The Economics of Immigration

01/30/2013 04:11 pm 16:11:03 | Updated Apr 01, 2013

Dylan Matthews, a major-general in supreme-commander Ezra Klein's Wonkbook army, has an interesting piece with some nice graphs up on the economics of immigration. It cites research that paints quite a sunny picture of the impacts on our economy and domestic workers.

I agree with much of what's in Dylan's piece. I'm particularly interested in the impact of immigrant flows on macroeconomic growth. Economists are well aware that slowing labor force growth is a factor in slower growth predictions in the future, but faster immigrant flows can improve that outlook.

But what about the near term impact of immigrant competition in a job market that's already too weak? Here I think Dylan's piece is too sunny. Let me explain.

First, we should be clear that a path to citizenship for immigrants already here will, if anything, put upward pressure of the wages of domestic workers with whom immigrants compete. As long as those folks are stuck in the shadows, they can and will be exploited. A path to citizenship therefore has the potential to take a pretty vicious form of competition out of the market.

Of course, the counterargument there is that anything that can be assailed as amnesty will signal future undocumented workers that the coast is clear. There's not much evidence to support that, but it's one reason why conservative supporters of immigration reform want the sequencing of the policy to be first "seal the borders," then set out the path to citizenship. There's surely logic to that but we're already doing a ton on the borders. Here's how EPI's Ross Eisenbrey (a supporter of comprehensive reform) sees it, and I think he's right:

We are spending $18 billion a year on immigration enforcement already, and I doubt there are big returns to more border enforcement. But I'm a believer in the need to deter employers from hiring unauthorized workers. Until there are effective sanctions -- which we've never had -- they'll keep doing it and we'll be back to where we are now before long.

So the new policies should expect less from border actions and more from a reliable verification system.

One of most interesting and portentous -- and most actively commented upon here at OTE -- pieces of this is the impact of immigration (i.e., of folks who are not here already) on domestic workers' wages. Here's where Dylan may be a bit too optimistic, especially in the near term, and especially when the labor market is already over-supplied relative to labor demand.

The "little impact" camp is certainly right in the long run. Immigration flows are ultimately just too small as a share of the U.S. labor force to have large impacts on wages once the labor market adjusts to the supply increase. The labor force is always growing along with population, and if anything, demographics is pointing toward slower supply growth, as I mentioned above.

In fact, many of the longer-term studies cited by Dylan assume zero impact of overall wages from the supply effect over the long term (which I'd say is 5-10 years). So they're not really speaking to the question that looms large for many in this debate. I think it's fair to say that the near term matters more to people, as opposed to economists.

In the near term then, what really matters for domestic workers is whether or not you compete with immigrants. The consensus among folks who've looked at this most carefully is that the vast majority of native workers do not, in fact, compete with immigrants. They are, in the parlance, more complements than substitutes. But if you are among those -- and we're generally talking about the least educated native workers, like high-school dropouts (and 12 percent of native-born black men are in that group) -- who are "substitutable" for low-wage immigrant labor, you will feel this competition, significantly, in your job offers and your paycheck.

This is not at all an argument against comprehensive reform. It's a very strong argument for upgrading the education of the "substitutables."

A few more related points on this part of the argument, and I'll get back to this with more info soon. Watch for members of Congress to try to expand guest worker programs throughout this round of reform, particularly in STEM and computer related guest visas, like H-1b's. There is simply no credible economic argument I've seen based on wage or employment trends that would support the notion that there's a near-term shortage in these fields. The wage trends in particular simply do not reflect excess demand relative to available supply.

More broadly speaking, that picture in STEM occupations is clearly the case economy-wide as well. Such observations have led scholars of comprehensive immigration reform, like Ray Marshall (a strong supporter of CIR, btw) to suggest that flows be tied to the unemployment rate. I think that's a tall order re implementation, but surely that idea could be applied to guest worker programs. Their parameters in terms of allowable number of entrants could handily be adjusted to conditions in the job market.

Much more to come on this... it's a good, important debate to be having and the political stars may be uniquely aligned to legislate welcoming reforms in this nation of immigrants.

This post originally appeared at Jared Bernstein's On The Economy blog.