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Sunday, April 02, 2006

Much Ado About Immigration

Well the economics blogs are full of talk about immigration and the US economy at the moment.The thing which seems to have kicked it all off is this piece in the NYT from Paul Krugman. It's behind the subscription firewall, but Brad Delong has a substantial extract:

"I'm instinctively, emotionally pro-immigration. But......the net benefits to the U.S. economy from immigration, aside from the large gains to the immigrants themselves, are small. Realistic estimates suggest that immigration since 1980 has raised the total income of native-born Americans by no more than a fraction of 1 percent...... while immigration may have raised overall income slightly, many of the worst-off native-born Americans are hurt by immigration -- especially immigration from Mexico.... George Borjas and Lawrence Katz... estimate that U.S. high school dropouts would earn as much as 8 percent more if it weren't for Mexican immigration......Realistically, we'll need to reduce the inflow of low-skill immigrants."

Here we can deduce two things:

(i) Paul Krugman has 'bought' the Borjas thesis
(ii) Paul Krugman thinks the US has too much and not too little immigration.

This last point is not meant ironically, since we should remember here that according to the Pew Hispanic centre, illegal migration into the US peaked in 2001, with the ending of the Nasdaq boom. Since that time it has been reducing, and to put things in perspective, is currently on about the same level as inward irregular migration into Spain.

"The number of migrants coming to the United States each year, legally and illegally, grew very rapidly starting in the mid-1990s, hit a peak at the end of the decade, and then declined substantially after 2001. By 2004, the annual inflow of foreign-born persons was down 24% from its all-time high in 2000"

Essentially I do not accept the Borjas thesis (he has been going on about this for years) that unskilled in-migration is a negative factor (indeed I doubt that it is wage differentials - this is essentially the Borjas thesis - rather than the availability of employment per se and the presence of networks, which actually drives migration). Some of my reasoning can be found here, and some here. Essentially what is at issue in this case isn't the state of the US labour market, but deficiencies in the way the US social model works. If such large numbers of people are unable to climb the social ladder and attain minimal educational levels something must be failing somewhere (Greenspan has been highlighting this for years), and the responsiblility for this doesn't lie with the incoming migrants. Really the US is not producing enough highly qualified people - and is dependent on migration to fill part of these needs too - and this is the real issue.

Brad Delong basically concludes that Krugman is "confused and very probably wrong". I couldn't say whether he is confused, but I am sure he is wrong. I absolutely agree with Brad when he says that "The net benefits from immigration including the large gains to the immigrants themselves are enormous. We shouldn't forget that" but I would go further.

I think the collective benefits for the US which come from immigration are much bigger than is being suggested by Borjas and Katz (and than is being bought by Krugman)..... Of course justifying this statement will need a much longer post (and more thought) from me. An earlier first pass can be found here. Right now I am working on a series of posts for Demography Matters on the closely related topic of US fertility and US economic growth, and some of the conclusions I am coming to there are more than a little relevant here.

In the meantime there is plenty of interesting posting going on, EconPundit has a very interesting point here, Kash at Angry Bear has posted here, and Maxspeak here, and Tyler Cowan at marginal revolution here.