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LCButterField
06-08-2009, 01:15 AM
As a long time viewer of BhTV I have lost count of the number of times I have heard Mickey argue that his opposition to illegal immigration stems largely from a concern over the distribution of income among native born workers. Essentially, so the argument goes, in a labor market made up of skilled and unskilled labor, an influx of illegal immigrants constitutes a shift in the supply of unskilled labor *relative* to skilled labor. Basic economics predicts that the distribution of labor income should become more unequal. This inequality, argues Mickey, is why we should all be so concerned with the immigration issue.

There are many reasons why this argument is less than persuasive. Putting aside issues of morality or legality I will focus on one particular economic issue (the economics of the issue do seem to be the source of Mickey's concern). I will also put aside whether Mickey's position on this issue is consistent with his positions on other issues (generally thinking, I do not think it is).

The key assumption/assertion in the standard story about how immigration lowers the wages of low skilled workers is that immigrants are substitutes for low skilled workers. Only when illegal immigrants are substitutes for domestic workers do they displace them. Important economic research on the topic (see especially Giovanni Peri (http://www.econ.ucdavis.edu/people_faculty_info.cfm?eid=132) at UC Davis) stresses the need to treat the distribution of human capital as a continuum rather than a bimodal distribution. Contrary to the simple story, there are not just high and low skilled workers in the US labor market, instead one should think of workers being distributed on a line segment running from no schooling/formal training to PhD level training. When one disaggregates the skill data in this way the US work force looks like the St. Louis Arch. There are very few low skilled workers, many middle skilled workers, and few high skilled workers.

Immigrants are essentially distributed in exactly the opposite way, there are many low skilled workers and (relatively) many high skilled workers (think google engineers). Illegal immigrants would of course be mainly made up of labor in the low skilled category, but not entirely. The distribution of immigrant labor, in other words, looks like an inverted St. Louis Arch.

The fact that the skill distribution of immigrant labor (illegal + legal) is the inverse of that for native born means that for the most part immigrants are complements for domestic labor, not substitutes. Given this complementarity, and given specialization, the evidence is that immigration (of both types) may reduce inequality (see Peri's Task Specialization Immigration And Wages (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=407)).

Whether or not immigration (again, of both types) increases or decreases inequality by reducing the wages of low skilled labor comes down to determining the empirical value of a number of important parameters in a quite complex model. For California it seems that the effect of immigration is small and reduces inequality (see The Effects Of Immigration On California's Labor Market (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=389) and Rethinking The Effects Of Immigration On Wages (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=386)).

Personally I lean more towards Bob's position on illegal immigration. I don't see it as a terribly important issue, and the effects are probably positive, especially when one considers the effects in both countries. But putting this aside, I wonder what would happen to Mickey's position if it turned out that illegal immigration actually served to reduce wage inequality.

/LCB

uncle ebeneezer
06-08-2009, 01:32 AM
As a long time viewer of BhTV

Hey LCB, interesting analysis and questions. May I ask, with so much of substance to say (great early critique on EOG by the way) how come you have never posted comments before?

Good stuff. Keep 'em coming! --Uncle Eb

mmacklem
06-08-2009, 07:15 AM
The fact that the skill distribution of immigrant labor (illegal + legal) is the inverse of that for native born means that for the most part immigrants are complements for domestic labor, not substitutes. Given this complementarity, and given specialization, the evidence is that immigration (of both types) may reduce inequality (see Peri's Task Specialization Immigration And Wages (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=407)).

Whether or not immigration (again, of both types) increases or decreases inequality by reducing the wages of low skilled labor comes down to determining the empirical value of a number of important parameters in a quite complex model. For California it seems that the effect of immigration is small and reduces inequality (see The Effects Of Immigration On California's Labor Market (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=389) and Rethinking The Effects Of Immigration On Wages (http://www.econ.ucdavis.edu/working_paper_info.cfm?pid=386)).


