The Borjas Blog

An Offer You Can Refuse

What's the world coming to?

First, I read about American Express offering some of its customers $300 to close their accounts. (Note to AMEX: how come I didn't get the offer?). Now I see the same sort of thing happening in the immigration market.

Spain has decided to encourage return migration by paying some of its unemployed immigrants to return home AND not come back.

Non-European Union foreigners are being offered a deal: they can cash in their unemployment benefits for a lump sum of around 10,000 euros. In exchange, they go home and agree not to come back to Spain for at least three years.

The plan, however, has not been a sterling success:

But so far only 700 people in the whole of the country have been tempted to accept. For most Latinos, leaving is out of the question.

I'm not surprised. The present value of the gains from moving out of a low-income country far exceed the offer the Spanish government is making--even for unemployed workers.

(Witold: thanks for the tip).

Immigrant-Native Complementarity Revisited

I’ve often been asked what I think about the Ottaviano-Peri finding that there are strong complementarities between comparably skilled immigrants and natives—complementarities that lead them to conclude that immigration raises wages for many natives.

I’ve always been a little skeptical of the Ottaviano-Peri evidence. A couple of years ago, Jeff Grogger, Gordon Hanson, and I worked on a paper that examined the link between immigration and African-American economic status. As a by-product of that work, we explicitly attempted to replicate the Ottaviano-Peri finding--but couldn’t. Since then, we’ve been quite interested in trying to see what explains the discrepancy between our evidence and theirs.

Well, we have finally figured it out. Here’s the abstract to our new paper:

In a recent paper, Ottaviano and Peri (2007a) report evidence that immigrant and native workers are not perfect substitutes within narrowly defined skill groups. The resulting complementarities have important policy implications because immigration may then raise the wage of many native-born workers. We examine the Ottaviano-Peri empirical exercise and show that their finding of imperfect substitution is fragile and depends on the way the sample of working persons is constructed. There is a great deal of heterogeneity in labor market attachment among workers and the finding of imperfect substitution disappears once the analysis adjusts for such heterogeneity. As an example, the finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies.

English translation: The Ottaviano and Peri data includes currently enrolled high school juniors and seniors. They classify these high school juniors and seniors as part of the "high school dropout" workforce. Their finding of immigrant-native complementarity disappears if the analysis excludes these high school juniors and seniors.

Things that seem too good to be true usually aren’t.

(For the econometric geek who wants to play around with the data and see for himself/herself what is going on: We've created a STATA program archive that allows easy replication of all of the results in our paper. It is available here).

A New Trend In Illegal Immigration

There's been a debate in labor economics about whether native workers respond to the negative wage impact of immigration by moving to areas that have fewer immigrants. Now we have another question to argue over: Do illegal immigrants move to states that are more willing to ignore their presence?

Illegal immigrants are flowing into Texas across its long borders. But they aren't just swimming across the Rio Grande from Mexico or making dangerous treks through the rugged desert.

Instead, a new rush of illegal immigrants are driving down Interstate 35 from Oklahoma or heading east to Texas from Arizona to flee tough new anti-illegal immigrant laws in those and other states.

The growing exodus is the result of dozens of new state and local laws aimed at curbing illegal immigration. The two toughest measures are in Oklahoma and Arizona.

The Oklahoma statute, which took effect in November, makes it a crime to transport, harbor or hire illegal immigrants. Effective Jan. 1, the Arizona law suspends the business license of employers who knowingly hire undocumented workers. On a second offense, the license is revoked.

''It's a wave that's happening across the United States," said Nelson Reyes, executive director of the Central American Resource Center in Houston, which has helped immigrants who recently relocated in Houston from Virginia and South Carolina. ''There is a migration, within the United States, to the states and cities more receptive to the reality of the undocumented immigrant."

A word of advice if you are a student looking for a research topic: Look no further; there's a great paper waiting to be written about this.

The Great Mexican Emigration

The number of Mexican-born persons living in the United States back in 1970 was very small--only about 1.5% of Mexicans had chosen to emigrate. By 2005, over 10 percent had moved out. Why? And why now and not 50 years ago? Here is the latest research from Gordon Hanson and Craig McIntosh that attempts to answer these questions:

In this paper, we examine net emigration from Mexico over the period 1960 to 2000. The data are consistent with labor-supply shocks having made a substantial contribution to Mexican emigration, accounting for one third of Mexican labor flows to the U.S. over the last 25 years of the 20th century. Net emigration rates by Mexican state birth-year cohort display a strong positive correlation with the initial size of the Mexican cohort, relative to the corresponding U.S. cohort. Labor-demand shocks also contribute to emigration, but the state-specific component of these is muted relative to labor supply. In states with long histories of emigration, the effects of cohort size on emigration are relatively strong, consistent with the existence pre-existing networks. In states without a history of emigration, the effects of cohort size on emigration accelerate as a cohort ages, consistent with the creation of new networks.

