Wednesday, September 27, 2006

The costs and benefits of low-skilled immigration

Steve Malanga:

The issue of immigration has prompted great soul-searching and re-evaluation among economists across the political spectrum. For years, mainstream thought in the field held that benefits outweighed problems. But over the last 30 years, as the nature of immigration has shifted to include more low-wage, low-skilled workers, opinion within the field has slowly changed, too, based on mounting evidence that the benefits of such immigration are small, while the costs are growing.

It was the weight of this evidence and the shift in thinking that I chronicled in a piece that appeared in the summer issue of City Journal magazine (“How Unskilled Immigrants Hurt Our Economy”). Needless to say, I was surprised to read at the end of The New York Sun’s critique of that piece (“The Case for Immigration,” September 22) that the author, Diana Furchtgott-Roth, placed me within the line of a group of “small but influential thinkers” whose ideas on immigration have, over the years, spawned such disreputable movements in American society as the Know-Nothing party. In my nearly 20 years of engaging in public policy debates, I’ve always felt a great satisfaction when my opponents resorted to implying that my arguments help underpin racism or nativism or some other despicable “ism.” It’s generally a sign that they are unconvinced of the weight of their own arguments.

The irony is that it is Ms. Furchtgott-Roth, not I,who stands in the midst of a small (and shrinking) but influential circle of thinkers — that is, open-borders advocates who have clung tenaciously to the notion that all immigration is ultimately good for our economy, despite growing evidence to the contrary, and despite a significant shift of opinion within academic circles. After being presented with a series of studies on modern immigration by the most authoritative economists in the field, a congressional bipartisan commission on immigration reform wrote in the mid-1990s, “It is not in the national interest to admit unskilled workers.”

In my piece, I recounted a series of studies which explained that the first great immigration, from 1880 to the mid-1920s, brought economic benefits to the country largely because the immigrants of that era carried skills with them that weren’t in great supply.

Today’s immigration, the so-called second great wave, began roughly 50 years ago and has come increasingly to feature low-skilled, uneducated workers and their families at a time when succeeding in our economy demands ever-more education and skills. Throughout the 1980s and the 1990s, illegal immigrants alone — consisting almost entirely of unskilled workers — have crossed our borders at the rate of between 225,000 and 300,000 a year. At the same time, legal immigration has also turned sharply toward low-skilled workers, thanks to 1965 legislation that changed our national quota system in such a way that today the vast majority of legal immigration hails from poorer countries.

Not surprisingly, as low-skilled workers have arrived in ever-greater numbers, their fortunes have fallen: Today, for instance, Mexican immigrants, who increasingly dominate the ranks of our low-skilled migrants, typically begin work here in America with a 40% wage gap compared to native-born workers, and rather than disappearing over time, that wage gap persists and may even be growing larger, according to work by the Harvard economist George Borjas. Equally unsurprisingly, the impact of such low-wage immigration on America’s broader economy is limited. An authoritative study by the National Academy of Sciences in 1997 found that immigration contributed a mere $10 billion to our (at the time) $8 trillion economy, an inconsequential amount at a time when the cost of immigration was increasing.

Ms. Furchtgott-Roth begins responding to my piece with a singularly inappropriate anecdote about the supposed benefits of low wage immigration, that is, the example of immigrant entrepreneurs plying the streets of Washington, D.C., during a rainstorm to sell umbrellas to stranded pedestrians. She fails to note that such “entrepreneurs” rarely pay taxes and business fees, and that legitimate retailers often have complained that these street-corner merchants undercut their prices precisely because they don’t play by the rules.

From this anecdote Ms. Furchtgott-Roth proceeds to the old saw that immigrants are here to work (though the percentage of nonworking women, children, and the elderly among immigrants is much higher than in previous waves of immigration) and that they do jobs that Americans don’t want. To buttress this claim, she cites unemployment rates among high-school dropouts, noting approvingly that among immigrants, the rate is only 5.7%, while among the native born, it is 9.1% (or double the nation’s overall unemployment rate). But rather than a cause to celebrate the work ethic of immigrants, the gap in the unemployment rate among high school dropouts is more likely evidence that native-born workers are being crowded out of labor markets by immigrants taking jobs for lower pay and fewer benefits, one reason why wages at the low end of the economic spectrum are declining in real terms.

Indeed, the most important study of immigration’s effect on native-born workers, published in April 2005 by the National Bureau of Economic Research, is that of Mr. Borjas and his colleague Lawrence Katz, who found that immigrants depress the wages of low-skilled native workers by 5%, even when we adjust for the additional investment that businesses make when they have access to a large pool of cheap labor. Moreover, two new papers, one by Mr.Borjas and two colleagues, published this month by the National Bureau of Economic Research, and another by researchers from Northeastern University, published this month by the Center for Immigration Studies, show that the impact of low-wage immigration falls especially heavily on native-born blacks and Hispanics, not merely depressing wages but adding to unemployment levels.

It’s Official: Immigration Causing Income Inequality


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