George Borjas On The Media`s Immigration Economics: “People Now Are Getting That It`s Complete Nonsense”

[See Part Two—Borjas
On Open Border Libertarians: " I Don`t Really Miss
Them, Actually"

[An abridged version of an
interview published in
 Immigration and the American Future.

See also

Heaven`s Door After A Year
, By George Borjas,
June 10, 2001

Brimelow writes:

Everyone knows, or concedes, that immigration is good
for the economy—except economists. Amazingly, since the
early 1990s, a consensus has existed among labor
economists that the current unprecedented influx into
America is of no particular economic benefit to
native-born Americans in aggregate. I reported this
consensus in my 1995 immigration book

Alien Nation: Common Sense About America`s Immigration
and it was confirmed by the National
Research Council`s 1997 study The New Americans, the
survey of the technical literature on the economics of
immigration done at the behest of the

Jordan Immigration Commission
. Equally amazingly,
this consensus has been totally ignored in the public
discourse on immigration—one of the most startling
failures of democratic debate of which I am aware.


No-one has
more to do with the new consensus about the economics of
immigration than

Professor George J. Borjas
, Professor of Economics
and Public Policy at Harvard University`s John F.
Kennedy School of Government and a Research Associate at
the National Bureau of Economic Research. Borjas first
began to depart from the optimistic orthodoxy with his
1990 book
Friends or Strangers: The Impact of Immigrants on the U.S. Economy.
His most
recent full-length treatment of the subject is his 1999
book Heaven`s Door: Immigration Policy and the American Economy.
himself a Cuban immigrant, has every emotional reason to
favor immigration. That he does not is entirely a
function of the data—and his scrupulous scholarship.


I spoke to
him in his Cambridge office and began by asking him to
summarize the findings of the NRC`s

The New Americans

Basically the "immigration surplus"—the net gain
to people already living in the U.S—was very small—one
tenth of one percent GDP, or at that time around ten
billion dollars in a 5-6 trillion dollar economy. It`s


That`s not net of transfer payments like welfare,
education, right?

Borjas: That`s
correct. There`s another chapter where the authors
estimate that, on net, native-born households in the
U.S. paid about $200 a year more in taxes because of
immigration. That would add up to something like $10-20
billion dollars a year. So net, it`s basically a wash.
Whatever the
"immigration surplus,"
it`s eaten away by the

of providing

services to immigrants.

Brimelow: But

redistribution impact within the native-born community

is very large.

Borjas: Yes.
Let me make that very clear. At the time I wrote that
initial paper, I was basically taking a relationship out
of the labor demand literature—a X% increase in labor
would lower wages by Y%.

That meant current immigration had lowered the total
wage of natives by about 2%. And all that goes straight
to the employers, to the capitalists. In the long, long
run, some of that would filter down to the consumers
also. But I didn`t do that in my paper. Nobody knows
what the breakdown is between consumers and employers.

So the way we freeze the argument is: immigration
redistributes wealth from people who compete with

workers who have the same jobs as immigrants
people who use immigrants. For example, a

California family
—gardener, the

, all this stuff.

Brimelow: Why
do you think the National Research Council findings had
absolutely no effect on public debate?

Borjas: I don`t
know. Certain parts seem to be cited over and over. For
example, the

Wall Street Journa
—they often

that there is no wage impact based on the
National Research Council. They`ll also cite another
chapter, that if you were to follow immigrants and their
children for 300 years, and assume a tax increase, then
immigrants could be a huge benefit to the U.S. Even
though a 300 year projection is complete nonsense.

They choose and pick what they want.

Brimelow: But
the fundamental conclusion, that there are no

substantial aggregate benefits for the native-born

from current immigration, was completely buried?


Brimelow: And,
for example, the

showing that immigration means a $1,100
fiscal transfer from every

native-born family in California
was completely
buried too. Why?

Borjas: [Laughs,
throws up hands
] I don`t really know the answer. I
think part of it has to do with a sort of an

implicit bias in the media.
Not just in terms of the
National Research Council study, but in terms of the
general immigration debate. At least until recently, the
main stream press, when it covered immigration, would
begin with a

very sentimental kind of story
about a particular
immigrant. And then they would proceed to describe how
good immigration is. That was more true for

some papers
than for others, but it generally
describes the typical immigration story for a long time.
It is only more recently that people have begun to
discuss whether in fact there could be a negative impact
on wages, on social programs and so on.

Maybe it`s because of the way they frame the problem.
But I`m not a journalist—I really don`t know, okay?

Brimelow: It
was interesting to see

Paul Krugman
cite you recently in the New York

North of the Border,

by Paul Krugman, New York Times, March 27, 2006]

 Borjas: That`s
right, Paul Krugman cited the paper on immigration`s
wage impact I did with Larry Katz. [The
Evolution of the Mexican-Born Workforce in the United
“. George J. Borjas and Lawrence Katz. NBER
Working Paper 11281, April 2005
] It`s only about
a year old, but the paper it was based on was published
in 2003. [PDF]Nobody
talked about that in the media when it was published.

Brimelow: Do
you find that the Krugman column made a difference?

