The Case of Detroit

Between 1900 and 1950, the population of Detroit increased more than six times over. But this understates how radical the growth really was at its peak—between 1900 and 1930, the population grew by 4.5 times. In the decade between 1910 and 1920 alone, the population grew by nearly 115 percent.

A lot of this population increase was due to inflows from other regions of the United States, but no small fraction of it can be attributed to foreign born immigrants. In Wayne County, where Detroit is located, the foreign born population increased by about 326% between 1900 and 1930. If our current foreign born population increased by a similar proportion, it would add another 130 million to their numbers.

And it’s not as though the native-born Americans who migrated there were cut from the same demographic cloth as the Detroit residents of 1900. African Americans from the south, for example, migrated to Detroit by the tens of thousands during that time period.

Moreover, the migrants to Detroit were overwhelmingly competing for very similar factory jobs–foreign in origin or not, the straightforward supply analysis of immigration restrictionists would suggest that wages for these jobs should have plummeted due to all the new arrivals. After all, the people who were there in 1910 had to compete against a labor market that was more than twice as large a decade later! To say nothing of the people who were there in 1900 and in three decades had to compete in a labor market that was more than four times as large as the one they started in!

But this is exactly the opposite of what occurred. It was precisely during this time period that the median wage of low-skilled workers in Detroit was exploding, rather than falling. The reason was largely the auto manufacturing revolution, an economic phenomena that owed quite a lot to one son of an immigrant. The innovation in manufacturing drew over a million people to Detroit like a magnet, and still a huge portion of the benefits of the innovation ended up with the average worker, even with the dramatic expansion in the supply of their competitors.

If we had gone back in time and closed America’s borders prior to 1900, hundreds of thousands of the people who helped make the Detroit boom happen would never have come. And if we applied the same restrictionist logic to Wayne County and limited the inflows from the rest of the country, far from helping out Detroit’s residents, the city would have played no part in the auto manufacturing revolution whatsoever; it would have gone to another, less restrictive city.

Immigration inflows are not random. They are likely to occur where the labor is most highly valued–and the increase in scale can have dynamic effects beyond simple supply and demand analysis. In Detroit, it made an entirely new industry possible.

So what can we learn from this specific episode in one city’s history? In my next post, I will discuss that very question.

14 thoughts on “The Case of Detroit”

  1. It is sometimes alleged that technological progress is inherently capital-intensive and labor-saving, and therefore that migration restrictions, which make labor relatively scarce, promote technological change. Henry Ford’s automotive revolution is a striking counter-example. While Ford’s methods were fairly capital-intensive, they used a lot of labor too. What they really economized on was HUMAN capital. They made unskilled workers a lot more productive. It seems plausible today that a wave of technological innovation might be driven by a need to economize on human capital. If so, a large influx of unskilled labor would be just the thing to trigger it.

    1. The case of Detroit was different in that the change in technology was the trigger, not the change in labor supply conditions (i.e., it is not that the borders were opened and that led to an immediate boom). So, one might say that it merely shows that if the borders are open, such technological takeoffs are possible (i.e., we don’t rule them out), not that they will happen as soon as the borders are opened. Perhaps they will, but the example of Detroit at any rate is not strong enough for that conclusion — you’d need to argue from a somewhat different angle.

      1. I always come at this from a trial and error perspective.

        Entrepreneurs and practitioners are trying out new approaches and new models and nearly all of them fail, as opposed to the safe, established way of doing things. The more entrepreneurs you have, the more trial and error occurs and therefore the greater chance of finding “the next big thing”. Increasing the scale of a population means that there are more possible niches for entrepreneurs to fill (a long tail of consumption type argument). and there are more “labor inputs” (to put it in cold economic language) for entrepreneurs to tinker with in their trial and error discovery process.

  2. ” In Wayne County, where Detroit is located, the foreign born population increased by about 326% between 1900 and 1930. If our current foreign born population increased by a similar proportion, it would add another 130 million to their numbers.”

    Your source shows the foreign born share of Wayne county *fell* from 32% to 25% over that period as population increased.

