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Immigration Economics: An Interview with Professor 
Giovanni Peri
By Mark Engler
Foreign Policy in Focus
September 16, 2010
http://www.fpif.org/articles/immigration_economics_an_interview_with_professor_giovanni_peri

Facts or no facts, many people simply do not want to
believe that undocumented immigrants coming to this
country don't steal jobs and undermine the American
economy. When economic studies come along that challenge
their preconceptions, they don't take kindly to the
troublesome conclusions.

Recently, economist Giovanni Peri - an associate
professor at the University of California, Davis and
visiting scholar at the Federal Reserve Bank of San
Francisco - wrote a paper for the Fed summarizing recent
research in immigration economics. Evaluating the data,
Peri concluded that, "on net, immigrants expand the U.S.
economy's productive capacity, stimulate investment, and
promote specialization that in the long run boosts
productivity. Consistent with previous research, there
is no evidence that these effects take place at the
expense of jobs for workers born in the United States."

In other words, immigrants aren't stealing jobs that
would otherwise go to native-born U.S. citizens, and in
fact they are stimulating the economy in a way that
results, on average, in higher wages for U.S. workers.

As the paper's findings disseminated on political blogs,
some commentators reacted negatively and raised
criticisms of Peri, believing that his findings
contradicted basic economic laws of supply and demand.
While a portion of naysayers were not interested in
engaging with the economic research - their objections
being politically motivated - other readers raised
legitimate questions. And even Americans who identify as
progressives might wonder if immigration does not
threaten unions and undermine standards set by organized
labor.

FPIF senior analyst Mark Engler discussed these topics
with Professor Peri, asking him to clarify his findings
and respond to some common criticisms.

ENGLER: A common objection to your conclusions about
immigrants in the U.S. economy is that the findings seem
to violate the law of supply and demand. If the supply
of low-wage workers in the economy is increasing, why
doesn't that drive down wages?

PERI: People seem to understand the story of supply and
demand. What is a little harder to understand is the
idea of "complementarity" versus substitution, which is
just as basic in economics.

If two workers are completely identical, supply and
demand takes effect - just as if you put more corn on
the market, the price of corn will decrease. But if you
have workers who do jobs that are not the same, and if
they specialize in types of tasks that are
complementary, this can increase wages and productivity
for both.

An extreme example of this would be if you have an
engineer and you add a construction worker. With the
engineer by himself you're not going to do much. But
with an engineer plus a construction worker, you can
build a building. Therefore, the productivity of the
engineer goes up a lot. And the wages for both workers
increase.

What I try to address in much of my research is how
immigrants are really taking jobs that complement the
skills of a lot of native workers. And in fact, the
inflow of immigrants pushes some of these native workers
to take complementary jobs. That can have positive
effects. In economics, this story of complementarity is,
in its essence, just as simple as the story of demand
and supply.

ENGLER: Nevertheless many native-born workers don't see
themselves as complementary. They see themselves as
threatened, as competing for the same jobs.

PERI: One of the differences between immigrant workers
and native-born workers is that the native worker is
likely to have a better understanding of the language.
This by itself differentiates the tasks that a native
worker can do.

Individually, you will have a lot of personal stories of
people feeling threatened. But if you look at the data
about what types of occupations Americans have taken in
the last 40 years, in particular in states where there
are lots of immigrants, the trend has been toward
native-born Americans taking on the types of occupations
that are more in the line of "construction supervisor"
or "taxi dispatcher," rather than "construction worker"
or "taxi worker." This, on average, has produced gains.

At an individual level, if you were a native-born
agricultural worker in California 30 years ago and
you're still picking strawberries today, you might have
lost out. But you have to really look hard to find
native-born workers still doing these jobs. It's far
more common to see these workers taking jobs a little
further up the scale - working, for example, as a farm
manager.

The aggregate data shows that the average American
worker may have upgraded his or her job because of
immigration - that therefore there has been a reward for
the native worker.

ENGLER: I think part of the confusion is that people
perceive the economy as having a set, finite number of
jobs. When someone new comes in to the economy, the idea
is that this person takes away a job from someone else.
How would you address this?

PERI: Right. The labor market in the United States is a
very dynamic market. Every month, hundreds of thousands
of jobs are destroyed and hundreds of thousands are
created. Of course, in a recession, you have more of the
former. But, in general, when a new worker comes into a
dynamic set-up, the presence of more workers creates
more opportunities for firms and more opportunities for
investment. So the natural effect of more workers in the
economy is that more firms are created, more supply is
generated, and more workers receive a salary, increasing
demand. In equilibrium, the economy expands.

There is no reason in the long run that one more worker
would decrease wages. Just look at U.S. employment in
the last 40 years. The number of people working has
doubled. And wages have also increased 30 or 40 percent.

