The Causes of Wealth Inequality (12): Immigration

Immigrants are usually somewhat poorer than natives, mainly

  • because they come from poorer countries,
  • because they are less well educated and less skilled (on average) and
  • because they are sometimes more at risk of being unemployed.

So it’s tempting to use data on increasing immigration flows – such as those that occurred in the U.S. during the last decades – in order to explain rising income inequality. Inequality is then viewed, not as the result of an unjust economic system, but as the mechanical result of demographic changes.

The timing is hard to ignore. During the Great Compression, the long and prosperous mid-20th-century idyll when income inequality shrank or held steady, immigration was held in check by quotas first imposed during the 1920s. The Nobel-prizewinning economist Paul Samuelson saw a connection. “By keeping labor supply down,” … a restrictive immigration policy “tends to keep wages high.” After the 1965 immigration law reopened the spigot, the income trend reversed itself and income inequality grew. (source)

However, there’s little evidence that immigration keeps wages low at the bottom end of the native income distribution (except for high-school dropouts and to a limited extent), which is where immigration’s effect on inequality is supposed to occur. See here for a discussion of the evidence. One can even make the case that immigration benefits the poorest sections of the native population. See this post. So, immigration can’t explain rising income inequality. But perhaps the sheer number of poor immigrants can account for rising inequality? Maybe immigration doesn’t produce inequality by pushing down native wages but simply by changing the demographic: more poor people (in this case immigrants) means higher inequality.

Gary Burtless [notes] that immigrants “accounted for one-third of the U.S. population growth between 1980 and 2007”. [E]ven if they failed to exert heavy downward pressure on the incomes of most native-born Americans, the roughly 900,000 immigrants who arrive in the United States each year were sufficient in number to skew the national income distribution by their mere presence. [However,] [h]ad there been no immigration after 1979, he calculated, average annual wages for all workers “may have risen by an additional 2.3 percent”. (source)

And that number would have been hardly sufficient to stop the actual increase in income inequality. So even if there had been no immigration, inequality would have increased. There must therefore be other causes and explanations.

Maybe you’re wondering what the problem is, in which case you can go here. More on immigration is here. More posts in this series are here.


Migration and Human Rights (35): The Economic Benefits of Immigration, Ctd.

Immigration is supposed to be bad for the economic wellbeing of (parts of) the native population (a claim that’s based on fears about unfair labor competition pushing down wages or pushing natives out of work, and about burdens on social safety nets resulting from so-called “welfare tourism”).

More open borders would be a good thing for the wellbeing of potential immigrants. But it would also be a good thing for the natives of the destination countries: it’s not just that immigration fails to harm the native population, but it actually provides some benefits. And those benefits exist even when we don’t limit immigration to high-skill immigration. That means that immigration restrictions can hurt the destination country.

How does immigration benefit the host country?

  • First, low skilled immigrants allow relatively low-skilled native workers to move to higher skilled or more specialized positions, for example as supervisors of the new immigrant workers. And those positions yield higher incomes.
  • Secondly, low skilled immigrants make it possible for natives to spend less time on non-paid, low-skilled activities that they can outsource. As a result, the latter can spend more time on paid activities, which increases their income. And even if they don’t (choose to) increase their income they probably increase their wellbeing.
  • Thirdly, immigrants produce tax revenues which contribute to social safety nets that benefit everyone.
  • And finally, immigrants consume, which creates higher economic growth which in turn benefits everyone. And when we legalize immigrants, they are likely to earn more, pay more taxes and invest, which will increase the productivity of the host economy, again to everyone’s benefit.

There’s some additional evidence in favor of these claims here. In short, this is what it says:

The effects of immigration on the total output and income of the U.S. economy can be studied by comparing output per worker and employment in states that have had large immigrant inflows with data from states that have few new foreign-born workers. Statistical analysis of state-level data shows 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.

The anti-immigration claim that immigrant labor competition harms native workers, especially the low-skilled ones, is easily refuted by the simple fact that

U.S.-born workers and immigrants tend to take different occupations. Among less-educated workers, those born in the United States tend to have jobs in manufacturing or mining, while immigrants tend to have jobs in personal services and agriculture. Among more-educated workers, those born in the United States tend to work as managers, teachers, and nurses, while immigrants tend to work as engineers, scientists, and doctors. Second, within industries and specific businesses, immigrants and U.S.-born workers tend to specialize in different job tasks. Because those born in the United States have relatively better English language skills, they tend to specialize in communication tasks. Immigrants tend to specialize in other tasks. (source)

