National Data | Amazing!—Slate's Noah Acknowledges That Immigration Causes Income Inequality. But Not Enough.

Better late than never!

 

But still not good enough.

In a continuing series of articles, Slate.com's Timothy Noah [email him] has been probing America's widening income gap.

Noah's focus is not absolute—on the current collapse of employment and incomes. Instead, it's relative: on income distribution. During the longest boom in U.S. history—from 1980 to 2005, Noah writes, quite correctly:

"…more than 80 percent of total increase in Americans' income went to the top 1 percent. Economic growth was more sluggish in the aughts, but the decade saw productivity increase by about 20 percent. Yet virtually none of the increase translated into wage growth at middle and lower incomes, an outcome that left many economists scratching their heads."

Noah's list of potential causes include race, gender, the computer revolution, trade, government policies, the decline of organized labor, compensation policies on Wall Street and in executive suites, education and…immigration!

That's right! The I-word finally made the cut in an MSM article!!

Sort of. At VDARE.COM, I've been writing about immigration's impact on incomes for years. (Here's an example from March 2004). Noah deserves credit—but he's not caught up with me yet.

Noah does know the history. In the 1930s, and even more in the 1940s, U.S. income distribution narrowed dramatically. Economists call this period the "Great Compression." Then, particularly after 1970, income distribution widened, even more dramatically. The result: a burgeoning income gap between rich and poor. Economists call this period the "Great Divergence." (This is the title of Noah's series).

 

The reasons for all this are debated. But it is undeniable that the phenomenon coincides with the restriction, and then the liberalization, of immigration.

 

A confluence of events—the legislated cutback the 1920s, the Great Depression, World War II—throttled immigration for about forty years. Roughly 500,000 legal immigrants entered the U.S. during the whole of the 1930s. And only about a million entered in the 1940s—including World War II refugees. Restrictionist policies remained in effect until 1965.

 

During those four decades, groups that had been previously underutilized, ignored, or purposely excluded from participation in the labor force were sought after, used, and compensated. As a result, the distribution of income became less uneven and more egalitarian.

 

After the 1965 Immigration Act, the number of legal immigrants rose. Their skill levels fell. So did their origin: 1965, 95% of new immigrants came from Europe; since 1965, 95% have come from the Third World.

 

Noah's editors subheaded his immigration section "Why we can't blame income inequality on the post-1965 immigration surge." That's not exactly what he said, although he did downplay the impact of immigration on the income distribution:

"But when economists look at actual labor markets, most find little evidence that immigration harms the economic interests of native-born Americans, and much evidence that it stimulates the economy. Even the 1980 Mariel boatlift, when Fidel Castro sent 125,000 Cubans to Miami—abruptly expanding the city's labor force by 7 percent—had virtually no measurable effect on Miami's wages or unemployment."

[Did Immigration Create the Great Divergence?, September 7, 2010]

This is a common mistake. Studies of immigration's impact on local wages typically compare cities with high and low rates of immigration. They assume that high immigration destinations—Miami during the Cuban invasion, for example—would see lower native wages and higher unemployment. But that didn't happen—because some U.S.-born workers displaced by immigrants drop out of the labor force, where they are not counted as unemployed, and others migrate to other cities where they generally make less. The latter phenomenon—some call it the "new white flight"— hurts native wage earners throughout the country.

"The flow of jobs and workers tends to equalize economic conditions across cities." writes George Borjas.  "In the end, all laborers, regardless of where they live, are worse off because there are now many more of them." [Increasing the Supply of Labor Through Immigration: Measuring the Impact on Native-born Workers, CIS Backgrounder, May 2004]

To his considerable credit, Noah does quote Borjas's classic conclusions regarding the national wage loss due to immigration:

"…For native-born high-school graduates, Borjas calculated that from 1980 to 2000, immigration drove annual income down 2.1 percent. For native-born workers with 'some college,' immigration drove annual income down 2.3 percent. Comparable figures for Mexican immigration were 2.2 percent and 2.7 percent. (For all workers, annual income went down 3.7 percent due to all immigration and down 3.4 percent due to Mexican immigration.)"

But then Noah drops the other shoe. He dismisses the single digit wage losses as trivial alongside the income chasm separating rich and poor: "The difference between the middle fifth growth rate and the top 1 percent growth rate was 256 percent."

Talk about (golden) apples and oranges! Borjas is talking about on wages, from which most Americans—but not that top 1% who so exercise Noah—derive the bulk of their income. In contrast, that exalted few derive most of their income from capital, not wages.

Slightly  lower wages for millions of ordinary wage earners translates to an enormous increase in profits for native elites—businesses and well-to-do Americans who clip coupons, live off dividends, capital gains, and other returns to capital.

A quick estimate (based on Borjas): native-born workers lose about 1.9% of GDP, or $275 billion in a $14.5 trillion economy; native-born capital gains about 2% of GDP, or $290 billion. The small immigration surplus of $15 billion disguises a massive transfer from have-nots to haves

Additionally, the wealthy also are more likely to consume services made cheaper by foreign labor. Think nannies, cleaning girls, landscaping, and home renovation.

Cheap immigrant labor may induce only a relatively small reduction in overall incomes. But that's quite enough to forestall real income growth for many struggling Americans. And its biggest impact is distributional: the obscene transfer of income from the many to the few.

Immigration is not the only reason for the increasingly skewed income distribution in the U.S. It could be the most important, however.

In the next few days, VDARE.COM will publish my estimate of immigrant displacement of American workers, based on August data. I invite Noah to follow me in that area too.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.