The Geographic Diffusion of Immigrants

There is no doubt that the urgency of the immigration debate accelerated in the past few years. But why? After all, the resurgence of large-scale immigration started 40 years ago; we've had millions of illegal immigrants living in our midst since the 1970s; and it has been recognized that a disproportionately large number of the new immigrants are low-skill workers who have adverse impacts on low-wage labor markets and on the costs of providing social services since the mid-1980s. Yet immigration did not become the hot political potato it has become until recently. Why?

This NYT story gives an important clue to this puzzle. Until 1990, immigrants  clustered in a very small number of geographic areas. In 1990, for example, 33 percent of immigrants lived in only three metropolitan areas (Los Angeles, New York, and Miami), while only 12 percent of natives lived in the largest three metropolitan areas housing natives. Even by 2000, almost 70 percent of immigrants resided in six states (California, New York, Texas, Florida, Illinois, and New Jersey), but only 34 percent of natives lived in those states.

Beginning sometime in the 1990s, however, both legal and illegal immigrants began to settle in non-traditional places. And this settlement brought the economic, social, and cultural impact of immigration closer to home for many more Americans--in effect, awakening a large swath of the population to a new demographic reality and ending the long-term lethargy that had set in on how Americans think about immigration.

The nation’s struggle over immigration may seem distant in states like Iowa, hundreds of miles from any border, but the debate is part of daily life here, more than ever now as residents prepare to pick a president. Nearly all of more than two dozen people interviewed here last week said they considered immigration policy at or near the top of their lists of concerns as they look to the presidential caucuses next month...

Like a handful of communities in Iowa — places named Denison, Ottumwa, Postville and Marshalltown — Storm Lake, a city of about 10,000, offers a glimpse at how new immigration has transformed the nation’s rural middle and with it, the political landscape.

Two decades ago, less than 1 percent of the people in Buena Vista County, where Storm Lake is the county seat, were Hispanic. By last year, the county had the highest percentage of Hispanic people of any county in Iowa, with 19.2, compared with less than 4 percent statewide. Buena Vista County also ranks highest in Iowa in percentages of those learning English in school, of recent international immigrants and of residents born in other countries.

In the interviews here, peoples’ focus on immigration held regardless of what perspective they brought to the debate, whether they were Democrats or Republicans, Hispanic or not, recent arrivals or lifelong Iowans.

It is hard to follow the immigration debate and not come to the conclusion that Americans' newly found appreciation for thinking about immigration has permanently altered the political landscape. It seems that a growing number of Americans have seen first-hand what immigration does to their communities--and more than a few just don't like it.

I know that some people--including some of our leading politicians--can't resist the temptation to label those Americans who feel this way as yahoos, xenophobes, and racists. But I suspect that those who so readily play this "race card" are just trying to avoid discussing what's going on in those communities. There's absolutely nothing xenophobic or racist in opposing social policies that worsen economic conditions for many workers, that create havoc in public schools, and that greatly increase the cost of public hospitals and other social programs.

Puerto Rican Migration

I've long been fascinated by the population flow between Puerto Rico and the United States. I knew, of course, that there had been a huge outflow of the Puerto Rican population to the United States. What I didn't know until a couple of years ago was that Puerto Rico was also the recipient of a large number of immigrants. In fact, the foreign-born share in the Puerto Rican population is almost as large as the foreign-born share in the U.S. population.

Most countries are either the recipients of immigrants or the source of emigrants. So Puerto Rico is quite unique, presenting a rare setting for examining the determinants and consequences of labor inflows and outflows that are happening at the same time.

Here is a long summary of what I try to do in my latest paper, Labor Outflows and Labor Inflows in Puerto Rico:

This paper examines the determinants and consequences of migration flows in Puerto Rico...Even though a sizable fraction of the Puerto Rican-born population moved to the United States in the past few decades, the island was concurrently the recipient of large inflows of persons born outside Puerto Rico. The Puerto Rican context, therefore, provides a unique setting that should allow us to: (a) examine the economic factors that permit sizable labor inflows and labor outflows to coexist; and (b) observe the predicted mirror-image impact of these labor flows on the Puerto Rican wage structure.

The simultaneous presence of the two opposing flows creates obvious problems for the income-maximizing model of migration, since labor should presumably flow only in the direction of the highest-paying area. It is easy to reconcile two-way flows, however, if different regions offer differential rewards for different types of human capital, and if the opposing labor flows are composed of different types of people. The Puerto Rican experience, in principle, allows an empirical test of these theoretical implications.

Similarly, the concurrent movement of large numbers of workers into and out of Puerto Rico makes the island an inimitable setting for observing how labor flows alter labor market conditions. In most geographic settings that have been analyzed, the countries are either the source of immigrants (as in Mexico), or the recipients of immigrants (as in Canada and the United States). Since labor inflows should reduce the relative wage of competing workers and labor outflows should increase those relative wages, the Puerto Rican experience offers a rare opportunity to determine if relative wages in a particular labor market exhibit this mirror-image response to the two types of labor flows.

