wages and lowering employment rates of low-skilled African-American males: its effects also appear to push some would-be workers into crime and, later, into prison.....The authors are careful to point out that even without increased immigration, most of the fall in employment and increase in jailed black men would have happened anyway. Nevertheless, the racially disproportionate effects of immigration on employment are striking.

...Using census data from 1960-2000, the authors trace the evolution of wages, employment, and incarceration rates for particular skill groups in the black and white populations. They then relate the trends observed in these variables to the increases in immigration experienced by each skill group. The observed correlations suggest that immigration is an important underlying factor influencing the observed trends. In particular, their analysis finds that a 10 percent rise in immigrants in a particular skill group significantly trimmed the wages of black and white men alike. For African-Americans, the decline was 3.6 percent. For whites, it was actually slightly higher: 3.8 percent. Beyond that, however, the black-white experience differed markedly, especially for low-skilled workers. Take employment rates: from 1960 to 2000, black high school dropouts saw their employment rates drop 33 percentage points –– from 88.6 percent to 55.7 percent -- the authors found in their analysis of census data from 1960 to 2000. The decrease for white high school dropouts was only roughly half that –– from 94.1 percent to 76.0 percent.

One reason, the authors argue, is that black employment is more sensitive to an immigration influx than white employment. For white men, an immigration boost of 10 percent caused their employment rate to fall just 0.7 percentage points; for black men, it fell 2.4 percentage points.

That same immigration rise was also correlated with a rise in incarceration rates. For white men, a 10 percent rise in immigration appeared to cause a 0.1 percentage point increase in the incarceration rate for white men. But for black men, it meant a nearly 1 percentage-point rise.

Comments

[Torben]

Very good to have you on board. Yes fianlly we have started to see the Kenedy people, with great interest for international development, start academic forum.

Said this, Prof. Borjas, almost all of your researches show that immigration has a downward pressure on wage. But, recently some researches, to mention one for example Ottaviano G I. and G. Peri (2006) “Rethinking the Effects of Immigration on Wages” NBER working Paper No. 12497, have contrary results to your findings. What is your reaction to such evidence? Is it because of method, or data, or what? I would like to hear from you.

[gborjas]

Torben, I plan to address the differences between the various approaches in an academic paper that I'll be preparing in the next few months. But since there's a lot of confusion about the approaches, let me give you a simple answer. The OP results do not seem empirically plausible. The model requires that the average wage change due to immigration be zero in the long run. In order to get a small upward rise in the wage of natives (as OP get), there must have been a huge downward drop in the wage of immigrants. They estimate something along the following lines: a 5 percent supply shift raises the wage of natives by 1 to 2 percent and lowers the wage of immigrants by about 20 percent! There's nothing whatsoever in the "real-world" data indicating that the wage differential between immigrants and natives grew in the 1990s--in fact, for some skill groups the opposite is the case! In the end, I think that the OP paper shows the limits of the structural CES framework. You have to buy into a lot of untestable restrictions, and you get back empirical patterns that may not make much sense in the real world.

[Robin Rhea]

I am glad to see you blogging Dr. Borjas I am a public policy student in Kentucky and have used quite a bit of your research in my first year as a Ph.D. student. I should be a regular on this site.

[save_the_rustbelt]

I'm just a CPA and management consultant and I knew years ago that African Americans were being displaced regularly by illegals.

Nice to see academia catching up with reality.

Nice to have a new blog - good luck!

[Steve Sailer]

Welcome to the blogging world, Professor Borjas.

I wanted to mention that I wrote a article about your paper on the impact of immigration on black men last year:

http://www.vdare.com/Sailer/060924_crime.htm

[Fritz]

"the authors argue, is that black employment is more sensitive to an immigration influx than white employment."

In other words, this phenomena shouldn't be happening. The sensitivity to it is a cultural adaptation aka copout. Does one imagine Dyson telling his listeners to stop using immigrants as an excuse not to seek work or avoid crime? Just another self-fulfilling cultural trope to harm the beautiful minds of our capable youth. We should view this study as an unfortunate phenomena requiring a change of perception in African American culture.

[Loki on the run]

I would be interested in knowing what the mechanisms of this displacement are?

Are we seeing immigration at the high end (highly educated asians) displacing white Americans down the pole and thus squeezing blacks from the top, while at the same time immigration of illegals from South of the border who are taking away low-pay jobs, or what.

Another interesting question is what effect do cognitive profiles have on this?