Interesting analysis, one small question though: My understanding from Peri's analysis was that part of the reason that inequality was actually decreased was because the influx of illegal workers added to the economy in two conflicting ways (conflicting in terms of their effect on inequality): they (potentially) brought the cost of labour (read: wages) down, thus (potentially) increasing inequality; while simultaneously increasing demand for goods, and thus creating jobs in the goods-creation/sales areas, which would decrease inequality in terms of helping to create (lower-skilled retail) jobs that would presumably be further up on the 'arch'. The overall effect on inequality then depends on which of these two effects has the more noticeable impact on the overall economy, to which one then resorts to the data you refer to above. His overall conclusion is that the increase in inequality due to drops in wages is less of an effect than the decrease in inequality due to the increase in demand. Do I have that approximately correct?

mmacklem
06-08-2009, 07:19 AM
And just to echo one part of what I think you are saying in your criticism of Mickey: I get the feeling that his objections to illegal immigration is based more on what 'common sense' says the economic results should be, as opposed to what the data actually says is happening. And yes, the data can be wrong sometimes, it can measure the wrong things or can miss second-order effects as they develop. But the data can also demonstrate that things are more complex than a basic pop-economics analysis can conclude 'must' happen. I don't get the impression that Mickey cares about the data that much.

popcorn_karate
06-09-2009, 04:52 PM
instead one should think of workers being distributed on a line segment running from no schooling/formal training to PhD level training. When one disaggregates the skill data in this way the US work force looks like the St. Louis Arch. There are very few low skilled workers, many middle skilled workers, and few high skilled workers.

Immigrants are essentially distributed in exactly the opposite way, there are many low skilled workers and (relatively) many high skilled workers (think google engineers).

i'd like to see data that supports this contention. I think you are wildly off base on this. it depends on what your definitions are, but about 26% of the adult population has a bachelor's or better educational attainment.

as for the immigrants - again wildly off base. there are high skill immigrants, but when you look at the numbers your imaginary graph would look nothing like the way you represent it.

LCButterField
06-11-2009, 12:27 PM
As they say in talk radio land, I am a long time listener first time caller.

LCButterField
06-11-2009, 12:32 PM
Interesting analysis, one small question though: My understanding from Peri's analysis was that part of the reason that inequality was actually decreased was because the influx of illegal workers added to the economy in two conflicting ways (conflicting in terms of their effect on inequality): they (potentially) brought the cost of labour (read: wages) down, thus (potentially) increasing inequality; while simultaneously increasing demand for goods, and thus creating jobs in the goods-creation/sales areas, which would decrease inequality in terms of helping to create (lower-skilled retail) jobs that would presumably be further up on the 'arch'. The overall effect on inequality then depends on which of these two effects has the more noticeable impact on the overall economy, to which one then resorts to the data you refer to above. His overall conclusion is that the increase in inequality due to drops in wages is less of an effect than the decrease in inequality due to the increase in demand. Do I have that approximately correct?

Actually, this is not Peri's argument. You will find this argument made by others about the effects of immigration. It is a pretty standard "adding up" point. Immigration can simultaneously increase the demand for labor and supply of labor. Therefore the impact of immigration on equality would depend on the relative size of the effect. If demand shifts further than supply, inequality falls and vice versa.

Peri's argument is different, and more subtle. His argument hinges on denying the common view (assumption?) that immigrant labor is a substitute for native born workers. He does this by looking at the relative skill composition of both groups. (see below)

LCButterField

LCButterField
06-11-2009, 12:37 PM
i'd like to see data that supports this contention. I think you are wildly off base on this. it depends on what your definitions are, but about 26% of the adult population has a bachelor's or better educational attainment.

as for the immigrants - again wildly off base. there are high skill immigrants, but when you look at the numbers your imaginary graph would look nothing like the way you represent it.

If you want to see data supporting this argument you should follow the links in my first post to the work of Peri. He is a careful empirical economist that not only collects much new raw data but uses econometric techniques to direct test his hypothesis.