    Adding 130 million immigrants to the U.S. population would *increase* the foreign-born share from 12.3% to about 37%.

    http://rankingamerica.wordpress.com/2009/02/16/the-us-ranks-8th-in-foreign-born-population/

    “And it’s not as though the native-born Americans who migrated there were cut from the same demographic cloth as the Detroit residents of 1900. African Americans from the south, for example, migrated to Detroit by the tens of thousands during that time period.”

    Tens of thousands? The population increased by more than 1.5 million during that period, and the foreign-born were overwhelmingly European.

    1. Hey BK,

      You’re just as observant as Vipul told me you would be 😀

      It is certainly true that the share of foreign born residents of the total population fell during that time, but that doesn’t really change the fact that it quadrupled, does it? It’s just that the American born population increased even faster. And yes, African Americans from the south were just a small segment of that growth.

      But,

      1. This is all rather irrelevant to the “suppression of wages” argument, no?

      2. People at the time were just as afraid that those European immigrants were going to destroy our culture as people today are that latin American, or take your pick, immigrants are going to do so. Just because you can tell a story after the fact about relative similarity does not mean that it seemed that way on the ground, a priori. The fact is that the 1.5 million people who flooded in were not culturally identical to the ~200-300K people who were already there. The differences varied but were there.

      No analogy is perfect, and that is why Vipul suggested that I dedicate an entire post, possibly more than one, to analyzing what specific lessons can be drawn from the case of Detroit that would be applicable today. I will certainly do my best to tease out what can and cannot be learned.

      I would definitely appreciate your critical eye ahead of the next post–would you be willing to lay out plainly what it is *you* think cannot be learned from the case of Detroit–along with what you think we can learn?

      Thanks for your feedback.

      1. “1. This is all rather irrelevant to the “suppression of wages” argument, no?”

        The wage effects of an exogenous influx of labor will depend on how abundant the influx is relative to the stock that would otherwise be available.

        You did not show that wages in Detroit would have been lower in the counterfactual with less foreign-born labor available (partially substituted for by increased native internal migration). You made an economic geography (http://en.wikipedia.org/wiki/Economic_geography) speculation that Detroit could not have won the competition across many locations to become the hub for the new auto industry absent that foreign labor.

        Since foreign-born labor made up a decreasing minority of labor inputs over that period in Detroit, and there was plenty of additional population available elsewhere in the United States, it is less likely that Detroit would have failed to benefit from network and agglomeration effects than if the foreign share was higher, or if most of the additional labor attracted by the industry were foreign-born.

        “People at the time were just as afraid that those European immigrants were going to destroy our culture as people today are that Latin American, or take your pick, immigrants are going to do so.”

        Well, as a matter of fact there were big political and cultural changes driven by the change in demographics of the US, e.g. the role of immigrant machine politics, an increasing role for the state in American life, etc. Even today there are measurable differences by European origin within the US: the GSS shows some, although it is confounded by variation in self-identification. Studies which use genetics to measure ancestry (more reliable than self-reports, which change in confounding ways) show especially large and long-lasting differences by places of ancestry.

        I don’t really care much about the cultural changes myself, and popular discourse doesn’t worry much about them, partly because the changes were not very large, and partly because history is written by the victors: with the post-mass-immigration demographics a modern version of the Know-Nothings wouldn’t be politically viable, so we wouldn’t see one.

        Second, people then and now recognized gradations of cultural distance and differential outcomes, e.g.:

        http://occidentalascent.wordpress.com/2010/09/18/the-unbearable-whiteness-of-the-irish/

        Third, there is actual data going back 5 generations on the assimilation of immigrants from different sources, e.g. with regards to income, education, and political assimilation. And the observed empirical data show that on those metrics nth generation Latin American immigrants do worse than Southern and Eastern European immigrants by large margins, as has been discussed elsewhere on this blog at length. This observed performance matches up well with other sources of data, such as the performance of migrants from those locations in other receiving countries, and in the sending countries, which were available at the time.

        Given the availability of hard facts from a century of experience, why talk about fears and perceptions rather than the data that are already in?

        http://www.amazon.com/gp/product/0871548488

        1. Hi BK,

          You write: “You made an economic geography (http://en.wikipedia.org/wiki/Economic_geography) speculation that Detroit could not have won the competition across many locations to become the hub for the new auto industry absent that foreign labor.”

