Sondheim on Migration

Ever since I was first exposed to the music from West Side Story as a teenager, some of Stephen Sondheim's lyrics stuck with me. They appear in the song America. In the movie version, Bernardo and Rita are arguing over the costs and benefits of migrating from Puerto Rico to New York.

BERNARDO: I think I'll go back to San Juan

ANITA: I know a boat you can get on

BERNARDO: Everyone there will give big cheer

ANITA: Everyone there will have moved here

Given the huge volume of migration from Puerto Rico to the United States in the 1950s, it is not surprising that Sondheim expected Puerto Rico to empty out. But the fact is that it didn't. And therein lies one of the great unsolved puzzles in the study of migration. There are no legal restrictions whatsoever that hamper the mobility of Puerto Ricans to the mainland--they are American citizens by birth--and transportation costs are low. Yet here we are, 60 years on (to use an Elton John song title) from the onset of Puerto Rican migration after World War II, and there are still quite a few people left in Puerto Rico. Why hasn't Puerto Rico emptied out?

Between 30 to 40 percent of the Puerto Rican population chose to move out. But that means that about two-thirds did not. Why? If economic theory is right, it must be the case that there are huge costs associated with the migration. Since these costs are unlikely to be monetary in nature, they represent the fact that most people, if given the choice, would much rather stay where they are at. It is not hard to calculate the migration cost for the "marginal" migrant.

And they are substantial: probably around $400,000 to $500,000. (For those interested in technical details, the discounted gain from moving for the marginal migrant must equal the cost of migrating. The half-million dollar range comes about if one assumes that a worker can, say, double his salary by migrating to the United States and the rate of discount is 5 percent. See chapter 9 of my Labor Economics textbook for a detailed calculation).

There's still another puzzle. There are also no restrictions that hamper the flow of capital between the two places. Yet despite all these unrestricted labor and capital flows, there is still a sizable income differential between the United States and Puerto Rico. By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table). Whatever happened to the factor price equalization theorem? If 60 years is not the "long run," maybe Keynes was right after all.

The fact that migration entails very high costs if an important--and often ignored--part of the economics of migration. The fact that wages don't equalize even when a "country" loses a large chunk of its population and there are unrestricted capital flows is both interesting and important. It should give some food for thought to those who view migration as a policy tool that can help alleviate many of the developing world's problems.

Comments

[Neal Hockley]

This is not (necessarily) empirical evidence that prices don't adjust.

For that to be the case, GDP would have to be a good measure of welfare AND PPP adjustments would have to be accurate.

Since we know that neither of these conditions hold, this example tells us nothing about price equalisation.

[guest]

What Neal Hockley says. Most of the PPP difference between developed and developing countries is explained by differences in land rents (see the Balassa-Samuelson mechanism), which is also why places don't just empty out.

[Ramon]

"By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table)"

Two-thirds looks pretty equalized to me. The Dominican Republic which has an almost identical history has one-fifth of the USA per capita GDP.

The richest Latin American Countries (Argentina, Chile, Mexico, Costa Rica, Uruguay) are below one fourth.

Furthermore, price equalization is not the same as equal GDP per capita for many reasons besides the already mentioned above.

[gborjas]

I know that factor prices are not the same as per capita GDP. But I don't have access to good data on price-adjusted wages to make the point. From what I've been able to gather, however, there are still sizable wage differences between Puerto Rico and the United States.

[Greg Weeks]

It suggests that if given the chance, most people prefer not just to stay, but rather to go back and forth, while retaining primary residence in the place they grew up (even if there is a wage differential). It’s plausible that making it more difficult to enter the country changes the incentive structure, and prompts many people to enter the U.S. illegally, then stay because return trips carry more risks and expense, thus emptying countries out more.

[notsneaky]

"By 2003, price-adjusted per-capita GDP in Puerto Rico was still only two-thirds that of the United States (according to the Penn World Table)."

But this is sort of a half-empty, half-full kind of thing. In 1970 Puerto Rico had half the per-capita GDP of US. In 1950 it was something like one fourth.
So there's definetly been a lot of convergence.

Also, why do Montana and Mississippi only have about 3/4 of average US income? .75 isn't THAT much higher than .66.

[Steve Sailer]

The U.S. government has an expensive policy of buying Puerto Rican acquiescence with tax breaks to corporations that do business there. In the book Pay to the Order of Puerto Rico: The Cost of Dependence, economist Arthur Laffer and Alexander Odishelidze estimate that this now costs American taxpayers $22 billion annually.

With a population of 4 million on the island, that would be about $22k per family of four per year.

[Steve Sailer]

What price love of your native land? Puerto Rico, in particular, is exceptionally beautiful, and the weather sure beats the Bronx.

For a tough-minded but sympathetic portrayal of the patriotic motivations of the Puerto Rican nationalists who tried to murder Harry Truman in 1950, see Stephen Hunter's recent book "American Gunfight." My review is here:

http://www.vdare.com/sailer/060108_gunfight.htm

[Steve Sailer]

I believe Puerto Rico's per capita GDP is about 2/3rds of the poorest American state's GDP, such as Mississippi's. Overall, it's per capita GDP is about 45% of the US's -- 19k vs. 43k, roughly.

[pwyll]

The missing piece of the puzzle is almost certainly IQ... details on the three main variables which predict GDP per capita are here: http://rpongett.phpwebhosting.com/gdp.html

[Steve Sailer]

The Puerto Rican experience can teach us a lot about the impact of Open Borders, which so many other economists endorse on ideological grounds.

