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Column: The payoff from immigration

immigrationbudgetcost.jpg

I have a plan that will raise wages, lower prices, increase the nation's stock of scientists and engineers, and maybe even create the next Google. Better yet, this plan won't cost the government a dime. In fact, it'll save money. A lot of money. But few politicians are going to want to touch it.

Here's the plan: More immigration. A pathway to legal status for undocumented immigrants. And a recognition that immigration policy is economic policy and needs to be thought of as such.

See what I meant about politicians not liking it?

Economists will tell you that immigrants raise wages for native-born Americans. They'll tell you that they make things cheaper for us to buy here, and that if we didn't have immigrants for some of these jobs, the jobs would move to other countries. They'll tell you that we should allow for much more immigration of highly skilled people, because that's about as close to a free lunch as you're likely to find. They'll tell you that the people who should most want a path to legal status for undocumented immigrants are the low-income workers who are most opposed to such plans. And about all this, the economists are right.

They'll also admit there are other considerations. Integrating cultures and nationalities is difficult. Undocumented immigrants raise issues of law and fairness. Border security is tough. Those questions are important. They're just not the subject of this column.

The mistake we make when thinking about the effect immigrants have on our wages, says Giovanni Peri, an economist at the University of California at Davis who has studied the issue extensively, is that we imagine an economy where the number of jobs is fixed. Then, if one immigrant comes in, he takes one of those jobs or forces a worker to accept a lower wage. But that's not how our economy works.

With more labor - particularly more labor of different kinds - the economy grows larger. It produces more stuff. There are more workers buying things, creating demand. That increases the total number of jobs. We understand perfectly well that Europe is in trouble because its low birth rates mean fewer workers - and that means less economic growth. We ourselves worry that we're not graduating enough scientists and engineers. But the economy doesn't care if it gets workers through birth rates or green cards.

In fact, there's a sense in which green cards are superior. Economists separate new workers into two categories: Those who "substitute" for existing labor - we're both construction workers, and the boss can easily swap you out for me - and those who "complement" existing labor - you're a construction engineer, and I'm a construction worker. Immigrants, more so than U.S.-born workers, tend to be in the second category, as the jobs you want to give to someone who doesn't speak English very well and doesn't have many skills are different from the jobs you give to people who are fluent and have more skills.

That means firms can expand more rapidly because they have more labor of different types and that native workers can do jobs where they're more productive. If you have lots of immigrant laborers willing to build roads, a firm can build more roads and has more need for native workers who can supervise the crews or do the technical work. The effect of all this - which has been demonstrated in multiple studies - is that immigrants raise wages for the average American.

But that's only half of their benefit. "Living standards are a function of two things," says Michael Greenstone, director of the Hamilton Project, which is hosting a conference in Washington on the economics of immigration this week (they've also released a paper full of good graphs on the topic). "They're a function of our wages and the prices of the goods we purchase." And immigrants reduce the prices of those goods. Patricia Cortes, an economist at the University of Chicago's Booth School of Business, found that immigrants lowered the prices in "immigrant-intensive industries" such as housekeeping and gardening by about 10 percent. So our wages go up, and the prices of the things we want to buy go down.

We should remember, though, that the average worker isn't every worker. A study by Harvard economists George Borjas and Lawrence Katzj found that although immigrants raised native wages overall, they slightly hurt the 8 percent of workers without a high school education. A subsequent study by Peri found that even unskilled workers saw a benefit from immigrants - but it was much smaller than that of highly skilled workers.

And unskilled workers face even tougher competition from undocumented immigrants who, because their status is so tenuous, will accept pay beneath the minimum wage. And they are unlikely to complain about safety regulations or work conditions. That takes unskilled immigrants from being a bit cheaper than unskilled natives and makes them a lot cheaper - which makes employers likelier to hire them for jobs that native workers could do better.

