The Economics of Immigration David Card, UC Berkeley Background - - PowerPoint PPT Presentation

The Economics

• f Immigration

David Card, UC Berkeley

Background

• immigration is a defining issue of the

“populist movement” in US, UK, and Europe (Brexit/Trump/right-wing parties

• not yet as divisive in Canada, but....
• economic analysis can potentially help

understand the issues

• huge literature to draw on

Background

• in the US: little growth in median wages

for 4 decades (adjusting for inflation)

• male wages: about the same now as in

1974

• female wages: flat since 2000

Median Annual Earnings of Full Time Full Year Workers

20 30 40 50 60 2015 2005 1995 1985 1975 1965 Real Earnings (Thousands) Males Females

Background

• has something “gone wrong” in the

labor market?

• Is immigration partly to blame?

Goals for this lecture

1.

background facts (charts and graphs)

2.

who gets in and why (the supply and demand for immigrants)

3.

economic impacts of immigration: labor markets (other dimensions)

4.

how do people think about immigration policy?

How many immigrants?

• Canada ~ 20%
• US ~ 13%
• Inflows: Canada ~ 0.8% of pop/year

US ~ 0.3% of pop/year

Percent of Immigrants in Selected Countries 27.7 22.4 20.0 13.4 13.1 12.8 12.3 12.0 9.5 5 10 15 20 25 30 Australia NZ Canada Spain US Germany UK France Italy

Other differences – geographic clustering Miami ~ 65% immigrant Los Angeles, Vancouver, Toronto ~ 50% NY/Chicago/Montreal: ~ 20% Atlanta, Winnipeg .... ~ 10% many rural areas: 2-3% (or less) immigrants also clustered in sectors/jobs:

• agriculture, food processing: 50%+
• health care: 30%

Who gets in (and why)? 3 separate factors:

• people have to want to move (supply)
• and be able to find a job (demand)
• and be able to get in* (policy)

3 forces work differently in US and Canada * in US about 25% of imms (~ 11M) are unauthorized

Who gets in (and why) – supply side

• from traditional European source countries

(UK, Germany) supply is the determining factor (legacy of 1920s laws - eugenics)

• highly skilled workers most likely to move to

US (lower taxes, very high wages at the top) these incentives are lower in Can/AUS/NZ

• from poorer countries - many people would

earn more in US or Can–but gains largest for least skilled

Who gets in (and why) – high-end demand

In both US and Canada:

• high demand for science/tech – direct recruiting

by employers (H1-B, +points in Can system)

• large immigrant flows through universities (IMP

program in Canada)

• pay for BA, then qualify for visa
• or come as grad student (low wage labor for

teaching, labs...) then qualify for visa

Who gets in (and why) – low-end demand

In US:

• high demand for low-wage services
• relatively few regs that limit low-wage jobs
• flexible institutions (e.g., subcontracting)
• tolerance for untaxed/undocumented workers

In Canada:

• less tolerance for untaxed/undocumented
• higher taxes for health insurance, etc

Who gets in (and why) – US policy

• US policy (largely) regulates direct LM

immigration from Asia (H1-B, binding country limits...). University inflows are less restricted

• BUT supply from S/C America is less regulated

(1/2 of stock are unauthorized)

• leads to bifurcated distribution: highly skilled

Europeans/Asians... + low skilled S/C Am’s

The Importance of Education Differences (US)

Natives All Imms Hispanic S & E Asians

Dropouts 11 32 51 17 HS Graduate 30 22 27 16 Some College 31 19 13 18 BA or More 29 28 10 49 including...

• Adv. Degree

11 12 3 21

Who gets in (and why) – Canadian policy Complex “web”

• traditional point system (now emphasizing

language, education, and pre-arranged job)

• temporary programs: IMP (175k in 2015),

TFW (60k in 2015, down from 110k in 2008)

• many subcomponents of IMP (and no

“certification” of LMIA)

• 60% of arriving imms have BA+ , many have

job lined up

Top Source Countries for New Immigrants (mid-2000s) Percent of Imms US Canada

• E. Asia (China, Korea, Japan)

9 20

• S. Asia (India, Pakistan..)

9 20 S.E. Asia (Vietnam, Thailand…) 5 7 South/Central Am (inc. Mexico) 49 7 Africa 6 13 Carribbean 5 3 Eastern Europe 6 10 Addendum: Pct with BA+ 35 60

source: Bonikowska et al (2011)

What Dominates: Supply? Demand? Or Policy At the high end of the skill distribution, supply forces are key e.g.: Clark-Ferrer-Skuterud comparison of earnings gaps between natives and immigrants with BA+ , by source country

• US

Canada

• Chinese-natives

+ 8%

• 12%
• Indians-natives

+ 25%

• 20%
• N. Americans

+ 5% + 15%

What Dominates: Supply? Demand? Or Policy

• At the lower end of the skill distribution,

demand+ policy interact.