The role of language provides an example of how immigration allows native workers to move to higher skilled or more specialized positions:

in states where immigration has been heavy, U.S.-born workers with less education … have shifted toward more communication-intensive jobs. Figure 3 [below] shows exactly this. The share of immigrants among the less educated is strongly correlated with the extent of U.S.-born worker specialization in communication tasks. Each point in the graph represents a U.S. state in 2005. In states with a heavy concentration of less-educated immigrants, U.S.-born workers have migrated toward more communication-intensive occupations. Those jobs pay higher wages than manual jobs, so such a mechanism has stimulated the productivity of workers born in the United States and generated new employment opportunities. (source)

Therefore, immigration pushes up the income of native workers.

To better understand this mechanism, it is useful to consider the following hypothetical illustration. As young immigrants with low schooling levels take manually intensive construction jobs, the construction companies that employ them have opportunities to expand. This increases the demand for construction supervisors, coordinators, designers, and so on. Those are occupations with greater communication intensity and are typically staffed by U.S.-born workers who have moved away from manual construction jobs. (source)

Of course, there are bound to be some distribution effects, which means that there will be natives who benefit and other natives who don’t and who may even be harmed by immigration. However, it’s the complete picture that counts.

Migration and Human Rights (33): Immigration = Importing Poverty?

Let’s jump to the conclusion: no, immigration is not “the importation of poverty”, at least not in the U.S. and probably not in other developed countries either.

When talking about “importing poverty” we should make the following distinction.

  • Immigration can affect a country’s total poverty rate. Many immigrants are less well off than the native born, even after they’ve immigrated, because they come from poorer countries and because they’re usually lower skilled than the native born. Hence, an increase in immigration will push up the national poverty rate. But that’s not necessarily a bad thing, since the same immigration flow will probably push down the global poverty rate: migrants usually improve their lot by migrating – they probably wouldn’t migrate if that were not the case (I focus on economic migrants here, not refugees or displaced persons). They are, on average, poor relative to the native population, but they were, in absolute terms, even poorer before they migrated.
  • Immigration, however, can also affect, not the total poverty rate of the destination country, but the poverty rate of the native population in the destination country. This supposed effect occurs because immigration is said to alter the levels of supply of workers with different skills. These alterations (or “immigration-induced labor supply shocks”) can, theoretically, have an negative impact on wage levels or employment rates of the native population. This impact of immigrant-native labor market competition can in turn affect native (but also immigrant) poverty levels, since poverty is closely linked to wage evolutions.

It’s this second, supposed effect which of course produces the most political heat, spawning xenophobic political parties or a “push to the right” in existing parties. Here‘s a study disproving this effect:

we find little evidence of an impact of immigration on native poverty through immigrant-native labor market competition. Despite adverse wage effects on high school dropouts and small effects on the poverty rates of members of this group, the effects on native poverty rates are negligible. This latter result is largely driven by the fact that even among native-born poor households, most have at least one working adult with at least a high school education.

Apart from distortions in labor competition, there’s possibly a third effect through which immigration could have an impact on native poverty levels: anti-immigrant propaganda often includes statements about “welfare tourism”, immigrants coming over just to cash in on unemployment and other benefits. In doing so, the claim goes, they sap the country’s economic efficiency because high welfare spending implies high taxes. And an economy that’s weakened because of high taxes can result in more poverty. However, this as well is basically a myth. For the U.S., we have the following numbers disproving those claims:

Those immigrants aren’t coming here to have babies and they aren’t coming here to abuse social services. … [I]mmigrants use welfare at lower rates than natives. I should also add that if your concern is that some immigrants are receiving more in public benefits than they pay in taxes, you should keep in mind that so do 67 percent of Americans. … [T]he labor force participation rate for illegal immigrant males (ages 18 to 64) was 92 percent, compared to a rate of just 83 percent for native-born males. (source)

In the U.S., immigrants are just as likely to be unemployed as native born Americans. However, that’s not the case in all rich countries. In Belgium, for instance, the unemployment rate for immigrants is nearly two and a half times as high as it is for the native-born.

