IDS: Immigration Derangement Syndrome

Immigration Derangement Syndrome sure affects a lot of economists. For example, Bryan Caplan greets Harvard economist George Borjas`s new blog with this classic:

Borjas: What`s His Problem?

Well, Bryan, I guess his problem from your point of view that is that, when it comes to immigration, Dr. Borjas has worked very hard to know what the hell`s he`s talking about. But who needs painstaking empiricism when Ayn Rand has shown us the true way?

What`s striking is the constant reminder of what a large proportion of economists are fervent ideologues who, armed with a selective handful of bumper sticker slogans (e.g., Comparative Advantage! but not externalities), want to preach morality to the unenlightened far more than they want to try to understand reality.

Economists tend to be complete suckers for the most implausible studies supporting their preconceptions about immigration. Simple reality checks are never performed on agreeable-sounding assertions. For example, one of the most celebrated is Giovanni Peri`s recent effort, which Caplan`s friend Tyler Cowen approvingly summed up: “… if lots of Mexican carpenters move to California, we don`t see the non-Mexican carpenters leaving in droves, due to lower wages.”

Great point! Except of course that we have seen droves of native-born blue-collar workers leave California. And we sure don`t see many American blue collar workers from the other 49 states moving to California. That`s an opportunity cost to Americans — one of those Econ 101 phrases that gets forgotten when economists start burbling about immigration. As I wrote in last year, using Las Vegas as a more up-to-date example of a booming example, but you could use California in the period studied by Peri:

What [many economists don`t] grasp is that illegal immigration is denying Americans the traditional wage premium for undergoing the pain of moving to a boomtown.

Imagine you are an American blue-collar worker in Cleveland, making $10 per hour. You know the local economy is stagnant, so you`re thinking about relocating to fast-growing Las Vegas. But your mom would miss you; and you`re not a teenager anymore so you don`t make new friends as fast as you once did; and you really like the wooded Ohio countryside you grew up around and the fall colors and the deer hunting; and there`s this girl that maybe you could get serious about, but her whole family is in Cleveland and she`d never leave.

So, you decide, you`ll leave home behind if you can make 50 percent more in Las Vegas, adjusted for cost of living. That seems fair.

But, then you look through the Las Vegas want ads and discover you`d be lucky to make 10 or 20 percent more because the town is full of illegal aliens. They`re moving from another country, so it`s not much skin off their nose to move to Las Vegas rather than some place slower-growing.

Well, forget that, you say. I`ll stay in Cleveland.

Unfortunately, too many economists forget that too. They can`t-or won`t-put themselves in other people`s shoes and see how the world really works.

That doesn`t seem to hurt them professionally. But it can hurt America.

In the comments on Borjas`s blog, businessman Peter Schaeffer writes:

I have looked at the immigration work of Peri for some time now. Recently, Peri has published a new paper, Immigrants` Complementarieties and Native Wages:Evidence from California (PDF). This paper attempts to show that immigration has raised the real wages of workers in California, even high school dropouts. A few notes:

1. The empirical data (Figure 3, Change in Real Wage of U.S. natives, by Education group 1990-2004) actually shows large declines for high school dropouts. -17.6% in California versus -15.1% nationwide. Peri does not attempt to explain the large decline in wages of low skill workers (as best I can tell) or why wages fell faster in California.

2. As best I can tell, Peri uses a aggregate production function that would make it very difficult for immigration to ever adversely impact the incomes of natives in general, although that might not be true for specific groups. For reasons stated below, this does not appear to be realistic for California and perhaps not the nation.

3. Peri assumes that immigrants are almost entirely complementary to natives, even at the low end (but less so). He is quite aware that this is a contentious point and attempts to defend his methodology and conclusions. I can neither support nor refute his assertions.

4. Peri appears to be aware that his work is deeply contra factual, although this is never explicitly stated. Natives have been net leaving California in vast numbers (millions) for quite some time now. If immigrants were complementary, this should either not be happening or immigrants should be net leaving as well. Obviously this is not true. Peri attempts to refute this critique via a regression of some type. He offers no other explanation as to why natives would be fleeing California.

5. Peri rather explicitly does not even consider the possibility that immigration has impacted prices (mainly but not exclusively housing) in California. Peri deflates California wages using a national CPI, not a state one. This is highly contrafactual in my opinion. California`s population would be much lower (30% of California`s population is foreign born) without immigration and housing correspondingly more affordable. I cannot quantify the impact of immigration on housing costs in California, however it is certainly large. Note that the Census (but not the BLS) shows California housing to be roughly twice as expensive as the national average.

6. If one takes into account housing costs, Calfornia is considerably more expensive than the US as a whole and real wages corresponding lower. Indeed, California emerges as one of the poorer states (43rd) in the nation, if the local cost of living is taken into account. Given the linkage between immigration and prices, it would appear that immigration has markedly reduced real wages in California. Of course, this would account for the native outflux contra Peri.

Thank you,

Peter Schaeffer