Borjas: Huge.
It was amazingly influential. The minute it came out,
the emails start flowing in.

Brimelow: So
what`s happened in academe since 1997?

Borjas: In
1997, at the time of the NRC report, it was generally
thought that immigrants had a minimal impact on wages
for the following reasons: studies tended to focus on
comparing how natives do in cities that have large
immigrant populations like

San Diego

Los Angeles,
with cities that have few immigrants,

or Oklahoma City. When you do that, you
tend to find very weak impact.

People were aware of two potential problems. One was
that immigrants gravitate to cities that pay higher
wages. That could build a positive correlation between
high wages and immigration which could easily swamp
anything in the real market.

Reason number two was that if immigrants are going to a
city like

San Diego,
both native workers and native capital
will respond.

Native workers will move out.
Native capital will
move in, where wages are low. These equalizing flows
would tend to take away negative impacts.

So now there is a consensus that cross-city correlations
don`t really matter. To gauge the wage impact of
immigration, you have to move to the national level. And
that`s eventually what I ended up doing in the paper
that was published in 2003, that I wrote with Richard
Freeman and Larry Katz.

The key insight there was, look, immigrants have come in
over the last 30-40 years at different education levels.
But the age structure of immigration varies a lot over
time. So what I ended up doing was

using data from 1960-2000,
and looking at the wage
from each group defined by education and age to see how
the evolution of the wage of a given education group
over forty years responded to immigration.

The minute you do that, the negative wage impact of
immigration becomes very apparent. And remarkably
enough, it was about what we estimated before. The 10%
increase in supply reduced wages by 3%. It confirmed
what we thought we knew about labor demand in the
context of immigration. [The Labor Demand Curve
Is Downward Sloping: Reexamining the Impact of
Immigration on the Labor Market, The Quarterly Journal
of Economics,
November 2003,(PDF)]

This was not a paper that was picked up in the
newspapers. The

Wall Street Journal
didn`t grab it, the

New York Times
didn`t run an op-ed about it. I mean, it was
just terrible. Economists recognized that it was
important, but the

media did not.

I suspect very strongly that had I

come out with a different answer,
it would have been
picked up.

Actually, I`ll give you the best piece of evidence for
why wages must drop with immigration. There have been a
ton of hearings in Washington regarding the guest worker
program. Who exactly is lobbying for guest workers? Is
it you and me? No, it`s

, right? Why would employers tend to

go to Washington

expend their resources
lobbying for something that
doesn`t benefit them?

Brimelow: It
can all be explained in rather

crass Marxist terms,
can`t it? The class analysis

Borjas: Of
course! Of course! The Marxist analysis works.

Brimelow: The
thing that is interesting is that neither the

labor unions
nor the

leaders of the minority groups
are opposed to it.

Borjas: But I
have a feeling that will change soon. You`re beginning
to see a breakdown in the model of political

Brimelow: What
else is happening in the field?

Borjas: You
heard about the Ottaviano-Peri paper [PDF]that
was cited in The Economist, right? [Myths
and migration,
The Economist
, [Pay archive] April 6, 2006] My
2003 paper assumed is that the low skilled group
immigrants and native are what we call perfect
substitutes. They tried to relax that. And they end up
with a result that basically says that in the long run
the average native wage goes up, not down, by one or two
percent as a result of immigration.

Now let me tell you why that is not completely sensible.
Somebody else`s wage must have changed in the opposite
direction. Who was that somebody else? Immigrants. For
native wages to go up by 1-2%, the average wage of
immigrants must have gone down by like 15-20%. That`s
just so outside what we know about labor demand that it
puts the whole paper into question. They chose to focus
on natives knowing the fact that whatever you do for
natives, the immigrant wage must have fallen by like
15-20%, which would make the whole thing impossible. So
they chose to ignore that.

But, you know, some people like the theory that
immigrants "increase wages"
—even though we
know from theory that immigrants cannot increase wages.

Brimelow: The

, of course, is

fanatically pro-immigration.
In the article you just
mentioned it also attempted to downplay your critique of
current immigration policy. It

said about
you that

critics therefore count Mr Borjas as an ally. But hold
on. These figures take no account of the offsetting
impact of extra investment. If the capital stock is
assumed to adjust, Mr Borjas reports, overall wages are
unaffected and the loss of wages for high-school
drop-outs is cut to below 5%."

That`s actually purely hypothetical—mathematical theory,
isn`t it? It has nothing to do with the data?

Borjas: Yes.
All these results are based on a theory of labor
markets. It states the following: If the U.S. economy
has constant returns to scale, namely, you double
inputs, you double outputs, which is the key assumption
we all make in this, then immigration cannot have an
impact on the average wage, in the long run. That`s the
mathematical theory.

The way an economist finds the short run is, he holds
everything else equal. So holding everything else equal,
10 million that are let into the country, what happens
to wages?

The long run, basically, is the complete opposite. We
know that when immigrants come in, wages go down in the
short run. Then capitalists build factories to exploit
the cheaper labor and so on. So in order to find the
long run, we suppose that every expansion that could
take place, actually does take place.