I'd say the Puerto Rico glass is 3/8ths empty: Open Borders means that 30 to 40% of all Puerto Ricans now live in the 50 states. To stop the influx to the mainland (and to keep Puerto Rico a contented part of the American empire), the US government now provides subsidies on the order of $5,000+ per Puerto Rican who stays on the island per year.

So, what does the Puerto Rican experience imply about Open Borders when scaled up to the whole world? Currently, the number of people who live in countries with a lower average GDP per capita (purchasing price parity) than Mexico is 5,043,000,000 -- in other words, FIVE BILLION people.

So, if 30% to 40% were to take advantage of Open Borders to move to America, that would be 1,500,000,000 to 2,000,000,000 people!

Obviously, this would never actually happen completely because before a billion or two people came, conditions in the US would decline to the point where they'd be better off at home in Bangladesh than in the New Improved America.

[jimbino]

That last comment represents a static analysis if I ever saw one. If gillions of foreigners began to move here, they would improve the country right away by their industry and by diluting the percentage of Baptist fundamentalists. Furthermore, they would begin to empty out places like Bangladesh, making room for entrepeneurs to turn it into a garden of eden and begin to draw in our retirees, like me.

[Walter Lamberson]

So based on looking at some Census data, the average Puerto Rican attends about two years less school than citizens in the US. On top of that, that average Puerto Rican speaks Spanish natively and English maybe sort of. I would guess earning potential is not great. Twice what it is in Puergo Rico if you account for that. It also seems perfectly plausable that two years of Puerto Rican education are not the same as two years of US education.
This might also be a good test of whether the PPP is actually important.
They might extract some surplus of being in the place where thye are from, where their family is, where their friends are (a network, which is hard to transport). The US might be somewhat racist against Puerto Ricans, so they might seggregate in a Schelling kind of way (as the city of Chicago does).

By the same token, within the United States, if you look at Mincer's equation and predict the earnings of african americans in the Deep South (Alabama, Mississippi, and Louisiana) you find that they could earn about fifteen percent more by leaving those states given their income and experience. Whites in those states are sacrificing only about three percent of their consumption. This is really, really strange. Especially considering that after Hurricane Katrina Blacks did not return in as large of number as whites, which suggests they don't "like" earning less to stay in the Deep South.

Maybe they are all capital constrained?

Another question though: 40% of Puerto Ricans DID leave. In so far as some network effects must exist, and some sunk costs were sunk, what would it look like if 'everyone left.' It's hard to imagine a vacant island rife with ports, resort hotels, factories, farmland etc. What would you expcet to see?

[Jasper]

"So, if 30% to 40% were to take advantage of Open Borders to move to America, that would be 1,500,000,000 to 2,000,000,000 people!"

When are they going to be "taking advantage" of this opportunity?

It seems to me the chance of a true "Open Borders" policy ever gathering mainstream political support are zero. As far as I know, not a single rich country has implemented such a program. I doubt even the richest, most elite and out of touch Greenwich, CT hedge fund manager wants the country he and his children live in to have a population of three billion.

The US gets so much illegal immigration from Mexico because its southern neighbor is a lot poorer, and shares a land border. For the rest of the world's population living in countries poorer than the United States, illegally immigrating here is about as easy as illegally immigrating to Australia. Not impossible, but pretty difficult.

For this reason I think the illegal immigration crisis will continue to prove to be limited in scope to Mexico and Central America. The professor's anecdotes about Puerto Rico furthermore suggest we're not likely to receive these countries' entire populations. Indeed my calculations suggest that net illegal immigration from Mexico (total illegal Mexican immigration/total US population) peaked in the late nineties, and has since been declining.

[Philip A]

Is there any analysis for other U.S. territories - e.g. the U.S. Virgin Islands?

[Peter Schaeffer]

Great website and info.

The percentages of the foreign-born populations in Germany, Austria, and Switzerland compared to the that of the U.S. are somewhat misleading. They include individuals born in those countries (to permanent residents). In the U.S. they would be natives and not be counted as foreign-born. However, the overall point is valid.

[Fausta]

I was born and raised in Puerto Rico and still have family living there.

You raise some interesting points, but the problem I find with your premise is that you assume that wages in Puerto Rico are not being depressed by the influx of illegal immigrants from other parts of the Caribbean.

Puerto Rico has a huge illegal immigration problem from people arriving daily from the Dominican Republic and Haiti, and other islands.

The US Virgin Islands also have illegal immigrants from the Lesser Antilles.

Until and unless you include that in your assessment, I can't agree with your post.

[Jane]

Neither of you have addressed the problems PR faces. The US has an unofficial EMBARGO on the island. Why should we farm if we don't have free trade? If the US buys sugar from Cuba? If Banana leaves are bought from DR? If Acerola's are bought from Costa Rica? Who's to blame for our economy? The US! The people want to work but there is no production because the US shut us down! We have been fighting your wars since WWI and still we are subjected to colonial rule. Either let us go free with a severance pay or make us a state, but you cannot continue to prevent a nation from producing goods to provide a decent economy without properly compensating! Protection of the coast is federal, yet the US has allowed all these illegals to land on our soil and eat up our funds. Better there than in the US correct? Well the US needs to start providing funds to their colony so we can send these people back to their big island. PR is too small and too underfunded to sit back and watch negligence destroy our island.