This suggests first that American workers would be better off if we figured out a way to take the 12 million undocumented immigrants and give them legal status, and second that we might want to give them more direct help if we're going to increase immigration. Both are possible - just politically difficult.

What shouldn't be politically difficult is forming a consensus around increasing highly skilled immigrants.

Because of a 1965 law, our immigration system is based around family unification. More than 65 percent of visas are for purposes of bringing family members to the United States. Only 15 percent are for economic reasons. As Darrell West of the Brookings Institution writes in his book "Brain Gain," this means that immigrant families, rather than current policymakers, decide who enters the country.

That's nuts. Our immigration policy should be primarily oriented around our national goals. And one goal is to have the world's most innovative and dynamic economy.

It's never going to be the case that each and every one of the planet's most talented individuals is born on U.S. soil. But those born elsewhere could be lured here. People like living here. We should be leveraging that advantage, mercilessly roaming the globe to find the most talented people and attract them to our country - like Dog the Bounty Hunter, but for particularly able foreign physicists. Because when we have the best talent, we have the best innovations. That's how we landed Google, Intel and the atomic bomb. Immigrants are about twice as likely as native-born Americans to start a small business, and they're 30 percent more likely to apply for a patent.

But since 2001, we've gone from offering 195,000 high-skill visas to about 65,000 today. In fact, we let top students come for college or graduate school - and then we don't let them stay. "We should staple a green card to PhDs in science and technology," West says with a sigh. "They'd like to stay here!"

There are other benefits to higher immigration, too. Contrary to popular belief, immigrants tend to pay more money to the government than they get back from it, as they pay lots of taxes but often collect fewer benefits. They're young, which helps us keep our entitlements afloat as the boomers retire.

And then, of course, there are the benefits to the immigrants themselves, and to their families back home. But I've probably scared the politicians enough for one day.

Graph credit: The Hamilton Project.

By Ezra Klein  | September 27, 2010; 8:55 AM ET
Categories:  Immigration  
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Comments

I was with you until you mentioned "high skill or technology" visas. I was on the receiving end of the glut of H1B visas that cut a devastating swath through I.T. jobs in America by the mid-2000s. They were used not because of a shortage of workers, but to depress wages and move jobs offshore.

To get more H1Bs, corporations were literally creating impossible job requirements, such as "5 years of windows xp", when windows xp was a year old, then declaring that "No american could fill this position, so we're getting an H1B" (and quietly sweeping under the rug that the H1B didn't meet the original requirements anyway) So they get their worker who gets paid less and is absolutely beholden to his company, which can withdraw its sponsorship and get him deported.

The other method was to bring in a few programmers from India or China or Russia and have the current team train them, at which point they went back to their native countries and took the jobs with them; The american jobs were eliminated.

I'm all for more legal immigration, but don't kid yourself.

Posted by: wpost15 | September 27, 2010 9:29 AM | Report abuse

Having worked in IT with H1-B visa holders I can verify what wpost15 just wrote. The H1-B program could be used to bring many highly-skilled engineers and scientists to this country but it's mainly been used to import cheaper computer programers. The higher limit of visas was allowed to lapse because of those abuses. The program would be more successful if applicants were given priority for their skills in critical areas instead of issuing visas on a first-come first-served basis.

Posted by: marvyT | September 27, 2010 10:06 AM | Report abuse

Those questions are important. They're just not the subject of this column.

Its more than a little disingenious Ezra to bring up all the postives but totally shun the negatives. You not once mention crime, costs associated with assimilation (if it is even attempted) as well as costs of education and other drains on the system.

I guess in your context I could make similar arguments in favor of hurricanes (look at all the new infrastrucutre we could build anew if we had more of the current ones destroyed by massive hurricanes.

Posted by: visionbrkr | September 27, 2010 10:07 AM | Report abuse

H1Bs depress wages because the employer can hold their immigration status over their heads.

Fix that imbalance and American workers are competitive with them.

