The Economics of 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 60 Real Earnings (Thousands) 50 40 30 Males Females 20 1965 1975 1985 1995 2005 2015
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 Italy France UK Germany US Spain Canada NZ Australia 9.5 12.0 12.3 12.8 13.1 13.4 20.0 22.4 27.7 0 5 10 15 20 25 30
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 over 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: output based on agriculture w/ fixed land -in the late 1800s the neoclassicals pointed out 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 of 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 0.20 0.15 Dropout-High School Gap 0.10 0.05 0.00-0.05-0.10-0.15-0.4-0.2 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
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 Education Subgroup: HS HS Some Post Dropouts Grads College BA Grads All Native Men 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.
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 on 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) Share of US Pop (%) 40 35 30 25 20 15 10 5 0 2nd Generation 1st Generation 1900 1920 1940 1960 1980 2000 2020 2040 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