Now, let me emphasize, neither the short run or the long
run has really been proved. In the real world, things do
adjust, but they don`t adjust completely. So the best
way to look at these extremes is as bounds of what the
effect could be. You know, the short run is going to
happen, and then, who knows when—Keynes said that in the

long run we`re all dead
—everything adjusts
completely. Nobody knows exactly how long the process

But economic theory predicts unambiguously that if you
have constant returns to scale production function, the
average impact of immigration on wages in the long run
has to be zero. Because everything adjusts completely.
Capital adjusts enough to account for the extra labor.

But that doesn`t mean that every group`s wage is
unaffected. It just means that the average wage effect
is zero.

Now, I would say that the short run assumption is not
completely plausible in the real world because it holds
everything else equal. When you`re living in the real
world, people adjust. On the other hand, the long run
assumption, that everything adjusts completely, is also
not very plausible in the real world either, because not
everything adjusts completely.

I will give you an example. Take

Puerto Rico.
It`s part of the U.S., right, with very
sizeable labor outflows, and very sizeable capital
inflows. It still hasn`t had everything completely
adjusted after 40-50 years of migration. The wage in
Puerto Rico today should be the average wage in the U.S.
today. Is it? No. There is still a
huge wage gap between Puerto Rico
and the U.S.

Brimelow: Why?

Borjas: A good
question. That`s one of the problems with economics.
Things don`t adjust completely. There are frictions. In
theory Puerto Rico

should be empty now
, because the

wage is much higher in the U.S
., right? But, it`s
not. In theory, capital flows would have equalized in
Puerto Rico with the average in the U.S. market. It
hasn`t. There are these frictions that we don`t really
fully understand.

What I`m saying that, we can do it mathematically, we
can look at the marketplace and we can look at the
extremes, we can look at the short run and we can look
at the long run. But it is very hard to tell where the
truth is in the middle. We can say, however, that right
now, immigration is impacting wages.

Brimelow: How
does this paper by Davis and Weinstein fit in?
[Columbia economists

Donald R. Davis

David E. Weinstein
estimated in 2002 that, by
sharing their technological base with immigrants, U.S.
natives suffer a loss of some 0.8 percent of GDP
Technological Superiority and the losses from
, by Donald R. Davis and David E.
Weinstein, NBER  Working Paper No.. 8971, June 2002(PDF)]

Borjas: It
doesn`t really fit in. They have a different kind of
argument that is much more familiar to trade economists
than to labor economists. There are sort of field
divisions in economics. People who study immigration
tend to be labor economists. Labor economists tend not
to be very well trained on international trade theory.

Brimelow: How
important is their argument?

Borjas: It`s
pretty important, but the problem is that there`s no
evidence. They create a model and get a number out. If
the model is correct, then the number is very important.
But nobody is going the extra step of trying to see
whether the model is correct or not.

Brimelow: But
that`s equally true for the labor economists, isn`t it?

Borjas: No,
because, for example, all the wage impacts that we`ve
talked about actually come from data. That was the major
contribution of our 2003 paper. I actually went out and
looked at the data on wages and wage impact.

The Davis and Weinstein thesis needs more empirical work
and nobody`s doing it as far as I know.

Brimelow: No

PhD students
feel compelled to do it?

Borjas: They
had a very hard time publishing the paper. People don`t
like the result. Even ignoring the fiscal impact, they
find a huge negative loss to the U.S. And that`s not a
kind of result that most trade economists like to hear.
Most trade economists argue that free trade is

, that
labor mobility`s great
and so on. This goes very
much against the grain.

Brimelow: What
is the distinction made between trade and immigration
from a theoretical standpoint?

Borjas: From a
theoretical standpoint, there is actually very little
distinction in the sense that both are importing
resources into the country.

From a broader standpoint—people are not

. We can import a car from

and not have a particular effect on the
economy. We could import 25 Japanese who make that car,
and that has a very different impact on the economy,
because they`re people. The

will not incur

schooling costs for the children,
the machine will
not incur Medicaid costs when it gets sick, right?

It goes back to the

Milton Friedman
quote you got in your

Forbes interview
right? It`s not possible to combine mass immigration and
the welfare state.

Brimelow: What
about claim we couldn`t run the economy without illegal

Borjas: It`s
complete nonsense. If there were no illegal immigration,
and the demand was still there for gardeners and
nannies, the price of those things would go up.

Illegal immigration is very

highly regionalized,
just like

legal immigration.
Does that mean that

the rest of the country,
between the two coasts,

doesn`t function
because there are no immigrants?
That`s ridiculous. There are cabs in the middle of the
country, believe it or not, there are


It`s like the argument that

immigrants do jobs
that natives

won`t do.
That`s complete nonsense too. It`s a
question of price. And one good by-product of all the
current immigration controversy, I think, is that people
now are getting that it`s complete nonsense.

Peter Brimelow is editor of

and author of the much-denounced
 Alien Nation: Common Sense About America`s Immigration Disaster,

(Random House –
1995) and

The Worm in the Apple
(HarperCollins – 2003)