Posted by: lol-lol | September 27, 2010 10:24 AM | Report abuse

I have been in the IT industry for about 30 years. Companies like H1-Bs because they can pay them less and make them work longer hours. They use H1=Bs to get rid of older workers. I know so many IT professionals with experience and advanced degrees who have kept up with technology but are still out of work.

Posted by: mmad2 | September 27, 2010 10:37 AM | Report abuse

One example of non causa pro causa is the argument that roosters crow before the beautiful sunrise, therefore having more crowing roosters will lead to more beautiful sunrises.

The criminal alien issue is a parallel.

Posted by: rmgregory | September 27, 2010 10:55 AM | Report abuse

Anyone who wants to live or work in America should be allowed to, provided they do so peacefully and on their own dime.

The collective benefit or lack thereof is irrelevant.

Posted by: justin84 | September 27, 2010 10:57 AM | Report abuse

The reason more native born Americans don't study science and engineering isn't rocket science. It's a lot more work, and when you get the degree you enter a market where salaries are determined by competition with Pakistan. Scientists don't get to hide behind licensing barriers to entry the way may other professionals do.
Let's open up H1B's for lawyers.

Posted by: tl_houston | September 27, 2010 11:23 AM | Report abuse

I'm absolutely struck by how much more civilized your blog commenters are than those idiots who railed at you when this piece ran in the Sunday WaPo. What do you suppose is up with that?

Posted by: ctnickel | September 27, 2010 11:51 AM | Report abuse

Well, if the Hamilton Project is pushing a set of ideas then I am all for them! They did such an awesome job with their financial sector ideas in the past how can we not jump on board with anything they claim about immigration? Heh.

And, Ezra, the "economists say" justification for every assertion is about as credible as "4 out of 5 dentists recommend" or even worse. Like it or not, and I am guessing your love of everything conventional wisdom means not, what we consider knowledge in Economics is highly contested terrain just like other fields. That means you need to break down studies to find potential error and bias rather than rote citing of what inevitable becomes propaganda for one side or the other claiming "economists say" (who? What? When? Specifically applied in which case? Which time frame? Etc...). All the claims in this post and one article link is not such a good mix.

Posted by: mrnegative | September 27, 2010 11:55 AM | Report abuse

As someone who has worked under an H1-B visa I agree that it is a terrible system. The reason that wages can be compressed is because there is no flexibility to move jobs under that visa. That gives the employer huge leverage over the employee. If the USA moved to the Canadian system of points towards residency (rather than temporary status), that would drastically reduce the employer leverage and the wages would stop being compressed. I only started getting comparable wages after I got a green card through marriage and could offer a feasible threat to leave the company if they didn't pay me a market rate.

But a call for more skilled immigration is not a call for more H1-Bs (or any temporary visa) it should be a call for more skilled migration to live permanently to US. If that call were made millions of the world's brightest would hear and partake.

Damn shortsighted politicians...

Posted by: ChicagoIndependant | September 27, 2010 12:23 PM | Report abuse

Economists will tell you lots of things, and when it comes to immigration most of them have an agenda, some are basically paid off, and all of them refuse to take into account the *full* cost of the immigration they promote.

You can see several examples here (each of these is a link to a longer post):

http://24ahead.com/s/immigration-economics

Take a look at what those economists didn't tell you, and then decide whether you want to trust anything Ezra Klein tells you (assuming you were doing that already).

Posted by: LonewackoDotCom | September 27, 2010 1:32 PM | Report abuse

Ezra Klein is a propagandist.He only notes things that agree with is argument and ignores everything else. One argument that he advances is that we need large scale immigration to keep prices down. Maybe.
One economist that has interesting things to say that is ignored by Klein is Professor Philip Martin of Cal-Davis. He is generally regarded at this nation's premier expert on economics of agricultural labor. We keep hearing that we cannot attract legal workers to this field. Martin has shown that if you tripled the wages of farm workers from an average of somewhere between 9 and 11 dollars, you would have the following impact on consumers. An average family of four would pay somewhere between 50 and 100 dollars a year for produce. Therefore, the idea that we need large numbers of illegals to work in the fields to have affordable produce is simply nonsense. In addition, to save a dollar or two a week on food bills, one must also note that it costs on average 10,000 dollars a year to provide public education to a student in this country and I could note other huge costs.This means that the taxes needed to support large scale immigration, mostly illegal in the farm community, is far greater than any money saved. This is simply food for thought.