[tommy]

Congratulations!

[Michael Blowhard]

Great to see you blogging. I'll be visiting a lot, and linking to your postings a lot.

[Luke Lea]

Thank you for stepping up. In addition to its adverse effects on America's oldest ethnic group -- ancestors of the average African American arrived in this country long before those of the average European -- you might also look at the adverse effects on per capita GDP in Mexico itself. Gapminder (see panel animation on trends in GDP/capita vs. infant mortality by individual country) shows that it grew smartly in the decades before 1983 and then suddenly stopped growing, and hasn't grown since. Correlation is not causation, but still it is suggestive: when the most ambitious members of the working class depart for greener pastures, those left behind fare worse than they otherwise would have.

For all those "bleeding-heart" liberals who support third world immigration out of compassion, let's hit 'em where it hurts. Current policies hurt most the poorest members of the working classes in both societies. For shame on them!

[dennisw]

Way to go professor Borjas. Many many Americans know how good you are on legal and illegal immigration. And we're much better to hang out with than the liberal stuffed shirts at the Kennedy School.

What is today's outrage? In this new bill the taxpayer has to pay for the immigration lawyers hired by illegal aliens who have trouble with their Z VISA and other steps on their "path to citizenship"

[Peter Schaeffer]

Professor Borjas,

Welcome to the world of blogging. Your contributions are most appreciated. I have looked at the immigration work of Peri for some time now. Recently, Peri has published a new paper, Immigrants’ Complementarieties and Native Wages:Evidence from California (http://www.econ.ucdavis.edu/faculty/gperi/Papers/california_wp_dec06.pdf). This paper attempts to show that immigration has raised the real wages of workers in California, even high school dropouts. A few notes:

1. The empirical data (Figure 3, Change in Real Wage of U.S. natives, by Education group 1990-2004) actually shows large declines for high school dropouts. -17.6% in California versus -15.1% nationwide. Peri does not attempt to explain the large decline in wages of low skill workers (as best I can tell) or why wages fell faster in California.

2. As best I can tell, Peri uses a aggregate production function that would make it very difficult for immigration to ever adversely impact the incomes of natives in general, although that might not be true for specific groups. For reasons stated below, this does not appear to be realistic for California and perhaps not the nation.

3. Peri assumes that immigrants are almost entirely complementary to natives, even at the low end (but less so). He is quite aware that this is a contentious point and attempts to defend his methodology and conclusions. I can neither support nor refute his assertions.

4. Peri appears to be aware that his work is deeply contra factual, although this is never explicitly stated. Natives have been net leaving California in vast numbers (millions) for quite some time now. If immigrants were complementary, this should either not be happening or immigrants should be net leaving as well. Obviously this is not true. Peri attempts to refute this critique via a regression of some type. He offers no other explanation as to why natives would be fleeing California.

5. Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California. Peri deflates California wages using a national CPI, not a state one. This is highly contrafactual in my opinion. California’s population would be much lower (30% of California’s population is foreign born) without immigration and housing correspondingly more affordable. I cannot quantify the impact of immigration on housing costs in California, however it is certainly large. Note that the Census (but not the BLS) shows California housing to be roughly twice as expensive as the national average.

6. If one takes into account housing costs, Calfornia is considerably more expensive than the US as a whole and real wages corresponding lower. Indeed, California emerges as one of the poorer states (43rd) in the nation, if the local cost of living is taken into account. Given the linkage between immigration and prices, it would appear that immigration has markedly reduced real wages in California. Of course, this would account for the native outflux contra Peri.

Thank you

Peter Schaeffer

[Lucius Vorenus]

Peter Schaeffer: "Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California..."

Peter Schaeffer: "If one takes into account housing costs, Calfornia is considerably more expensive than the US as a whole and real wages corresponding lower..."

This is all a huge win-win for established California elites. They get the re-introduction of de facto chattel slavery [Esmeralda, be a dear, and run get me another piña colada, would you please?], and, at the same time, that army of little brown wage slaves drives the values of their existing real estate holdings right through the stratosphere.

By the way, a little known fact of the California real estate market is that, in addition to having the "immigrants" drive up the DEMAND for California real estate, the elites have also restricted the SUPPLY of California real estate, via the Williamson Act:

http://www.google.com/search?safe=off&q=williamson+act

If you ever take the PCH north of Santa Barbara [which has some of the highest real estate prices in the known universe], then you'll see that suddenly all of the development stops completely, and you're out in the middle of strawberry fields for as far as the eye can see.