          Actually, Adam wrote (emphasis mine): “If we had gone back in time and closed America’s borders prior to 1900, hundreds of thousands of the people who helped make the Detroit boom happen would never have come. And if we applied the same restrictionist logic to Wayne County and limited the inflows from the rest of the country, far from helping out Detroit’s residents, the city would have played no part in the auto manufacturing revolution whatsoever; it would have gone to another, less restrictive city.”

          In other words, Adam is saying that if Wayne County had limited the inflows of people from outside the region, then Detroit’s economic boom would probably not have happened. He is not claiming that restricting foreign-born labor alone would have led to the economic boom not happening in Detroit. If he’d claimed that disallowing foreign-born labor alone would have had that effect, then your critique would be on point.

          You also write: “The wage effects of an exogenous influx of labor will depend on how abundant the influx is relative to the stock that would otherwise be available. You did not show that wages in Detroit would have been lower in the counterfactual with less foreign-born labor available (partially substituted for by increased native internal migration).”

          I think what Adam meant to say is that as far as the circa 1900 residents of Detroit were concerned, the huge influx — whether US-born or foreign-born — should have depressed their wages by standard supply and demand analyses offered by restrictionists, relative to a no-(native or foreign)-influx or limited-(native or foreign)-influx scenario. Even if one somehow claims that the US-born influxes have no effect on wages, that still leaves a huge foreign-born influx relative to the original population. If you account for both the US-born and the foreign-born influx, the downward pressure on wages should have been huge.

          If I were writing this piece instead of Adam, I would probably focus on the total population changes for Detroit rather than splitting it into native-born and foreign-born. The total population of Detroit grew by 4.5 times between 1900 and 1930, and more than doubled between 1910 and 1920. My guesstimate is that this growth rate is comparable to the upper range of estimates for how the US population might grow if it declared something that comes reasonably close to open borders but with some kind of limiting strategy (auctions, taxes, tariffs, guest worker programs).

          This does leave out the question of heterogeneity, which you re-raise in the comments, which would be relevant to some assimilation-related issues, but note that as far as wage suppression (Adam’s main point) is concerned, more homogeneity in skills and in the kinds of jobs sought is expected to lead to more wage suppression, at least as per standard analyses.

          1. “And if we applied the same restrictionist logic to Wayne County and limited the inflows from the rest of the country, far from helping out Detroit’s residents, the city would have played no part in the auto manufacturing revolution whatsoever; it would have gone to another, less restrictive city”

            Yes, I skimmed over that and fear I may have been unfair to Adam. I agree that Detroit’s initial population was too small for minimum efficient scale for the car industry, while the US population was more than large enough without additional immigration.

            “If I were writing this piece instead of Adam, I would probably focus on the total population changes for Detroit rather than splitting it into native-born and foreign-born.”

            I agree that across-the-board population increases don’t decrease wages on a large scale if other inputs aren’t important constraints to the economy. When they are, things can change, e.g. land in an agricultural economy gives Malthusian responses to population growth, in petro-states population growth splits the oil money among more people, etc.

            For ‘hubs’ where an industry settles in a particular site and then has difficulty moving after because of network effects, e.g. Detroit for cars, Hollywood for movies, Silicon Valley for startups, Wall Street for finance, the situation is a bit more complicated. The initial location process is sensitive to conditions, but afterwards the industry is stuck. Thus you see New York governments heavily taxing Wall Street bankers and lawyers without inducing a mass exodus to Delaware, unions bleeding the Big Three dry without a quick exodus to the right-to-work states, and so forth.

            By the same token, natives in an area that has become a hub can exploit their situation by restricting entry (in aggregate, or to some fields) enough to raise wages but so severely as to kill the golden goose. Consider the reservation of civil service jobs for natives in the Gulf oil states.

            Bigger denser populations may make it more likely that future hubs will wind up nearby, although one has to get lucky (a lot of places have wasted a lot of money trying to compete with Silicon Valley and Hollywood) too.

            1. Hey BK,

              I don’t think you were unfair–you’re both right that I over-emphasized the foreign born part of this equation.

