Tuesday, April 18, 2006

Illegal immigration economic boost a myth

Steven Shulman:

The recent, huge demonstrations in support of illegal immigrants make one claim more than any other: our economy needs the labor they so enthusiastically provide. However, this claim reflects a basic misunderstanding of how our economy works.

The American economy displays an amazing capacity to adapt. Pump in lots of cheap, immigrant labor and employers will utilize it. Restrict the flow of immigrant labor and employers will adapt by hiring natives or by reorganizing work and introducing new technologies.

Consider the example of the 1960s. Labor demand was high due to the Vietnam war. Yet immigration was low, and many working-age native men were in the military. Employers adapted by hiring women and substituting capital for labor. This was a period of low unemployment and strong wage growth.

Or consider the example of states with low immigrant populations. Only 3 percent of the population of Iowa is foreign-born, compared to 26 percent of California's population (as of 2000). Yet Iowa's economy is healthy. It is no less able than California to get its hotel rooms cleaned, its crops picked or any other of its needs met.

We often hear that immigrants take jobs that natives "do not want." However, there is substantial occupational overlap between immigrants and natives. The evidence is clear that mass immigration has reduced the wages of native workers, particularly those with low levels of education. That can only occur if immigrants are competing with natives for jobs.

Paul Krugman, the eminent economist and liberal commentator, recently wrote in the New York Times that immigration reduces the earnings of high school drop-outs by 8 percent each year. That would mean that a full-time worker making $15,000 a year would pay a yearly "immigration tax" of $1,200. These losses are especially likely to be experienced by African Americans and Hispanic Americans, because they are especially likely to be high school drop-outs.

George Borjas of Harvard University calculates that immigration lowers the annual earnings of workers by $280 billion, making it the largest-single factor driving down wages. At the same time, immigration raises the annual earnings of employers by $300 billion. Immigration thus has a small positive effect on the overall economy, but only because its large negative impact on workers is offset by its large positive impact on employers. Like other manifestations of globalization, mass immigration increases inequality.

Another study of the Harlem labor market showed that 26 percent of job seekers who were hired were immigrants even though immigrants comprised only 11 percent of all job applicants. The authors of the study concluded that employers discriminated against African American job applicants in favor of immigrants, who they perceived to be cheaper and more compliant.

Yet another study shows that the number of employed natives actually fell between 2000 and 2004. All of the 2.3 million increase in total employment during this period went to immigrants.

The claim that employers "need" immigrant workers is equivalent to a claim that employers cannot adapt to the absence of them. There is no support for this claim in either economic theory or fact. It is not surprising that employers like persistent labor surpluses, but that is hardly a reason to believe that they are an economic necessity.

If we want a high-wage economy, we must enforce sanctions against employers who hire illegal immigrants and in other ways reduce the incentives for illegal immigrants to come here. Immigration reform should mean, first and foremost, immigration reduction.

Reducing immigration would require a period of adjustment, but in the end we would adapt to it and, in all likelihood, benefit from it.

The Impact of Immigration on African Americans

U.S. employers send for immigrants

Increasing the Supply of Labor Through Immigration: Measuring the Impact on Native-born Workers

Elites turning against illegals

Mexican illegals vs. American voters



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