The Economicsof Immigration

David Card, UC Berkeley

Background

• immigration is a defining issue of the “populist movement” in US, UK, and Europe (Brexit/Trump/right-wing parties

• not yet as divisive in Canada, but....• economic analysis can potentially help

understand the issues• huge literature to draw on

Background

• in the US: little growth in median wages for 4 decades (adjusting for inflation)

• male wages: about the same now as in 1974

• female wages: flat since 2000

Median Annual Earnings of Full Time Full Year Workers

20

30

40

50

60

201520051995198519751965

Real

Ear

ning

s (Th

ousa

nds) Males

Females

Background

• has something “gone wrong” in the labor market?

• Is immigration partly to blame?

Goals for this lecture

1. background facts (charts and graphs)2. who gets in and why (the supply and

demand for immigrants) 3. economic impacts of immigration: labor

markets (other dimensions)4. how do people think about immigration

policy?

How many immigrants?

• Canada ~20%• US ~ 13%

• Inflows: Canada ~ 0.8% of pop/yearUS ~ 0.3% of pop/year

Percent of Immigrants in Selected Countries

27.7

22.4

20.0

13.4

13.1

12.8

12.3

12.0

9.5

0 5 10 15 20 25 30

Australia

NZ

Canada

Spain

US

Germany

UK

France

Italy

Other differences – geographic clustering

Miami ~65% immigrantLos Angeles, Vancouver, Toronto ~50%NY/Chicago/Montreal: ~20%Atlanta, Winnipeg .... ~10%many rural areas: 2-3% (or less)

immigrants also clustered in sectors/jobs:- agriculture, food processing: 50%+- health care: 30%

Who gets in (and why)?

3 separate factors:- people have to want to move (supply)- and be able to find a job (demand)- and be able to get in* (policy)

3 forces work differently in US and Canada

*in US about 25% of imms (~11M) are unauthorized

Who gets in (and why) – supply side

-from traditional European source countries (UK, Germany) supply is the determining factor (legacy of 1920s laws - eugenics)

- highly skilled workers most likely to move to US (lower taxes, very high wages at the top)these incentives are lower in Can/AUS/NZ

- from poorer countries - many people would earn more in US or Can–but gains largest for least skilled

Who gets in (and why) – high-end demand

In both US and Canada:-high demand for science/tech – direct recruiting by employers (H1-B, +points in Can system) -large immigrant flows through universities (IMP program in Canada)

- pay for BA, then qualify for visa- or come as grad student (low wage labor for

teaching, labs...) then qualify for visa

Who gets in (and why) – low-end demand

In US:-high demand for low-wage services-relatively few regs that limit low-wage jobs- flexible institutions (e.g., subcontracting)- tolerance for untaxed/undocumented workersIn Canada:- less tolerance for untaxed/undocumented- higher taxes for health insurance, etc

Who gets in (and why) – US policy

- US policy (largely) regulates direct LM immigration from Asia (H1-B, binding country limits...). University inflows are less restricted

- BUT supply from S/C America is less regulated (1/2 of stock are unauthorized)

- leads to bifurcated distribution: highly skilled Europeans/Asians... + low skilled S/C Am’s

The Importance of Education Differences (US)

Natives All Imms HispanicS & E

Asians

Dropouts 11 32 51 17

HS Graduate 30 22 27 16

Some College 31 19 13 18

BA or More 29 28 10 49including...

Adv. Degree 11 12 3 21

Who gets in (and why) – Canadian policy

Complex “web”- traditional point system (now emphasizing

language, education, and pre-arranged job)- temporary programs: IMP (175k in 2015),

TFW (60k in 2015, down from 110k in 2008)- many subcomponents of IMP (and no

“certification” of LMIA)- 60% of arriving imms have BA+, many have

job lined up

Top Source Countries for New Immigrants (mid-2000s) Percent of Imms

US CanadaE. Asia (China, Korea, Japan) 9 20S. Asia (India, Pakistan..) 9 20S.E. Asia (Vietnam, Thailand…) 5 7South/Central Am (inc. Mexico) 49 7Africa 6 13Carribbean 5 3Eastern Europe 6 10

Addendum: Pct with BA+ 35 60

source: Bonikowska et al (2011)

What Dominates: Supply? Demand? Or Policy

At the high end of the skill distribution, supply forces are keye.g.: Clark-Ferrer-Skuterud comparison of earnings gaps between natives and immigrants with BA+ , by source country- US Canada- Chinese-natives +8% -12%- Indians-natives +25% -20%- N. Americans +5% +15%

What Dominates: Supply? Demand? Or Policy

- At the lower end of the skill distribution, demand+policy interact.- In US up to early 2000’s – demand driven with little or no policy (leading to current situation)(9-11 and end to “don’t ask – don’t tell”)

- In Canada – policy accomodated the demand side (somewhat)- many other countries also facing decisions over how to mediate

2. Economic Impacts: The Labor Market

- most people intuitively think:“more people Y lower wages”

- this was the idea proposed by Malthus in his famous 1826 essay

BUT: larger countries do not have lower incomelarger cities have higher wagesmany countries try to promote population growth and immigration!

