This piece was originally published at the Cato-at-Liberty blog here and is reproduced with permission from the author. The original version features footnotes that have not been included here. Also, links to relevant Open Borders material have been added to the post.
Mark Krikorian, executive director of the anti-immigrant Center for Immigration Studies (CIS) [Open Borders note: CIS describes itself as pro-immigrant. The fine print is discussed here] and author of the book The New Case Against Immigration: Both Illegal and Legal, criticized a remark I made to Washington Times reporter Stephen Dinan about a new CIS memo.
The memo, which can be found here, claims that immigrants are taking most of the jobs created since President Obama took office. I told the Washington Times that the memo “makes a mountain out of a molehill” because it ignores key economic explanations that have nothing to do with demonizing immigrants. Steven Camarota, one of the authors of the memo, even agreed that one factor I mentioned could explain his findings.
In response, Mr. Krikorian wrote that I should, “Tell that to the 23 million Americans who are unemployed, forced to settle for part-time work, or gave up looking for work altogether.”
My response is that the CIS memo is so flawed it should not be taken seriously.
Location, Location, Location
The memo looks at native and immigrant concentrations in different sectors of the U.S. economy. It points out that immigrants have made gains in some sectors where there is are high native-born unemployment rates. But the memo fails to take into account one very important factor when studying labor markets: labor mobility. This issue is so important that Harvard economist George Borjas, the most respected economists who is skeptical of the gains from immigration, called it “the core of modern labor economics” and criticized his fellow scholars for overlooking its importance. The authors did not heed Professor Borjas’ criticism.
The labor market is a giant churn. Jobs are constantly created and destroyed, but there is also a geographic element to this process. Jobs are often created in places where there are not many unemployed workers with the particular skills demanded to fill those openings. In an efficient labor market, workers would rapidly move to job opportunities. To the extent that vacancies and wage differences for the same jobs persist in different parts of the United States, economic inefficiencies persist. Immigration increases worker mobility, thus greasing the wheels of the U.S. economy and increasing economic efficiency through wage convergence.
Newly arrived immigrants are self-selected for mobility. They chose to bear the high costs of frequent movement to take advantage of changing wage rates in different parts of the United States. Immigrants engage in labor arbitrage far faster than natives who have higher movement costs. New immigrants immigrate directly to higher wage and lower unemployment areas. Settled immigrants are also more likely to move toward such areas.
Government labor market regulations restrict immigrant mobility, but immigrant characteristics partly compensate for bad policy. Immigrants are typically younger than natives, fewer of them are tied down by mortgages, and they are willing to make sacrifices for labor market opportunities that many Americans are simply unwilling to make. From moving to the Gulf Coast building sector in the aftermath of Hurricane Katrina, to the technology industry, immigrants are more mobile and respond quicker to labor market opportunities.
Immigrant responsiveness to regional wage differences reduces economic inefficiencies and explains why they have been so successful at finding employment during the economic recovery.
The anecdote of Darin Wedel shows why mobility would be a crucial part of any serious study of U.S. labor markets. Wedel was an electrical engineer until he was laid off in 2009 from Texas Instruments. Wedel’s wife, Jennifer, famously complained to President Obama that her husband cannot find work, so the president should stop highly skilled temporary foreign workers from entering the country.
She forgot to include in her complaint that there were numerous job opportunities for her husband in other parts of the country, like Silicon Valley. Darin, however, limited his job search to areas around the Dallas-Fort Worth area where Jennifer held a job, they owned their home outright, and Darin’s children from a previous marriage lived. The couple chose to remain where it was more difficult for Darin to find an electrical engineering job. Wedel’s decision to remain immobile, not immigration, is why he did not find a job more quickly. Immigration had nothing to do with his precarious job situation.
Darin’s lack of mobility is not unique. As economists have noted, Americans are becoming less mobile. Underwater mortgages, age, two-earner households that ameliorate the negative effects of unemployment, generous unemployment insurance, interregional information asymmetries, and other factors partly explain this lack of native mobility in the face of regional wage and employment divergence. Americans are not moving to job openings as quickly as they once did.
Regional variations in job growth and unemployment rates, like the 6.8 percent unemployment rate in Texas versus the 10.2 percent rate in California, show that employers in different parts of the nation have different trends of hiring and firing. CIS’s method of counting up the number of jobs and the nativity of those hired on a national level ignores the “core of modern labor economics” and, as a result, offers little insight.
The CIS memo attempts to blame the dismal native unemployment figures on immigrant employment by citing a few papers that show immigrants displace natives from the labor market. The first paper they cite is a severely flawed CIS memo from 2010, called “A Drought of Summer Jobs: Immigration and the Long-Term Decline in Employment Among U.S.-Born Teenagers,” that I critiqued here. CIS’s 2010 memo concluded that low-skilled immigrants force native-born teenagers out of the labor market. But that conclusion was only supported by sloppy research, data misrepresentations, a poor grasp of the scholarly literature on immigration and its effects on the labor market, arbitrarily chosen start and end dates for comparison, and ignoring teenage opportunity cost.