The study uses data drawn from the microdata samples of the 1970-2000 Puerto Rican and U.S. Censuses. The empirical analysis yields two important findings...First, the income-maximization hypothesis can help us understand the coexistence of large labor inflows and labor outflows. The human capital of persons who move from Puerto Rico to the United States differs strikingly from the human capital of persons who migrate into Puerto Rico. Because the Puerto Rican wage structure offers relatively high rewards to skills, the island attracts relatively high-skill in-migrants and exports relatively low-skill workers. Secondly, the opposing labor flows do have opposing effects on the wage structure. As predicted by the laws of supply and demand, in-migration lowers the wage of competing workers in the Puerto Rican labor market, while out-migration increases the wage. The wage impact of these labor flows is roughly comparable to that estimated in other countries: a 10 percentage point migrant-induced shift in supply leads to an opposite-signed change of 2 to 4 percent in the wage of competing Puerto Rican workers.

The paper will be published next year in the University of Chicago's newest economic journal: The Journal of Human Capital.

The Latest Data On Immigration

My friend Steve Camarota, of the Center for Immigration Studies, has just released a new study summarizing some of the latest trends on the volume of legal and illegal immigration, and on the socioeconomic characteristics of this population. Here is the NYT's summary of the research. Some of the key results:

1. The number of immigrants arriving in the past seven years (both legal and illegal) is a historical high.
2. More than half of these recent arrivals are illegal.
3. About a third of adult immigrants lack a high school diploma.
4. One of every 3 persons lacking health insurance is foreign-born.
5. A third of immigrant households use at least one major welfare program; as compared to only 19 percent of native households.
   

As I've emphasized in earlier writings, what we have been seeing in recent years is the "foreignization" of poverty. This is a trend with long-term consequences that are not yet fully appreciated.

This is what the NYT has to say about Steve's methods:

Independent demographers disputed some of the survey’s conclusions, but not Mr. Camarota’s methods of data analysis.

Let me translate this for the uninitiated: Independent demographers disagree with some of the inferences that Steve drew from the data, but they don't disagree with the actual empirical results themselves. As a famous  economist colleague of mine once told me: Because Steve's work is so highly scrutinized, you can pretty much trust that any number that comes out of his shop has been checked, double-checked, and triple-checked.

So if you want numbers on immigration you can believe (and are then free to interpret in whichever way you want), do yourself a favor: read the entire CIS report.

Residential Segregation in the Netherlands

One of the unsettled questions in the economics of immigration in the United States is: do natives respond to the influx of immigrants into particular localities by moving somewhere else?

A new paper by Azlan Zorlu and Jan Latten examines the same question in the Netherlands. The results are interesting and (at least to me) not surprising:

We have examined the spatial-mobility patterns of natives and migrants using rich individual administrative data. The observed spatial mobility among non-western migrants is almost twice the mobility rate of natives; the probabilities of moving are 14 versus 7.7 percent. The propensity to move is relatively high among natives who reside in neighbourhoods with a higher share of non-western migrants. The estimates indicate a segregatory tendency among non-western migrants and natives. The native movers tend to choose neighbourhoods with a higher share of natives, while non-western migrants are less likely to choose native neighbourhoods.

 

Immigration And Crime, Revisited

Another interesting paper from Anne Piehl about the link between immigration and crime. This time, however, she is looking at the link during the time of the First Great Migration.

Research on crime in the late 20th century has consistently shown that immigrants have lower rates of involvement in criminal activity than natives. We find that a century ago immigrants may have been slightly more likely than natives to be involved in crime. In 1904 prison commitment rates for more serious crimes were quite similar by nativity for all ages except ages 18 and 19 when the commitment rate for immigrants was higher than for the native born. By 1930, immigrants were less likely than natives to be committed to prisons at all ages 20 and older. But this advantage disappears when one looks at commitments for violent offenses.

One implication of this line of research is that the relative rate of immigrant criminality declined between the beginning and the end of the 20th century. Why?

Star Immigration

We pay so much attention to the problems associated with large-scale low-skill illegal immigration that we tend to forget there are other types of immigrants--and that these other immigrants may generate substantial economic benefits for the United States. Here is a new paper by Lynne Zucker and Michael Darby that reminds us to look at the forest (rather than those pesky trees) every once in a while:

We follow the careers 1981-2004 of 5401 star scientists listed in ISI HighlyCitedSM as most highly cited by their peers. Their number in a US region or a top-25 science and technology (S&T) country significantly increases the probability of firm entry in the S&T field in which they are working. Stars, rather than their disembodied discoveries, are key for high-tech entry. Stars become more concentrated over time, moving disproportionately from areas with few peers in their discipline to many -- except for a countercurrent of some foreign-born American stars returning home...America has 62 percent of the world's stars as residents, primarily because of its research universities which produce them.

The paper serves as yet another reminder of what a well-designed immigration policy can accomplish. Yet here we are: arguing about the ludicrous idea of whether to give illegal immigrants a driver's license rather than about how to change our policy so that we are more welcoming to high-skill workers.