And you wonder to yourself why the development community hasn't built up there, so as to ease the cost of real estate down in Santa Barbara, and of course the answer is that the Williamson Act prevents the old farmland & ranchland from being divided into parcels smaller than 100 acres.

So the elites have artificially inflated the demand for real estate, and artificially strangled the supply of real estate, and, thanks to Howard Jarvis, exempted their property holdings from taxation, ergo - la voila! - they're all gazillionaire land barons.

PS: This is also the primary reason that California wine is so darned expensive, relative to e.g. Spanish, Italian, or even French wine. The Williamson Act presents a massive barrier to entry for would-be small vintners, who might be able to make a go of it with only five or ten acres; instead, the California wine market is dominated by the mega-millionaires [Francis Ford Coppola, Nancy Pelosi, etc] & the corporate megaliths [Gallo, Beringer, Mondavi, etc] who can afford the millions of dollars necessary to purchase a 100+ acre parcel of California soil.

PPS: And notice how the elites tax the wage slaves at 30% to 40% on the dollar [20+ points income tax, 13+ points social security, 3+ points medicare, etc etc etc], but they only tax themselves 20% on capital gains, and Prop-13 their way out of property tax obligations?

And almost none of those capital gains taxes are making their way into the welfare trough that Robert Rector has written about so much lately:

http://www.heritage.org/about/staff/Robertrector.cfm

So they get the cheap labor, they tax themselves at a far lower tax rate than everyone else, and, because capital gains taxes don't go into the same pot as social security & medicare taxes, they don't have to foot the bill for the $19K per year that the cheap labor costs the social welfare system.

Quite the scam they've got going there.

Must be nice to be an oligarch - funny how everyone pays lip service to the ideal of "equality before the law", but nobody actually believes in it.

[Peter Schaeffer]

Lucius Vorenus,

A fan of Rome (HBO) perhaps? At least according to the series, Caesar attempted to limit slave labor to improve employment prospects for Roman citizens. Other sources suggest the same thing.

Peter Schaeffer

Peter Schaeffer "A fan of Rome (HBO) perhaps? At least according to the series, Caesar attempted to limit slave labor to improve employment prospects for Roman citizens. Other sources suggest the same thing."

In this day and age, I think it's a mistake to try to differentiate between "employment" and "slavery".

With the current discrepancy between the rate of taxation on "employment" income -vs- the rate of taxation on capital gains income, employment is largely indistinguishable from slavery [and that's even before you factor in the illegals screwing up the whole supply side of the labor equation].

The result being that the hedge fund managers [that's you, John Edwards, self-proclaimed champion of the poor], who pay themselves in Cap Gains, are laughing all the way to the bank.

PS: Did you know that before he ran off to Washington DC to join the United States Senate, ol' Poverty Pimp John ran his ambulance chasing bidness as an S-Corporation, paying himself in distributions, rather than in salary, so as to avoid the 3 points of Medicare tax?

Well of course he did - you'd have to be a fool not to.

PPS: Did you know that Edwards's hedge fund owns a substantial share in the recently discovered $500M pirate booty?

http://www.thestreet.com/funds/followmoney/10358370.html?puc=googlefi

Who was it who said that, no matter how hard he tried, a novelist just couldn't create stories that were as bizarre as what you read in the newspapers every day?

Tom Wolfe, maybe?

Anyway, the thought of that filthy, ambulance-chasing, rat bastard, sitting atop Smaug's mountain of treasure, with a great, big, shiznat-eating grin on his face, is enough to make even a cynic like me force myself into a little chuckle.

Kinda like Rush Limbaugh, in the NYC restaurant the other day, and he's turning his good ear towards Villaraigosa, to hear what he's saying, but after a while, he looks back over his shoulder, at his date, and Bubba's got his paws all over her.

You gotta laugh at this stuff, or else you'll just go insane.

[Peter Schaeffer]

LV,

I really don't have a problem with Edwards investing in a shipwreck business. However, the S Corp assertion is serious. Years ago, I was self-employed. I heard of schemes like that back then, but never did it. The consensus was that it was treading too close to the law. Perhaps the law has changed, although I doubt it. A quick check online shows that the law has not changed.

