This post is an auxiliary to the author’s September 16 Foreign Policy in Focus piece Immigration Economics: An Interview with Professor Giovanni Peri. It was first posted at the Dissent Magazine blog Arguing the World.
The emergence of vast inequalities between the wealthy and the rest of us may be the biggest change in American society over the last fifty years. And it’s hardly a change that we should welcome.
Such is the argument that Timothy Noah makes in a well-timed series of articles over at Slate. In his series, Noah explores what he calls the “Great Divergence,” and he looks at possible reasons for skyrocketing inequality.
In the third article in the series, the author asks whether the post-1965 surge of immigrants to the United States from south of the border is a leading factor in creating the gap between rich and poor. His conclusion is that it’s not. If anything, immigration is only a small contributor. “[I]t isn’t the star of the show,” he writes.
This conclusion is the right one. But in making his case, Noah ends up reinforcing some popular misconceptions about the role of immigrants in the economy. Namely, he seems to validate the idea that immigrants drive down wages, particularly for the least educated Americans in the workforce. Noah comes to this conclusion by relying heavily on a single economist, Harvard’s George Borjas, who happens to be one of the most conservative voices on this issue in the field.
Doug Henwood’s Left Business Observer did a good job taking on Borjas’s flawed approach a few years ago:
Though definitive evidence is hard to come by, because of less-than-perfect data, most studies of the effects of immigration on wages and employment for the native-born find little or no effect…
But the Harvard economist George Borjas—himself a Cuban immigrant who now acts like he wants to shut the door behind him—argues that comparing local labor markets is wrong, since people and capital are mobile…. Instead, argues Borjas (writing with Lawrence Katz and others), the national labor market is the proper unit of analysis. Borjas & Co., working with heroic models with heroic assumptions about the mobility and substitutability of capital and labor—statistical systems that are always highly susceptible to assumptions—find that high-school dropouts have taken a 4-8% wage hit because of immigration between 1980 and 2000. The rest of the educational distribution took smaller hits. Missing from this analysis are the words ‘union’ and ‘minimum wage,’ making it incomplete and tendentious, since it’s likely that union-busting and the eroding value of the minimum [wage] have had more effects than immigration ever could. And there appears to be no evidence that natives actually migrate in the ways that would be required by Borjas’ assumptions.
In a recent review of the field, the excellent economist David Card notes that studies like Borjas’ are based on ‘the belief that labor market competition posed by immigration has to affect native opportunities, so if we don’t find an impact, the research design must be flawed.’ Card is very familiar with these convenient assumptions; back in the 1990s, he showed, contrary to the deepest faith of most economists, that increasing the minimum wage doesn’t destroy jobs; economists resisted his evidence because it just couldn’t be true. But it was.
Others who are intimately familiar with Borjas’s work have also challenged his assumptions and come up with very different findings about immigration economics. In a late-August summary paper published by the Federal Reserve Bank of San Francisco, economist Giovanni Peri concluded that “immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.”
I spoke to Peri recently, and he emphasized that there is some academic debate about whether new immigrants might have a small negative effect on the wages of those in the lowest-paid 10 percent of the economy. But there is broad consensus that, for the economy as a whole, immigration has had a positive impact on productivity, wages, and employment.
This echoes the sentiment of economist Albert Saiz, quoted a while back in the Washington Post: “‘Immigration provides overall economic gains to a country,’ [Saiz] wrote, summarizing the literature in a 2003 article for the Federal Reserve Bank of Philadelphia. ‘Indeed, the U.S. experience as an immigrants’ country is one of phenomenal economic growth. However, there are winners and losers in the short run.’”
In his recent paper, Peri highlights the overall benefits in the past twenty years:
[T]otal immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.
This brings us back to the question of inequality. While immigrants overall have helped to build the U.S. economy, the lowest-paid American workers are not seeing the benefits. The highest-paid, on the other hand, are taking far more than their fair share of the gains.
We can see a parallel here to the economics of trade. There is little debate that trade overall can help the economy. I have no problem with that idea—even speaking as a long-time globalization activist who has participated in many protests against the World Trade Organization and other international financial institutions. The real question has always been: what kind of trade will we have—and who will receive its benefits?
A lot of what gets labeled as “free trade” (such as patent protections for big pharmaceutical companies) is actually the opposite of what economists are taking about. Moreover, trade that is structured by and for multinational corporations has a way of enriching their coffers—surprise, surprise—while making working people and the environment bear the costs. Thus, the activist demand for “fair trade” is a call both to combat corporate power and to manage trade in a way that is sustainable and beneficial for the less-privileged sectors of our global society.
Something similar can be said about immigration. Right now, immigration to the United States is being managed in a way that primarily benefits the wealthy. There’s no point in blaming immigrants for that. Reactionary anti-immigrant measures only create an ever-more-exploitable pool of labor for employers to take advantage of. The real solution is to pass living wage laws and to build unions that advocate for both immigrant and native-born employees, making sure that all workers are paid fairly and treated with respect.
Of course, fighting inequality in a serious way is much more difficult than finding a scapegoat. So, whatever the economic studies, don’t expect anti-immigrant arguments to go away anytime soon.
Mark Engler can be reached via his website, Democracy Uprising.