Posted by: jeffreed | September 27, 2010 2:26 PM | Report abuse

Ezra, While I agree with most of what you have proposed, and in particular the effect of immigration on our economy, there are a couple of red flags in your piece that are quite disturbing.

For one, it is deeply troubling when you say that it's 'nuts' when families decide on who immigrate to the US, and that this decision should be based solely on our 'national goals.'

This kind of thinking goes too far in viewing skilled immigrants solely as assets in the labor market. You appear to lose sight of the fact that while you want to attract skilled labor, it is real people that arrive. People that end up staying, starting families, and becoming a fabric of the nation. The kind of immigration you are suggesting does not really exist, because you are implying that we import skills and then export them when no longer needed. The kind of thinking you are advocating has been the source of serious social problems in many other countries, such as xenophobia, poor integration, ghetto clusters, and perceptions of crime and hostility towards foreigners. You are advocating policies that affect people's entire lives, without consideration of that kind of impact.

In a larger sense, you still appear dazzled by the greatest economic myth ever perpetuated on mankind: that labor is a commodity. I respectfully submit that this is the most self-destructive notion in human history, for it constrains the economic value of human beings to the productivity of a particular job, rather than account for the unlimited ability (and desire!) of workers to expand their skills and increase the profits they can contribute to. I fully understand how separation of labor and specialization have increased efficiency and formed the basis of the industrial revolution. The fallacy is that we have used a planning tool for industrial processes as a template for describing the entire human labor market. For example, as long as we view humans as suitable for repetitive tasks, the longer we delay investments in automation and robotics. So, if we properly valued the economic potential of our human capital, then we would be building robots that build other robots, because, in contrast to human labor, robot labor IS a commodity. Such widespread use of robotics in manufacturing, agriculture, construction, and transportation would create an immense amount of wealth and high-value jobs. But as long as we short human labor, we are stuck in a narrative that shorts our future.

Therefore, I suggest that you consider supporting an immigration (and labor) policy that focuses on human capital as the most valuable asset available to the economy, which is also our only hope to attain unlimited profits and growth. When we adopt that view, then we gain an incentive to cultivate the human skills in our population through education, training, learning, and immigration, which by definition increases the talent pool.

Posted by: AgentG | September 27, 2010 5:53 PM | Report abuse

Question for the Klein - What do you get when you export all the hard working people willing to do the dirty work?
Do we need to make a graph or can you just turn on the nightly news?

Posted by: kendog100 | September 28, 2010 7:41 AM | Report abuse

Mr. Klein, you should read one of Peri's papers. Aside from basic flaws (e.g. only counting folk employed one week in previous year), in the review of the literature, he points out there are only a few other economists that agree with his view. He uses a modeling technique so fraught with the possibility of error, it's bound to be wrong. His model somehow shows a 20% growth of real incomes of college educated workers from 1990 to 2000... I'm sure professional economists would be better able to pick apart his model, but it's obvious something is wrong.

A much easier indication is to look at the unemployment rates and salary growth of the various groups.

As another poster said, we should invest in more automation not engage in this constant race to the bottom. Using cheaper labor to produce lower priced goods means less value added which in turn leads to a larger underclass.

If we want a market economy, we need consumers which means we need a decent income distribution. Constantly increasing the labor supply will help to keep this from happening. We already went through one Great Depression, why do it again?