How do immigrants affect the LM?

- Malthus was thinking of the medieval world: output based on agriculture w/ fixed land

-in the late 1800s the “neoclassicals” pointed out that as long as capital can expand with population, we avoid the Malthusian trap

- today, we understand that output depends on labor and capital (machinery, infrastructure)

- and innovations (hybrid corn...)

“First-order” effect of immigration

-rise in labor force leads to increase in investment, wages unaffected if K/L stays on trend

-in fact: many economic models suggest that “size matters”: larger economy is more productive (New Zealand?)

- historical record on K/L Y no Malthusian trap

What about different skill groups?

-US immigration flows include excess shares of workers from the bottom and the top

Does this matter? Maybe....- agreement on 2 major skill groups- a) bottom+lower-middle- b) upper-middle+top- imms and natives nearly equal in these

groups

Different types of evidence

a) Cross-city comparisons. Immigrants are clustered in selected cities:

On average: more immigrants → more low education workers in city. But relative wages of lowest-education natives are very stable across cities

A better set of comparisons -- isolate ‘supply push’ component of immigrant inflow to different cities (enclave/policy)

Relative Inflow of Low-EdImmigrants vs. Dropout Wage Gap for Natives

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

0.20

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4

Relative Inflow of Dropout vs. High School ImmigrantsPredicted from Previous Settlement Patterns and National Inflows

Drop

out-

High

Sch

ool G

ap

Different types of evidence (2)

b) Big shocks. Mariel Boatlift (1980)

Similar studiesPortugal/France (end of colonial wars)Israel (lifting of Russian emigration restrictions)

US: end of Bracero program in 1964 (1 million Mexicans deported)

Different types of evidence (3)

c) model-based analysis of national trends- Leading exponent: George Borjas (Harvard)- Disagreement in literature. What

assumptions in the model re:- dropouts vs HS grads- immigrants and natives with same education

-but the range of effects is small

Model-Based Effects of US Immigration 1990-2010 on Native Male Wages

HS HS Some Post

Dropouts Grads College BA Grads

Baseline - Borjas Preferred -3.1 0.4 0.9 -0.1 -0.9 0.0

Alternative -- immigrants and -1.7 0.9 1.2 0.5 -0.1 0.6natives slightly imperfect subs.

Notes: taken from reported estimates in Immigration Economics, chapter 5.

Education Subgroup:

All Native Men

Other Impacts

what else matters?a) effects on govt revenue/spendingb) effects on productivity/innovation,

diversity (Skvorecky, Ondaatje,Ricci, Thien, Edugyan...)

c) effects on “social cohesion” and political functioning

3. Understanding Attitudes to Immigration

-Most studies show wage/employment effects of immigration on natives are small

-many firms and households use immigrant services, both at the “high end” (doctors, nurses, professors) and the “low end” (day care, home health and elderly care, agriculture and construction…)

-BUT: many natives are opposed to (or deeply ambivalent about) immigration

understanding attitudes (2)

A resolution:-people care about the direct effects of

immigration on their wages and taxes, and on the “compositional” effects on their neighbors, co-workers, schoolmates..

-composition concerns are the major driver in choices over where to live, what school to choose,….

-how do people respond when asked about increasing immigration?

First and Second Generation Shares of US Population (Actual and Projected)

0

5

10

15

20

25

30

35

40

1900 1920 1940 1960 1980 2000 2020 2040

Shar

e of

US

Pop

(%)

2nd Generation

1st Generation

Source: Pew Research Center based on Census/ACS and projections.

ESS study

Indicator questions for net wage effect:1. Do you agree/disagree that immigrants lower wages?2. Do you agree/disagree that immigrants harm the

poor?3. Do you agree/disagree that immigrants fill job

shortages?4. Do you think that immigrants take away jobs from

natives or create new jobs?5. Do you think that immigrants take out more (in

social benefits) than they put in (in taxes)?

ESS study (2)

Indicator questions for compositional effects1. Do you agree/disagree it’s better if everyone shares

the same customs and traditions?2. Do you agree/disagree it’s better if everyone shares

the same religion?3. Do you agree/disagree it’s better if everyone shares

the same language?4. Do you think that immigrants undermine or enrich

the culture of the country?5. Do you think a country should stop immigration to

reduce social tensions?

Findings:Views on immigration depend on both economic (20%) and composition (80%) effects.

Views about immigration policy (restrict or increase immigrant flows) are mainly driven by compositional concerns

Older, rural, and non-college grads are more concerned about compositional issues, and these concerns drive their more negative policy views