[Lucius Vorenus]

Peter Schaeffer: "I really don't have a problem with Edwards investing in a shipwreck business. However, the S Corp assertion is serious. Years ago, I was self-employed. I heard of schemes like that back then, but never did it. The consensus was that it was treading too close to the law. Perhaps the law has changed, although I doubt it. A quick check online shows that the law has not changed."

To paraphrase Emeril: Dude, you gotta ratchet up the cynicism a notch.

Don't believe for a second that the "elites" labor [no pun intended]under the same legal code that they impose on their serfs.

And don't think for a second that those hedge fund guys are gonna pay 39+% income tax on the pirate booty - they'll fix the paperwork so that it comes out as a "Capital Gain" for which they'll pay AT MOST 15% [and after all the depreciation, amortization, R&D, and various other write-off shenanigans, their final rate will be vastly less than 15%].

Why do you think Microsoft never declares a distribution?

Or why did Ross Perot's 1992 tax returns show that almost 100% of his investments were in tax-free state & municipal bonds?

In their disclosures during the 2004 campaign, it came to light that the Kerry's [John & Teresa Heinz] were paying all of about a 12.5% tax rate on their income.

That's like a point less than Joe Sixpack pays on his Social Security alone.

The elites are just different than normal people.

And "employment", with its associated tax penalties, is just a polite euphemism for "slavery".

[Name]

"Almost everybody knows that in the past 40 years, the real wages and job prospects for low-skilled men, especially low-skilled minority workers, have fallen"

And how has proportion of low-skilled jobs moved?

Do we need to enact ice-truck driver and milkman subsidies? Ethnicity standards for cotton pickers?

Worry about the future of labor, not the past. i.e. stop more would-be high school drop outs from messing it up before they know what "it" is.

[dissent]

I think the right wing froth needs a fire retardant: the facts.

THE EDWARDS ISSUE

The IRS is going after what we call the "John Edwards shelter." Mr. Edwards, John Kerry's running mate last year, ran into criticism for taking "only" $360,000 of salary from his S corporation law practice, talking the remaining $26 million or so as S corporation distributions. S corporation distributions are not subject to the federal FICA and Medicare tax, so Mr. Edwards saved about $738,000 on the 2.9% medicare tax.

While Mr. Edwards came under fire for this, his position probably isn't abusive under current practice. The only cases on this issue deal with professionals who take little or no salary from their S corporation to avoid both the 12.4% FICA tax and the 2.9% Medicare tax.

Tax Analysts reports the IRS is paying more attention to this issue:

The compensation of corporate officers is also receiving increased scrutiny. Tuzynski said that his office was ramping up audits of S corporations to ensure that officers were being paid appropriate salaries. For example, Tuzynski said, it would be unreasonable for a doctor involved with an S corporation who reports hundreds of thousands of dollars in distributions to report a minimum wage-level salary.

We have seen no cases where IRS has challenged taxpayers drawing at least the FICA base (currently $90,000), though that shouldn't be treated as any sort of safe harbor. Obviously the current $5.25 minimum wage (about $10,500 per year) is not enough to avoid scrutiny.

Other circumstances might come into play. If you have a retired S corporation shareholder who still serves as chairman of the board, the IRS presumably will not require a "full" salary. One hopes the IRS won't force a start-up S corporation to pay its employee-owner an "adequate" salary while the company is struggling to get off the ground. S corporation professional practices will have to pay more of their earnings as salaries than other businesses because so much of their income is attributable to their owners' personal efforts.

We doubt that an S corporation owner is ever obliged to take a Kenneth Lay-sized salary, regardless of how profitable the business is. We can't say Mr. Edwards $360,000 salary is entirely safe, but it's not clear a $70,000 IRS attorney can argue that a $360,000 legal salary is inadequate without his head exploding.

link http://www.rothcpa.com/archives/000873.php

[MB]

Exerpts of your writings which depict socioeconomic and racial hierarchy, are included within an equally enlightening study:

Immigration, Intergroup Conflict, and the Erosion of African American Political Power in the 21st Century...
(Found at the Center for Immigration Studies.)

"Steadily rising immigrant populations will continue to change the racial complexion of U.S. House representation in a number of California, Texas, and New York congressional districts within the next 20 years.

With the 2010 census redistricting, just a few years away, as many as six seats currently held by members of the Congressional Black Caucus could be given up to Latino candidates."

Incidentally, I have sent over an email having returned from Mexico with quite a revealing discovery.

[jackee]

yes clafornia wines are expensive instead of italian,french and south african wines. but clafornia wines taste if great.

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