Posted by: ilfark2 | September 28, 2010 10:47 AM | Report abuse

******Having worked in IT with H1-B visa holders I can verify what wpost15 just wrote.******

No you can't. Verification would require, you know, evidence. An anecdote or two from an anonymous online poster doesn't constitute this.

I'm really sick of the bellyaching from underemployed tech workers: Ezra's right -- immigration is a net good that benefits America. ESPECIALLY the high skilled variety associated with the H1B program. (And yes, I know that technically, the government doesn't consider the H1B program an "immigration" program as such; but obviously many green card holders started off with H1B visas, and then got sponsorship, typically from American spouses or employers).

Posted by: Jasper999 | September 28, 2010 6:41 PM | Report abuse

*****As another poster said, we should invest in more automation not engage in this constant race to the bottom. Using cheaper labor to produce lower priced goods means less value added which in turn leads to a larger underclass.******

I think it's pretty clear from Ezra's words he doesn't favor "cheaper labor" as an official policy, nor "a race to the bottom."

He quite sensibly favors adjusting immigration policy to increase the percentage of newcomers with higher levels of skills. This would almost certainly translate into enhanced US living standards.

Posted by: Jasper999 | September 28, 2010 6:51 PM | Report abuse

"Those questions are important. They're just not the subject of this column."

You may as well speak of the Titanic without mentioning seawater, the iceberg, the skipper's ignorance or dismissal of ice warnings, and the insufficiency of lifeboats.


The vast majority of those economists whom you. Mr. Klein, consider "right" about more immigration sure had their enthusiastic positive notions of the pre-2008 economic boomtimes-forever right too, didn't they? (The WP was not alone among media organs which asked: "How did we not see this - the 2008 blowout - coming?")


Most of all, our country is not just an economy. It's a culture that's being thrown overboard in favor of unworkable multiculuralist wet-dreams of the sort that have turned European societies into a glittering array of utopias in which filmmakers are murdered in broad daylight, "honor"-murders increase weekly, elected representatives cannot go about or simply be in the residences without round-the-clock police protection, and political leaders are now even tried for their exercise of free speech. And the same trend is being followed right here in what used to be our good old, pre-Balkanized USA. By all means, then, let the legal and illegal immingration floodgates stay wide open and to hell with the American citizens who stood behind the gates and are now having their economy, homes, jobs, opportunities, and even their sacred rights of citizenship carried away or simply obliterated by the flood that is part of our elites ambition to reduce Americans to nothing more than powerless, cheap-goods-consumer members of a global cheap labor pool.

Posted by: Piafredux | September 28, 2010 6:53 PM | Report abuse

Even you must concede that the benefits and costs of immigration don't fall evenly among natives. You give very little consideration to the 8% that get hurt. Don't they count?

And by the way, many of the low skill, low income immigrants wind up living in the same communities as those 8%. So not only are their wages depressed, but they are now in competition for affordable housing, underfunded schools and stressed out public health facilities with the new arrivals.

When the "fictitious" average person who is gaining from this immigration is willing to share the cost of hosting these new families, then you can implement your policy. Until then, you should not be so dismissive of the people who see up close the costs and then protest the various flavors of globalization. Remember, you are not one of the losers in this deal.

You should also know that the feds only partly compensate for the added costs to these localities - a couple of examples:

In 1994 the Department of Justice started providing assistance to states for incarcerating unauthorized immigrants who were convicted of crimes other than immigration-related offenses (State Criminal Alien Assistance Program– SCAAP). The program only covers those incarcerated for felonies or multiple misdemeanors who have been in custody for at least four days and only covers the salaries of correction officers – not housing, meals or medical care.

Under No Child Left Behind education assistance, states are given money to help with language-related instruction issues, but not general education costs.

The news is not all good for everyone. And you can't hide behind the averages. It does not make you a xenophobe.