• In US up to early 2000’s – demand driven with

little or no policy (leading to current situation) (9-11 and end to “don’t ask – don’t tell”)

• In Canada – policy accomodated the demand

side (somewhat)

• many other countries also facing decisions
• ver how to mediate

• 2. Economic Impacts: The Labor Market
• most people intuitively think:

“more people Y lower wages”

• this was the idea proposed by Malthus in his

famous 1826 essay BUT: larger countries do not have lower income larger cities have higher wages many countries try to promote population growth and immigration!

How do immigrants affect the LM?

• Malthus was thinking of the medieval world:
• utput based on agriculture w/ fixed land
• in the late 1800s the “neoclassicals” pointed
• ut that as long as capital can expand with

population, we avoid the Malthusian trap

• today, we understand that output depends on

labor and capital (machinery, infrastructure)

• and innovations (hybrid corn...)

“First-order” effect of immigration

• rise in labor force leads to increase in

investment, wages unaffected if K/L stays on trend

• in fact: many economic models suggest that

“size matters”: larger economy is more productive (New Zealand?)

• historical record on K/L Y no Malthusian trap

What about different skill groups?

• US immigration flows include excess shares of

workers from the bottom and the top Does this matter? Maybe....

• agreement on 2 major skill groups
• a) bottom+ lower-middle
• b) upper-middle+ top
• imms and natives nearly equal in these

groups

Different types of evidence

a) Cross-city comparisons. Immigrants are clustered in selected cities: On average: more immigrants → more low education workers in city. But relative wages

• f lowest-education natives are very stable

across cities A better set of comparisons -- isolate ‘supply push’ component of immigrant inflow to different cities (enclave/policy)

Relative Inflow of Low-EdImmigrants vs. Dropout Wage Gap for Natives

• 0.15
• 0.10
• 0.05

0.00 0.05 0.10 0.15 0.20

• 0.4
• 0.2

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Relative Inflow of Dropout vs. High School Immigrants Predicted from Previous Settlement Patterns and National Inflows Dropout-High School Gap

Different types of evidence (2)

b) Big shocks. Mariel Boatlift (1980) Similar studies Portugal/France (end of colonial wars) Israel (lifting of Russian emigration restrictions) US: end of Bracero program in 1964 (1 million Mexicans deported)

Different types of evidence (3)

c) model-based analysis of national trends

• Leading exponent: George Borjas (Harvard)
• Disagreement in literature. What

assumptions in the model re:

• dropouts vs HS grads
• immigrants and natives with same

education

• but the range of effects is small

Model-Based Effects of US Immigration 1990-2010 on Native Male Wages

HS HS Some Post Dropouts Grads College BA Grads Baseline - Borjas Preferred

• 3.1

0.4 0.9

• 0.1
• 0.9

0.0 Alternative -- immigrants and

• 1.7

0.9 1.2 0.5

• 0.1

0.6 natives slightly imperfect subs. Notes: taken from reported estimates in Immigration Economics, chapter 5. Education Subgroup: All Native Men

Other Impacts what else matters? a) effects on govt revenue/spending b) effects on productivity/innovation, diversity (Skvorecky, Ondaatje, Ricci, Thien, Edugyan...) c) effects on “social cohesion” and political functioning

• 3. Understanding Attitudes to Immigration
• Most studies show wage/employment effects of

immigration on natives are small

• many firms and households use immigrant

services, both at the “high end” (doctors, nurses, professors) and the “low end” (day care, home health and elderly care, agriculture and construction…)

• BUT: many natives are opposed to (or deeply

ambivalent about) immigration

understanding attitudes (2)

A resolution:

• people care about the direct effects of

immigration on their wages and taxes, and

• n the “compositional” effects on their

neighbors, co-workers, schoolmates..

• composition concerns are the major driver in

choices over where to live, what school to choose,….

• how do people respond when asked about

increasing immigration?

First and Second Generation Shares of US Population (Actual and Projected)

5 10 15 20 25 30 35 40 1900 1920 1940 1960 1980 2000 2020 2040 Share of US Pop (%) 2nd Generation 1st Generation Source: Pew Research Center based on Census/ACS and projections.

ESS study

Indicator questions for net wage effect:

• 1. Do you agree/disagree that immigrants lower wages?
• 2. Do you agree/disagree that immigrants harm the

poor?

• 3. Do you agree/disagree that immigrants fill job

shortages?

• 4. Do you think that immigrants take away jobs from

natives or create new jobs?

• 5. Do you think that immigrants take out more (in

social benefits) than they put in (in taxes)?

ESS study (2)

Indicator questions for compositional effects

• 1. Do you agree/disagree it’s better if everyone shares

the same customs and traditions?

• 2. Do you agree/disagree it’s better if everyone shares

the same religion?

• 3. Do you agree/disagree it’s better if everyone shares

the same language?

• 4. Do you think that immigrants undermine or enrich

the culture of the country?

• 5. Do you think a country should stop immigration to

reduce social tensions?

Findings:

Views on immigration depend on both economic (20%) and composition (80%) effects. Views about immigration policy (restrict or increase immigrant flows) are mainly driven by compositional concerns Older, rural, and non-college grads are more concerned about compositional issues, and these concerns drive their more negative policy views