The graph is not imaginary. The key is to understand that the skill composition of the two groups of workers is a relative measure. It is the skill composition of native born labor relative to immigrant labor. In absolute terms to the US population may be high or low skilled, but this does not have direct implications for the changing distribution of income. On the other hand, the relative skill mix of the two groups directly determines whether or not workers from the two groups operate as substitutes or complements in the labor market.

So when I describe the distribution of talent in the domestic labor force as an arch, that is relative to the distribution of immigrant labor.

Again, if you would like empirical support check out the work of Peri.

LCButterField

bjkeefe
06-11-2009, 07:52 PM
As they say in talk radio land, I am a long time listener first time caller.

What prompted you to jump into the fray now, particularly with regard to an issue that hasn't been in the diavlogs for some time?

Just curious. I'm always interested to learn what makes people who have been listening and reading only finally sign up for an account.

cognitive madisonian
06-11-2009, 07:57 PM
i'd like to see data that supports this contention. I think you are wildly off base on this. it depends on what your definitions are, but about 26% of the adult population has a bachelor's or better educational attainment.

as for the immigrants - again wildly off base. there are high skill immigrants, but when you look at the numbers your imaginary graph would look nothing like the way you represent it.

I think you're fairly close to being correct though the educational attainment of immigrant groups varies. Many Hispanic immigrants, particularly Hispanic immigrants, do much closer fit the old image of the labor migrant, who comes with a relatively low educational attainment and works unskilled to semi-skilled jobs. This might be the last group, however, that actually constitutes that old labor class of immigrants.

And you're also correct about higher education figures. I think the figure for high school graduation is around 67%, which seems very low to me. Of course, the figures for some major cities are astonishing, with some cities in the 30% range.

popcorn_karate
06-12-2009, 11:27 AM
If you want to see data supporting this argument you should follow the links in my first post to the work of Peri. He is a careful empirical economist that not only collects much new raw data but uses econometric techniques to direct test his hypothesis.

The graph is not imaginary.

peri states: "Many workers with low levels of educational attainment immigrated to the United States
in recent decades." and goes on from there. The idea of a "U" shaped graph of skill level of immigrants (i.e. many low skilled - the left side of the U, few medium skilled - bottom of the u, and many high skilled - the right side of the U) is not accurate. The right side of the "U" is orders of magnitude smaller than the left side.




The key is to understand that the skill composition of the two groups of workers is a relative measure. It is the skill composition of native born labor relative to immigrant labor. In absolute terms to the US population may be high or low skilled, but this does not have direct implications for the changing distribution of income. On the other hand, the relative skill mix of the two groups directly determines whether or not workers from the two groups operate as substitutes or complements in the labor market.

So when I describe the distribution of talent in the domestic labor force as an arch, that is relative to the distribution of immigrant labor.

Again, if you would like empirical support check out the work of Peri.

LCButterField

Peri explicitly states that native born workers are being pushed out of the lowest skilled job categories - and the lowest skilled are indeed worse off from the effects of immigration.

He sees a net benefit in that native born low skilled workers are then forced to improve their skill level mostly by utilizing "communication" skills rather than actual physical labor. essentially, immigrants are taking the physical labor jobs and native workers are being pushed in to the low-end service sector because their english is better.

knowing people that have been pushed out of the physical labor jobs into the service sector, I have to say this is not a painless situation for many of these people. many men can not get the same level of satisfaction from a service job that they did from a physical labor job.

Peri then goes onto to say the net effect is not that large because the cost of labor goes down and those a little further up the economic ladder have an increase in buying power due to the lowered wages of those on the bottom.

essentially he does make a good argument that the net effect of low skilled immigration has not been large on the overall economy. He dismisses the fact that negative economic effects are concentrated at the bottom, and completely ignores the social costs felt by those on the bottom having their lives fairly radically altered.