Posted by: fairfederalfundingdotblogspot | September 28, 2010 9:18 PM | Report abuse

America is a paradise. Everyone is employed; our infrastructure is first rate; our public schools are so good no one needs private schools; cost of college is lower every year; our prisons have shut down because the need for workers is so high that young people can easily find meaningful and remunerative jobs; our economy is booming; we are awash in energy and water resources are under used. Agronomists report ever deeper topsoil; atmospheric researchers keep finding cleaner air each survey. So of course we can pack in millions of more immigrants every year.

Right?

Posted by: wandagb | September 28, 2010 9:25 PM | Report abuse

Mr. Klein says "if we didn't have immigrants for some of these jobs, the jobs would move to other countries". Yet a recent Pew Center Study by J.S. Passel "estimated that illegal immigrants fill a quarter of all agricultural jobs, 17 percent of office and house cleaning positions, 14 percent of construction jobs and 12 percent in food preparation."

How does Mr. Klein justify the claim that "the jobs would move to other countries" without Illegal Immigrants? How do you construct buildings in other countries then ship them to the USA? How do workers in other countries clean American offices and houses? How do people in other countries cook and serve our food? How do people living in other countries harvest our food? To claim that ANY of these jobs would leave the USA if we ended Illegal Immigration and ended the ability of Illegal Immigrants to find work is a joke.

Furthermore, since the number of Illegal Immigrants in the professions where they are most prevalent is still a small percentage of the overall workforce, the supposed cost savings that they bring that Mr. Klein is so quick to glorify would rarely be passed on to the consumer. Instead, most of the wage savings would go right into the pockets of the business owners who hire them. After all, where are the 14% of the houses made cheaper than the rest because they were built by Illegal Immigrants? Where are the 12% of the restaurants that have cheaper food because of Illegal Immigration? Where is the 25% of produce that is cheaper than the rest because of Illegal Immigrant Farm Workers?

Posted by: Norski | September 28, 2010 11:55 PM | Report abuse

Mr. Klein seems to idolize the Peri study. But does he really understand the problem with the following quote from this NBER Study: “Peri finds that inflows of immigrants decrease capital intensity and the skill-bias of production technologies. The decrease in capital intensity comes from an increase in total factor productivity; the capital-to-labor ratio remains unchanged because investment rises coincident with the inflow of immigrants. The reduction in the skill-intensity of production occurs as immigrants influence the choice of production techniques toward those that more efficiently use less educated workers and are less capital intensive.”

What this means is new immigrant workers drive down wages so less investment in automation is necessary for American Companies to successfully compete against foreign competitors. More workers paid less produce more products per dollar spent on wages. This describes a low wage economy with the Native Born as rich bosses.

This study makes a mistake thinking that maximizing production per labor dollar spent is good. If you look at the capital-to-labor ratio you find higher labor wages can be supported by higher capital investments. This is called automation. Henry Ford once said "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." His creation of the production line made this possible. Yet this study would have said that the production line was an unacceptable increase in the Capital-to-labor ratio that decreased the labor total factor productivity.

Peri describes an economy where investment in automation is discouraged in favor of hiring more workers at lower wages so that we can have full employment. This sounds a lot like a third world economy rather than a powerhouse economy using automation to support higher levels of productivity and wages, allowing the American Worker to experience a standard of living that few other countries can duplicate.

Posted by: Norski | September 29, 2010 12:17 AM | Report abuse

Most natitivists approach to immigration is "Shut the door! I'm here, so one else should come in."

The only way we will get effective immigration reform is if we create a more logical system that accommodates the needs of the economy. If those pushing for shutting the borders would endorse a reform that makes it easier for qualified people to enter the country legally, we could push through reform and control our borders more effectively. Instead, the Jan Brewer-types want to vilify Hispanics and pretend that all immigration (except for their families) are destroying America.

Never mind that people said the same thing about their grandparents or great grandparents when they came to the US!

Posted by: AxelDC | September 29, 2010 4:20 PM | Report abuse

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