[Paleopsych] NYT: Postrel: Yes, Immigration May Lift Wages

[Premise Checker]

Yes, Immigration May Lift Wages
http://www.nytimes.com/2005/11/03/business/03scene.html
[I'll be checking the Times for responses.]

    Economic Scene
    By VIRGINIA POSTREL

    FROM 1990 to 2000, the number of people working in the United States
    grew by more than nine million, or around 8 percent, from immigration
    alone. What effect did all those new foreign-born workers have on the
    wages of native-born Americans?

    The answer seems obvious at first. An increase in the supply of
    workers should push down wages, just as a bumper crop of wheat drives
    down wheat prices.

    That is exactly what some influential economic studies, notably by
    George J. Borjas at Harvard, have found. In a 2003 article, for
    instance, Professor Borjas calculated that immigrants had depressed
    the average wage of American-born workers by about 3 percent in the
    1990's.

    But workers are not as uniform as wheat, and 10 years is a long time -
    long enough for employers to invest in new production and take on more
    workers. The model of surging supply meeting fixed demand is not
    realistic.

    As economists know all too well, changing the assumptions of a model
    can often change the results. In a new working paper for the National
    Bureau of Economic Research, two other economists using methodology
    similar to Professor Borjas's but different assumptions get the
    opposite result.

    In "Rethinking the Gains From Immigration: Theory and Evidence From
    the U.S.," Gianmarco I. P. Ottaviano of the University of Bologna and
    Giovanni Peri of the University of California, Davis estimate that
    immigration in the 1990's increased the average wage of American-born
    workers by 2.7 percent. (The paper is available at
    www.econ.ucdavis.edu/faculty/gperi.)

    Although it still relies on a highly stylized model of the economy,
    their paper adds two complexities that bring it closer to reality.

    First, the two economists assume that businesses can make additional
    capital investments to take advantage of the expanded supply of
    workers. Companies may open new restaurants or stores, add new factory
    lines or build more houses.

    In their model, as in the real world, "investment adjusts not to keep
    fixed the amount of capital but to keep fixed the return to capital,"
    Professor Peri said. As long as businesses can profitably add new
    production, they hire more workers, and wages do not necessarily go
    down. Instead, he said, "more workers means more business."

    As businesses expand, hiring foreign-born workers to do one job may
    also require hiring more native-born workers with complementary
    skills. Immigrant engineers, for instance, may create demand for
    native-born patent lawyers and marketing executives.

    That is the paper's second refinement. It assumes that immigrants do
    not always compete for the same jobs as American-born workers. The two
    groups are not "perfect substitutes," even when they have similar
    education and the same occupation. A Chinese cook is not the same as a
    Texas barbecue chef.

    Immigrants often bring different skills to the American labor force,
    and concentrate on different occupations from natives. Among high
    school dropouts, the paper notes, the "foreign-born are highly
    overrepresented in professions like tailors (54 percent were
    foreign-born in 2000) and plaster-stucco masons (44 percent were
    foreign-born in 2000)." By contrast, American-born workers make up
    more than 99 percent of all crane operators and sewer-pipe cleaners.

    The same is true at the highest educational levels, where foreign-born
    college graduates make up 44 percent of all medical scientists but
    only 4 percent of lawyers. (Immigrants tend to be concentrated at the
    highest and lowest levels of income and education.)

    Immigrants do, of course, compete to some extent with native-born
    workers. The question is how much.

    To measure wage competition, the economists looked at how much an
    increase in the number of foreign-born workers affects the wages of
    other foreign-born workers versus American-born workers with the same
    educational background. If the groups were perfect substitutes, the
    change would be the same.

    But there is a difference. When the number of immigrant college
    graduates goes up by 4 percent, their wages drop by 1 percent more
    than the wages of native-born college graduates. Immigrants, in other
    words, compete more with each other than with American-born workers.

    Professors Ottaviano and Peri find that recent immigration has had the
    most negative effects on the least educated.

    Immigration in the 1990's, they estimate, raised the wages of
    native-born high school graduates, college dropouts and college
    graduates by at least 2.5 percent. By contrast, they estimate that the
    wages of American-born high school dropouts fell by 2.4 percent
    because of immigration.

    In an interview, however, Professor Peri noted that Americans are
    increasingly well educated, so that high school dropouts make up a
    small, rapidly declining portion of today's native-born work force. In
    2000, he said, only 9 percent of American-born workers did not have a
    high school degree.

    "If you look at the U.S. labor force," he said, "those people born in
    the U.S., I am talking about a negative effect for about 9 percent of
    the population and a positive effect for 91 percent of the
    population."

    Virginia Postrel (dynamist.com) is the author of "The Substance of
    Style: How the Rise of Aesthetic Value Is Remaking Commerce, Culture
    and Consciousness."