The question is: How long does it take for an extra
worker to generate the needed investment of the firm and
to ultimately create demand, so that one extra worker
becomes an expansion of the economy and not one less job
for a native worker? My analysis indicates that these
mechanisms are relatively fast. So even within one or
two years, you don't observe much job loss, but instead,
states with more immigration simply expand their
economies a little faster. And over four to 10 years,
you also observe the extra investment needed so that
capital per worker doesn't change that much and you have
a productivity effect.

ENGLER: But real wages for non-managerial workers in the
United States haven't increased much in the last 30 or
40 years. They've been almost stagnant.

PERI: Here you have to distinguish median wage from
average wage. The wages of highly educated workers have
actually increased quite a bit in the last 30 years.
What have done badly are wages for workers at lower
levels of education. Economists are trying to understand
the reasons why. Two big candidates are the impacts of
technology and the impacts of trade and off-shoring.

Some people are also looking at immigration as a
possible reason - including me, David Card of Berkeley,
Christian Dustmann of University College London, and
others. Yet the studies don't seem to find much of a
negative impact of immigration on wages. In fact, some
find no impact on employment and a little bit of a
positive impact on wages. And the aggregate data shows
no impact in terms of displacement.

ENGLER: Can you comment on the work of George Borjas, a
Harvard economist who has argued that immigration does
create downward pressure on wages for lower-wage
workers. He's contended that it resulted in a wage
decrease of as much as 7.4 percent for the poorest tenth
of the workforce between 1980 and 2000?

Borjas wrote a paper in 2003 that spurred a lot of
academic debate. [The statistics have since been
contested, but] people in the media often quote the old
numbers. The more recent numbers that even Borjas would
support suggest that there might be a negative 3 percent
wage effect on the least educated workers. But even his
work shows a positive effect on intermediate and more
highly educated workers. So even his version is
relative; it shows some negative effects and some
positive effects.

I have taken issue with some of Borjas' estimates,
saying that he has not adequately taken into account the
mechanism of complementarity. He has assumed that native
and immigrant workers are perfectly substitutable at
lower levels of education. My studies over the past
three to four years show that, in fact, native and
immigrant workers do take different jobs, do have some
different skills, and do specialize in different
productive tasks. And this reduces direct competition.
If you account for that, you get a very small impact -
or no impact - for those at the lowest levels of
education.

In my most recent paper, I do an analysis based on an
overall average [of wages throughout the workforce]. I
don't decompose the data to assess the impact of
immigration on people of different skill levels. In
other studies, I did decompose this and looked at
distribution. When I did that, my study showed that the
biggest benefits of immigration go to intermediate and
highly educated workers; however, for the less-educated,
it's essentially a wash, or zero impact.

I'm not alone in my position. David Card and other
economists working on this also say that it's hard to
find the negative effect that George Borjas claims. All
in all, I don't dispute his idea that there's a bigger
benefit for the highly educated than for the less-
educated. But I would say that immigration does not
really create a loss even for the less-educated. It's
more of a wash.

ENGLER: How would you respond to those who argue that
new immigrants undermine unions and job standards
created by organized labor?

PERI: I would say that if what your union is defending
is a specific job classification, in construction for
example, immigration will create some difficulties for
you. If you instead focus on protecting the worker, you
allow native workers to move into higher-skilled
construction jobs that might require more language and
communications skills. If your sole focus is on keeping
immigrants out, you're not going to be able to
capitalize on the gains on immigration.

ENGLER: It sounds like one of the points you are making
is not so much that new immigrants hurt native workers,
but that new immigrants themselves are the ones who end
up with lower wages-that they are the ones who end up
carrying that burden.

PERI: In some ways, immigrant workers are competing with
themselves. Newer waves of workers, to some extent, are
making things more difficult for the immigrants who came
just before them. But for immigrant workers, the benefit
is the big jump in wages they get over what they might
have earned in their home countries, even if low by U.S.
standards.

ENGLER: What do you think is the political relevance of
your research?

PERI: I know that the issue of immigration stirs strong
sentiments. I try to keep my analysis strictly to the
economics. I try to look at the data and see what it
shows.

ENGLER: But clearly, given that anti-immigration folks
often base their arguments on the idea that immigrants
are driving down wages for U.S. citizens, stealing jobs,
and harming the economy, your work has implications for
the political debate.

PERI: Absolutely. What I see is that when you dispel the
argument that immigrants harm the economy, people [who
are opposed to greater immigration] move quickly to
other arguments. These people say, okay, maybe that's
not true [that new immigrants hurt the economy], but
immigrants still increase the risk of terrorism and
create a cultural clash. At that point, I emphasize that
I am only doing research on one aspect of this issue.

But to the extent that it's part of the rhetoric of
anti-immigrant groups to say, "We know immigrants steal
jobs and have a negative economic impact," I always say
that our research shows the contrary. If you poll
serious economists who work on this, including George
Borjas, they will agree that there is no evidence of big
displacement or negative impact on wages. Some will tell
you that there is a small negative effect on the bottom
10 percent of American workers, and others will argue
that there is no evidence of that. But the consensus is
that for the economy as a whole there is a positive
effect on productivity, employment, and wages.

_____________________________________________

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