Most academic papers conclude that immigrants and natives are not substitutes. Immigrants have a negligible impact on native wages and employment and, in many cases, are actually complements, meaning that immigrants boost wages and employment options for natives. Some debate over immigrant-native substitutability is over whether to include 17- and 18-year-old workers, indicating how small these effects really are.
Immigrants mostly occupy the low and high ends of the labor market. Most Americans have skills in the middle, meaning that there is little crossover or competition between natives and immigrants. The most pessimistic estimation in the scholarly literature is that the wages for native-born high school dropouts fell about 8.9 percent from competition with low-skilled immigrants. Long-run estimates of Borjas’ findings compiled by George Mason University economist Bryan Caplan halve the negative estimate for high school dropouts. For other educational groups, which make up about 90 percent of all Americans over age 25, the wage effects were close to zero or positive.
On the low end of the labor market, natives and immigrants are not substitutes because of their different language abilities. As I wrote in my recent policy analysis for the Cato Institute, natives have a comparative advantage in jobs that require communication, while low-skilled immigrants have a comparative advantage in jobs that require brawn because of their poorer language skills. The resulting fluency moves natives into higher-paid positions and creates more employment opportunities.
On the high end of the labor market, Borjas claims that lawful, skilled immigrants are a boon to economic, wage, and employment growth. Very few scholarly studies contest this claim.
The CIS memo ignores the mass of scholarly evidence that immigrants and natives rarely compete and often complement each other in the labor market.
The CIS memo implicitly relies upon zero-sum thinking, the notion that there is a fixed amount of resources or jobs. Why else would it blame the deferred action for childhood arrivals (DACA), which began accepting applications in August of 2012, for being one cause of native unemployment from January 2009 onward? In a zero-sum world, more people—whether through immigration, procreation, or life extension—would diminish the standard of living for others. The late economist Julian Simon argued that human beings are the ultimate resource because they create, build, and innovate. Immigration restrictions increase scarcity of that resource, an essential factor of production, reducing wealth creation.
The CIS memo also does not attempt to measure the million of employment opportunities created by immigrants or how removing millions of people from the United States would affect native employment. Since immigrants, like all people, demand goods, services, and real estate they stimulate the production of those items, creating employment opportunities. That does not even include the numerous firms created by immigrant entrepreneurs that create employment opportunities directly or through up- and down-stream exchanges.
CIS Data Do Not Support Their Conclusion
CIS tries hard to imply that immigrant gains in the labor market slow or reverse native gains, yet the memo is incapable of showing any sort of correlation. The net gains in employment for natives and immigrants move in the same direction, except possibly in the first few months of 2009. When natives gain, immigrants gain. When natives lose, immigrants lose. If immigrant gains to employment meant a loss for natives, then immigrant net employment and native net employment would move in opposite directions. Natives and immigrants work in the same labor market.
The CIS memo’s conclusion states that “it would be a mistake to think that every job taken by an immigrant is a job lost by [a] native.” And the memo continues by asserting, “it would also be a mistake to think that dramatically increasing the supply of workers has no impact on the employment prospects of natives.” The memo fails to show a correlation, let alone causation, between immigration and native unemployment.
Missing the Forest for the Trees Weeds
This discussion of immigration’s small impact on native wages and employment misses the forest for the weeds. The real question is whether immigration would increase wealth. The answer is a resounding yes.
Michael Clemens, economist at the Center for Global Development, estimates that the economic gains from eliminating migration barriers for peaceful and healthy people are vastly greater than any losses to native wages or income. He estimates that removing restrictions on labor mobility would increase global GDP by 50 percent to 150 percent. Other economists estimate that a similar policy could increase global GDP by 67 to 147 percent. [Open Borders note: See our pages on double world GDP and place premium].
That situation would increase the wealth and income for almost all Americans. U.S. natives with complementary skills, who own property, capital, and businesses, would see their incomes increase. Some U.S. natives who have similar skills as immigrants might face more labor market competition, but if the scholarly work on task specialization and immigrant-native linguistic complementarities is right, the losses could be more negligible than even Clemens estimates. Immigrants, the new Americans, and sojourners would gain tremendously.
In such a policy regime, immigrant movement to more productive economies—like the United States—that have relatively freer markets, better protections for private property, better laws, and better security, would increase immigrant productivity. If institutions were the same across countries but a policy of free trade was embraced, immigration barriers would not be as devastating as they are today because people could simply produce in their home countries and trade for other goods. Unfortunately, since institutions range from the relative freedom in Hong Kong to the totalitarian in North Korea, with the United States and other immigrant destinations near the top of the list, the institutions under which people labor explains much of their productivity.
The CIS memo misses the main and interesting points of the modern debate over immigrant impact on native employment opportunities and income.