Wage discrimination’s elephant in the room

Besides illuminating the horror of both candidates’ immigration policies, the 2nd US presidential debate this year was noteworthy for other reasons, such as Mitt Romney’s by-now infamous “binders full of women” remark. Romney was responding to a question about what he would do to erase the wage gap between men and women. The questioner specifically asserted that women make “only 72 percent of what their male counterparts earn.”

The Atlantic has an interesting interview with labour economist Francine Blau on this; it seems clear from the data that some statistically-inexplicable wage gap exists between male and female workers, although the difference is closer to 9% than the 28% suggested at the debate. What didn’t come up in the debate, and what Blau failed to highlight, is that these wage gaps, appalling as they are, are the tip of the iceberg. I refer, of course, to the horrifying place premium.

It may sound like this is beating a dead horse, but I keep coming back to the place premium because it highlights how morally indefensible the immigration status quo is. If the place premium didn’t exist, or even if it were on a similar magnitude as the wage discrimination we see in the US between men and women, I probably wouldn’t be writing this right now. I’d consider immigration an important issue, but not the most important issue worth spending my limited time on.

The magnitude of the place premium is truly horrifying. I can’t say it better than Michael Clemens, Claudio E. Montenegro, and Lant Pritchett have:

For several countries—including Nigeria, Haiti, Egypt, and Ghana—the US border effect on the wages of equal intrinsic productivity workers is greater than any form of wage discrimination (gender, race, or ethnicity) that has ever been measured.

The wage discrimination against Nigerians, Haitians, Egyptians, Ghanaians, and hundreds of millions of other people created by the modern immigration regime is literally the worst the world has ever known. Here’s the bit from the Blau interview on specific estimates of wage discrimination against women in the US:

So overall, women who work full time make 77 cents for every dollar men make. But how much of that can we actually blame on discrimination, and how much is due to other factors, like the fact that women often work in lower paying industries?

I’m going to refer to a study with my colleague, Professor Lawrence Kahn at Cornell. In the data set we were using, women were making 20 percent less per hour than men overall. That would be what we call the unadjusted differential. As you’re pointing out, this could reflect a variety of factors. It could reflect discrimination. But it also could reflect gender differences in work experience, or differences in industries and occupations. So first we statistically adjusted for human capital, which is a detailed measure of prior work experience and education. The adjusted gap was 19 percent, only slightly less than the unadjusted differential. So traditional human capital factors, taken together, do not explain that much of the gender gap. Then we have another specification, where we control for human capital but we additionally control for gender differences in industries and occupations. And that got us down to 9 percent less.

So there was a 9 percent difference in pay you couldn’t explain even when you considered the jobs women do, the education they have, or the years they spent in the workforce.


Clemens, Montenegro, and Pritchett did exactly the same thing for workers in 42 different countries plus the US: they took wage data, adjusted it for purchasing power, and then compared the earnings of statistically identical people depending on where they live. In other words, as best as they could, they took a Nigerian working in Nigeria, and compared him to his statistical equivalent Nigerian counterpart working in the US. Blau’s 9% wage gap is a shocking number, no doubt; imagine taking away 10% of your income for reasons you cannot control and have nothing to do with! But the gender discrimination in the US, disgusting as it is, pales in comparison to what Clemens and his co-authors have found.

Page 11 of their paper (I refer to the version generously provided by Digital Access to Scholarship at Harvard) lists the estimates of wage discrimination by nationality. They have different versions of these estimates, depending on what you’re interested in; column 6 is the highlight, because it directly compares a person born in Nigeria but working in the US, to a statistically identical person born in Nigeria and still working there. So, for instance, the worst discrimination affects Yemenis, with a coefficient of 15.45. Does that mean that an identical Yemeni working in Yemen earns 15% less than a Yemeni working in the US? No — it means he earns 15 times less. If American women earn 91 cents on the dollar for their male counterparts, Yemenis working in Yemen earn 6 cents on the dollar compared to their identical counterparts working in the US.

This is why I keep coming back to the place premium; this is why open borders is the most important cause of our time. Clemens and his co-authors did not find this by accident; they spend a good 20 pages sanity checking their results against other studies and sources of data, and find their numbers agree quite well with previous work in this area.  It is plausible that there are all sorts of “other things” which their analysis doesn’t take into account — but even if you halve all their estimates, you still get over 30 nationalities where, inexplicably, the same person working in the US earns multiples of what he would have if he had stayed in his home country.

We are rightly appalled by wage discrimination against women. Developed countries like the US have gone to great extent to stamp out such discrimination, although obviously it remains. The difficulty with women’s struggle for pay equality is that there are few remaining obvious cases of such discrimination which the government can directly target via policy.

With immigration, on the other hand, we have wage discrimination literally the likes of which we have never seen. Worse still, the government actively perpetrates it: governments around the world consciously prevent Nigerians, Egyptians, Haitians, from working outside their home country — simply because these people were unlucky enough to be born in the wrong country.

After establishing that their estimates are reasonable, Clemens and his co-authors attempt to gauge just how much immigration policy creates these wage gaps. After all, one could reasonably expect wage gaps to persist, whether for discriminatory or other reasons, even if all borders were opened tomorrow. Looking specifically at evidence from the US (immigrants from Puerto Rico, Guam, Micronesia, etc.), France (immigrants from the overseas departments such as Guadeloupe), and historical evidence from European immigration to various American countries prior to the enactment of systematic border controls. In all cases, wage gaps persisted — but on the order of 1.5 to 1.8 (56 to 67 cents on the dollar; horrible, but nowhere near as bad as most observed cases of border-based wage discrimination). As Clemens and his co-authors say:

The lesson of this evidence is that in areas that lack policy barriers to labor movement, we do not observe wage ratios for observably equivalent workers across space that exceed 1.8 in any historical period, or about 1.5 currently. We have shown that wage ratios even for fully equivalent workers from Haiti, the Philippines, Nicaragua, and Peru lie far above 1.5-1.8. Table 8 strongly suggests that the same is true for Egypt, Nigeria, Pakistan, Vietnam, and other countries. We interpret this to mean that the very large wage ratios we observe for many countries are sustained by policy barriers to movement.

Directly because of government discrimination, there are thousands, if not millions, of prospective immigrants earning 15 times less than they otherwise could — all because they committed the cardinal sin of being born citizens of the wrong country. A Haitian who wants to immigrate to the US but is forced back by the Coast Guard earns 10 times less than he otherwise could. Thousands of people risk death to get into Iran, or into Australian jails: that is the power of the place premium, of the economic forces that inexorably draw humans to where the world can best make use of their talents.

I was glad that the presidential debate put the spotlight on the issue of wage discrimination. Such discrimination keeps people from fulfilling their fullest potential, and should be reprehensible to any right-thinking person. But frustratingly, the elephant in the room remains: our own governments, the US government perhaps being one of the worst offenders, are the most monstrous perpetrators of wage discrimination today.

John Lee is an administrator of the Open Borders website. Liberal immigration laws are a personal passion for him. See all blog posts by John.