THE BLOG
03/22/2007 03:55 pm ET | Updated May 25, 2011

Well, That's One Way to Lower Inequality

Alan Greenspan may be all kinds of wonderful, but his idea for reducing the scourge of wage inequality may strike some as counterintuitive: he wants us to raise the number of highly skilled immigrants in order to reduce the earnings of skilled workers already here. In other words, his solution to growing inequality is to reduce to the living standards of college graduates relative to the less educated.

He doesn't quite put it this way, of course. He said: "If we open up a significant window for skilled workers, that would suppress the skilled-wage level and end the concentration of income." Which is merely Greenspeak (tangent: you've got to love G-span's plain-speaking replacement, Ben Bernanke) for the basic economic principle that increased supply of a certain type of worker lowers their wages.

Most of the research on the impact of immigration on the pay of native workers has focused on the low end to the wage scale. While this work finds mixed results regarding the magnitude of the effect, few deny some negative impact on the wages of the least educated native-born workers.

There's no reason to think things would be different for high-end workers. Turn up the supply spigot, and their wages would likely fall, just like Greenspan said. If this wage effect lowered the prices of services that high-end workers provide, that too could end up lifting the real incomes of lower-paid folks who currently pay more for such services.

Furthermore, as economist Dean Baker argues, the immigration debate would be a lot more balanced if those lobbying for increased flows of low-wage workers would end their high-end protectionism: the restrictions against immigrants who might compete with doctors and lawyers (Baker points out that the lack of standardized professional licensing is a huge barrier here).

Perhaps as a college grad, I should recuse myself from this discussion. After all, it's folks like me who will face stiffer competition if we make it easier for smart people from abroad to emigrate. And clearly, policy makers still need to answer all the hard questions in this debate, from amnesty to guest workers to much better enforcement of whatever laws we decide upon. But beyond crass self-protection, it's hard to find an ethical reason for special rules keeping out the highly skilled.

Some raise concerns about brain drain from poorer countries that really need to keep those brains close to home. It's a valid concern, but it's not enough to shut them out. People should be able to realize their potential, and it's a lot to ask them to sacrifice that opportunity by staying in places they want to leave, especially when we're telling low-wage workers to step right up.

Our immigration policies should be less protectionist at the top of the skill scale. That said, there's something really difficult to swallow about the plan.

The far-and-away most repeated policy solution from the chin-stroking punditry is that more education is the best way for workers to pushback against the economic pressures created by globalization. Year after year, as productivity outpaces real wages and incomes, they tell those falling behind: "if only you were more highly skilled, all would be yours."

Now, there's no question that more education translates into higher earnings, but does it make sense to say a) you need more skills, and b) we're going to import more skilled people to erode your skill-driven wage boost? Doesn't plan b reduce the returns to plan a? Of course it does. But according to Greenspan, that's the plan.

This may be the right direction to take the immigration debate but it can't be the best solution for wage inequality. The offshoring of white collar jobs, which also raises the supply of skilled competitors, is already having a negative impact on the real wages of college grads, which rose a mere 0.3 percent per year so far in the 2000s. In other words, these folks are already facing a tougher job market than they probably expected.

In fact, as we show here, differences in pay by education aren't the driving force behind wage inequality these days. It's more the subset of highly educated workers like CEOs and holders of large capital assets whose privileged positions have enabled them to steer the bulk of growth their way. In 2005, the most recent data available, the top one percent received 22 percent of all income, their highest share since 1929. Believe me, these folks are not worried about immigrant competition.

So before we implement the Greenspan plan, let's hear some ideas from him and other economic elites about ensuring that all workers, regardless of their origin, begin to share in the economy's growth.

I get how they're going to lower wages. Now let's hear the rest of the plan.