...And Some New Research

I've been thinking for some time about the theoretical underpinnings of how immigration affects labor market conditions in sending and receiving countries. It seems to me there is a lot of confusion--some of it needless, some of it deliberate--and all kinds of conceptual claims tend to be thrown around.

So I sat down a few months ago and began to construct a model that summarized--in a relatively "simple" framework--what it is that economics has to say about the labor market impact of immigration. The paper--available here--is really written for math geeks who like old-fashioned Chicago-style price theory. But here is the abstract for those of you who don't want to look at a lot of Greek letters and symbols:

The theory of factor demand has important implications for the study of the impact of immigration on wages in both sending and receiving countries. This paper examines the implications of the theory in the context of a model of a competitive labor market where the wage impact of immigration is influenced by such factors as the elasticity of product demand, the rate at which the consumer base expands as immigrants enter the country, the elasticity of supply of capital, and the elasticity of substitution across inputs of production. The analysis reveals that the short-run wage effect of immigration is negative in a wide array of possible scenarios, and that even the long run effect of immigration may be negative if the impact of immigration on the potential size of the consumer base is smaller than its impact on the size of the workforce. The closed-form solutions permit numerical back-of-the-envelope calculations of the wage elasticity. The constraints imposed by the theory can be used to check the plausibility of the many contradictory claims that appear throughout the immigration literature.

This paper is actually part of a much bigger project--so I would particularly appreciate hearing any comments, reactions, and suggestions that readers may have.

Comments

[Matt Noto]

I found this paper very useful; thank you for posting! I have been thinking recently about why illegal and legal immigrants might have different wage effects, and I was primarily thinking in terms of substitution elasticities (i.e., are legal immigrants closer substitutes to natives than illegal immigrants?). Your paper made me realize that I should also think about the effects on the consumer base (i.e., illegal immigrants might expand the consumer base by less than legal immigrants, perhaps because of a greater remittance share).

One minor comment on the write-up: If I understand correctly, the theory in the paper still naturally admits a very small impact of immigration on wages if capital is very elastically supplied in the short run. Thus it seems like one could rationalize the studies that find small wage effects by arguing that, even in the short run, capital is actually fairly elastically supplied. I don't know what are the best estimates of the short-run supply elasticity of capital, but I would be surprised if there is much consensus. So my takeaway from your paper is that if we had more precise measures of the capital-labor substitution elasticity and the supply elasticity of capital, we could place sharper bounds on the expected short-run wage effects.

[bob]

Dr. Borjas

I wanted to share the following comment which was posted on the NY times web site today

The least-noted, yet severe consequence of migrant labor as it applies to big city urban settings. It’s the incredible reality of how migrants, especially illegal migrants, increasingly monopolize the entry-level rungs of the labor ladder, to the inexcusable discard of our black fellow citizens.

How our government, all parties inclusive and blameworthy, all officials white and black, in allowing unfettered migrants to occupy that critical entry-level labor ladder rungs, that critical first step toward a productive career, that unfettered and inexcusable invitation for mas migration is not just criminal for it’s illegal migrant element. It’s IMMORAL for the disregard of increasingly disadvantaged blacks.

Look at the entry labor ladder rungs in an urban classified. Often, sometimes only hintingly, but sometimes quite openly, there’s a “bilingual” requirement that incredibly says to black job seekers, “this entry level job is not for you, this opportunity is not for you.” It’s for someone who may not even be in this country illegally!

Go ahead, look around and try to find a public figure, especially any vocal black public figure, who will note this IMMORAL disclusion of blacks from that critical entry level job rung, because increasingly, these jobs are occupied by those who are bilingual. There was a news story about a frustrated black laborer seeking work in competition with hispanic day laborers who were picked over him. According to the account, they even taunted the black fellow. Unwisely and inexcusably, the black fellow in despair and frustration made a phony call ot 9/11 saying he murdered his taunting labor competitors. That one incident describes better than I just have how incredibly and inexcusable, our public officials have turned a blind eye for cheap labor, but worse than that, turned a completely ignored and immoral dismissal of entry level opportunities for blacks.

Go ahead, see if you will see the nature and consequence described as I just have. Good luck, it’s the unspoken, immoral crime of our age.

Dick Sheppard
Jersey City, NJ

[raivo pommer-.]

DHL

Wir wollen den Einzelhandel loben. Sein umfangreiches Sortiment. Seine langen Öffnungszeiten. Und die große Stadt, die uns so viele Einkaufsmöglichkeiten bietet. Wenn es nämlich das eine oder das andere nicht gäbe, wären die Nester der lieben Kleinen am Ostersonntag nur mit zahnschädigenden Schokoladenobjekten und in ihrer ästhetischen Vollkommenheit von Kindern selten hinreichend gewürdigten bunten Hühnereiern gefüllt gewesen. Dabei hatten wir, um Hektik zu vermeiden, auf die Kooperation des Osterhasen gesetzt und ihm den Auftrag gegeben, auch einen Tonträger mit emotional stimulierenden Märchen und ein den Forschungsdrang anregendes Buch über Dinosaurier aufs Kunstgras zu legen.

Nun glauben wir leider nicht mehr wirklich an das Hoppeltier, aber an Amazon, und tief im Inneren schlummert sogar ein Grundvertrauen zur Post. Es muss uns vor der Zumwinkel-Zeit eingepflanzt worden sein. Damals konnte man zwar noch keine „Sendungsverfolgung“ via Internet betreiben, es blieben einem aber auch Mitteilungen erspart wie diese: „16:42 – Zustellung – Aus unvorhersehbaren Gründen musste die Zustellung abgebrochen werden.“ Ein Erdbeben? Eine Überschwemmung? Im Rhein-Main-Gebiet? An diesem sommerlichen Ostersamstag?

[darkfall guide]

I don’t know If I said it already but …I’m so glad I found this site…Keep up the good work I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say GREAT blog. Thanks!

[Thorstein Veblen]

Re: "The analysis reveals that the short-run wage effect of immigration is negative in a wide array of possible scenarios, and that even the long run effect of immigration may be negative if the impact of immigration on the potential size of the consumer base is smaller than its impact on the size of the workforce."

My first take: How much do you want to bet I could reverse this conclusion by fiddling w/ your assumptions? It's not like you've got any robust finding here, it's just that your dead set on proving immigration hurts wages, so you've made the assumptions to get there...

OK, so let's take the US North vs. South. In generation after generation, people have immigrated to the US North, and out of the US South. Yet wages in the North have always been higher, and are still a bit higher. In all industrializing countries, you see immigration into industrial "core" regions and wage gaps that are basically persistent. That doesn't seem to match your conclusion.

Second point, immigration networks increase trade, introduce new goods, etc. etc. In most NEG/NTT models, this would increase the real wage...

And in a simple one good, open-economy CRS model w/ one factor, nothing need happen to the real wage due to immigration at all...

So, it's gonna be case by case. For the life of me I cannot understand why more immigration would not be hugely beneficial for the likes of Japan...