              Interesting remarks about the network effects of cities, but I think there are limits to this. Most new auto factories in America open outside of Michigan, for example, precisely because of the parasitic laws that have developed there (so Toyota will actually manufacture in the US but nowhere near Michigan). And the question remains–if the federal government hadn’t bailed out American auto companies on more than one occasion, how many such companies would exist in Michigan today?

              Ryan Avent, in his book The Gated City, talks about how land use restrictions in the San Francisco, San Jose are has artificially created smaller tech hubs around the country, in places like Phoenix and Boston and New York, whereas there would have been much more concentration in the tech industry otherwise.

              Anyway, that’s neither here nor there. Just an interesting topic.

              From our exchange, I think I’m treading on thin ice on the cultural effects issue. Frankly, I simply haven’t researched it enough, and it wouldn’t be right for me to make arguments on this blog without the proper evidence to back it up.

              I think the followup post should probably focus on the lessons concerning wage suppression, as well as pointing out that open borders makes it _possible_ for booms like what happened in Detroit, without saying that it makes them inevitable (obviously that’s impossible to say).

              What do you guys think?

              1. Hi Adam,

                The idea that you seem to be referring to is related to what economists call “thick labor markets” — the more people there are in a particular market sector (skill-wise and location-wise) the easier it is to start new companies in that sector, expand existing companies etc. without taking on too much risk (e.g., it’s easier to start a tech company in Silicon Valley because there’s a pool of workers who have diversified risk — even if your company fails, they can get employment at other companies).

                To my knowledge, however, most study of thick labor markets is at a regional/city level rather than at a national or global level. In other words, the thickness of the Silicon Valley labor market is far more important than the thickness of the US labor market, even though migration within the US is free (rent control and land use are issues, but not in the same way as migration restrictions).

                Now, one could plausibly make an argument that open borders would thicken all global markets, since everyone everywhere would have access in principle to all labor everywhere, without people necessarily having to move in advance. Today, an entrepreneur in Arkansas knows that, thanks to open borders within the US, he/she can migrate to another US state and get workers from all US states, despite Arkansas’ not being a hotbed of entrepreneurial innovation (with the notable exception of WalMart, which perhaps proves the point in a way). With open borders, the same entrepreneur can fish within a global pool to get a labor force of the desired quality and quantity; it’s not necessary that these people aggregate in advance in order for the entrepreneur to use them.

                However, the fact that the thickness of city/region markets is considered more important than that of national markets, despite free migration in the latter, is a point against the idea of open borders thickening world markets, at least in a manner qualitatively similar to regional markets getting thickened. But there may be other slightly different ways that are more suited to studying open borders.

                These are just some preliminary thoughts. I haven’t devoted a lot of thought to the matter.

                I think you’re right that the cultural angle is a very different angle and delving deep into that is a full task in itself, so perhaps it makes more sense to focus on your current ideas for now.

                By the way, you might find the data at the innovation case page useful.

                1. You are correct that those studies focus on labor market thickness in specific metropolitan areas, but that doesn’t weaken the case for global open borders at all. When people migrate, they migrate to cities. Opening borders would lead to increased population density, not decreased.

                  1. Do you mean that open borders would lead to increased urbanization at a global level, or in target countries for migrants at the expense of source countries?

                    1. Hi Adam,

                      The issue is not about being contradictory, the issue is whether there is a trade-off. India, for instance, sees large-scale rural-to-urban migration within the country already. Why doesn’t India see more intra-country rural-to-urban migration? This could be due to (a) supply constraints, i.e., not enough people from rural areas want to move to urban areas per unit time, even though lots of people will eventually move, (b) constraints on the part of cities in the rate of absorbing migrants (not in the total number, but in how quickly that number can grow), e.g., due to limits on the growth rate of housing stock and infrastructure.

                      If you think that (a) is more important, then open borders would mostly see a substitution away from rural-to-urban migration within India towards international rural-to-urban migration (i.e., some fraction of the people migrating from rural to urban areas in India would choose to migrate abroad). If, however, you think (b) is the issue, then under open borders, you’d see a lot more out-migration from rural areas in India, with the migration to urban areas in Indian remaining about the same, but also some additional international migration. (You might also see more complex phenomena, such as some people migrating from rural India to urban India, then going abroad after a few months).

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