In the U.S., all talk about “welfare tourism” is highly dubious in light of the following:

The contributions by unauthorized immigrants to Social Security … are much larger than previously known… Stephen C. Goss, the chief actuary of the Social Security Administration and someone who enjoys bipartisan support for his straightforwardness, said that by 2007, the Social Security trust fund had received a net benefit of somewhere between $120 billion and $240 billion from unauthorized immigrants. The cumulative contribution is surely higher now. Unauthorized immigrants paid a net contribution of $12 billion in 2007 alone… Somebody ought to say thank you. (source, source)

Religion and Human Rights (25): The Eurabia Falacy

If immigration isn’t opposed because of bogus economic reasons or bogus law and order reasons, then it’s opposed on the grounds of equally bogus cultural reasons. Excessive immigration is said to fundamentally change the culture of the destination region: Europe will turn into Eurabia, just like the Protestant U.S. were once believed to be on the verge of a Catholic takeover following Irish and Southern European immigration.

But even limited immigration will not save us given the supposed “high fertility rates” of immigrants:

That Muslims are grinding out babies ready to take over Europe is an outdated canard. The Eurabia authors worry about declining European fertility, but in fact the Muslim decline is much sharper. In 1970, women in Algeria and Tunisia averaged about seven children each. Now, according to the CIA World Factbook, they average fewer than 1.8. The French rate is almost exactly two. Parisian demographers Youssef Courbage and Emmanuel Todd demonstrate in their 2007 book “Le Rendez-vous des Civilisations” that after most men in a country become literate, eventually a majority of women becomes literate, and then fertility plunges. This demographic transition has now happened in most Muslim states. At last count Algerian women living in France averaged an estimated 2.57 children, or only slightly above the French rate. Moreover, the fertility rate of north African women in France has been falling since 1981. Eurabia is not a demographic prospect. …

The other problem with forecasting numbers of European Muslims in 2100 is the presumption that sixth-generation European Muslims will still be a foreign body here: Islam as a bacillus that even secular former Muslims carry around, forever dangerous. This ignores the transition affecting many nominal Muslims in France. …

Although here and there Muslims have made France a little more north African or Islamic, the influence seems to be more the other way: Muslim immigrants are being infected by Frenchness. (source)

Remember also that people in the 1960s were saying that the higher birthrates among Catholics would mean a swift “Catholic takeover” of Europe and the US:

In the United States the lower birth rate of the Anglo-Saxons has lessened their economic and political power; and the higher birth rate of Roman Catholic families suggest that by the year 2000 the Roman Catholic Church will be the dominant force in national as well as in municipal or state governments. A similar process is helping restore Catholicism in France, Switzerland, and Germany; the lands of Voltaire, Calvin, and Luther may soon return to the papal fold. (source)

Now, of course I’m not insensitive to the plight of culture. A national or regional culture is an important source of identity and wellbeing, and I believe the whole world gains when even a small culture is allowed to survive. I have an older post here lambasting the demographic aggression of China in Tibet. My point is not that immigration can never be a cultural problem, but that the size of the problem is systematically inflated, possibly as a cover for outright xenophobia. In this respect, the “problem” resembles the two other “problems” caused by immigration: more poverty and more crime.

Migration and Human Rights (25): Immigration Restrictions

Showing that increased immigration tends to benefit natives reduces resistance on the margin, which is worth doing. But, in my experience, laying out clearly the immense benefits to the immigrants is extremely powerful. It highlights the needless misery caused by the heartless status quo. Even then, it is more powerful still to illustrate clearly how the status-quo system of borders, passports, visas, and citizenships systematically violates basic human rights to free movement and association. Will Wilkinson (source)

The statement that migration benefits the migrants is largely self-evident. Migrants wouldn’t migrate if staying home would be more advantageous. Hence, poverty reduction and development aid can benefit hugely from more open borders. What is less clear is that migration can benefit the population of the destination country. There’s a lot of political rhetoric, especially on the extreme right, about the adverse consequences of migration, both economically and culturally. Take for example the talk about unfair competition in the labor market, “importing poverty” and profiteering from social safety nets, the “criminal immigrant” stereotype, Eurabia hysteria etc.

So it’s encouraging to find this useful study:

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technological change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state.

The Causes of Wealth Inequality (3): Marital Homogamy and Declining Manufacturing & Unionization

Part of the increase [in inequality during the last decades, particularly in the U.S. and the U.K.] stems from declining manufacturing employment, part from shrinking unionization and fragmenting collective bargaining, part from heightened immigration and other aspects of globalization, and part from technological change. … [A]nother source of the rise in inequality: changes in household size and composition. Due to later marriage and more prevalent divorce, more and more households have just one adult, and hence only one potential earner. At the same time, coupling between people with similar education and thus similar earnings potential (“marital homogamy”) has increased, and the share of highly educated women who are employed continues to rise. The result of these developments is that many countries have more two-adult households with high earnings and more one- or two-adult households with low earnings than used to be the case. Lane Kenworthy (source)