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Immigration. General Questions. The type of questions that economists have been interested in are: what is the impact of immigration on the receiving/sending country ? how does the impact vary across groups? What determines attitudes to immigration?
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General Questions • The type of questions that economists have been interested in are: • what is the impact of immigration on the receiving/sending country ? • how does the impact vary across groups? • What determines attitudes to immigration? • What should public policy on immigration be? • More interest in it currently because of rise of immigration in many OECD countries
Comment • Perhaps not what you expected • Reason is probably fast growth in immigrant share in some countries • Note that skill mix varies from country to country so hard to generalise.
Models of Impact of Immigration • Simplest model – homogeneous labour, immigration raises supply of labour in the economy – Y=F(K,N) • Basic idea is immigration surplus – natives gain from immigration • Size is small • Probably even smaller in LR with CRS • Distributional effects may be more important – workers lose, capitalists gain
Heterogeneous Labour • Skilled and unskilled labour • Can write production function as • Wages will be:
Implications • Wages only depend on relative supplies • Implies immigration only affects natives if alters skill mix • Will always be gains to natives if immigration affects skill mix • Largest if immigrants very different
Other Issues • external effects • taxes and the welfare state – this affects net benefits of immigrants – even such an ardent free marketer as Milton Friedman says that “You cannot simultaneously have free immigration and a welfare state” • social consequences of immigration – perhaps these are more important than the economic effects. • Assimilation – immigrants often start at the bottom of the pile but many groups then rise up. • Does immigration ‘grease the wheels’ of the labour market?
Empirical evidence of impact of immigration • The ‘experiment’ one would like to do is to drop some immigrants at random into certain labour markets and then observe the outcomes. • That is difficult if not impossible to do - though some studies have tried to use the dispersal policies applied to asylum-seekers by some countries.
Common Empirical Specification • A typical regression using non-experimental data would try to run a regression of the form: • where I is some measure of the impact of immigrants on the local market (e.g. the share of immigrants). • Problems: • Endogeneity of immigrant flow • Responses of natives • What is the right level of aggregation
Card, ILRR 1990Mariel Boatlift • April 20 1980 – Castro allows Cubans to leave for the US • Between May and September 125000 did • Most went to Miami: • 7% increase in labour force • 20% increase in number of Cubans in Miami • Clear exogenous shock to the Miami labour force • Compares labour market performance before and after with comparison cities
Card’s Conclusions • virtually no effect on the wage or unemployment rates of less-skilled non-Cubans. • How is this possible? • off-setting flows of other immigrants or natives not very important • industrial structure made it relatively easy to absorb large numbers of low-skilled immigrants. • Other studies have used a similar methodology studying those who returned to Portugal after the end of its colonies, to France after Algerian independence and to Israel following the collapse of the Soviet Union. • The pattern found by Card seems fairly common.
Borjas, QJE 2003 • Argued that cities are not distinct labour markets: • Labour mobility between them • Trade between them • Divides US labour market as a whole into segments by age and education – similar to Card-Lemiuex • Looks to see whether education-age cells with big changes in immigrant shares are correlated with wage changes of natives
Borjas Conclusions • Borjas concludes immigrants do depress wages of natives with whom they compete • But treats immigrants and natives as perfect substitutes within age-education cells • This is relaxed by Ottaviano and Peri – they find natives and immigrants are imperfect substitutes
Implications of Ottaviano-Peri • Effect of new immigrants is primarily on wages of existing immigrants • Effect on wages of natives does exist but is small and positive • Conclusion is controversial
Manacorda, Manning, Wadsworth • UK study • Other UK studies found little impact of immigration on wages of natives • Puzzle to reconcile this with Card-Lemieux who find that relative supplies do matter • Estimated Card-Lemieux model but with third level in which immigrants and natives are imperfect substitutes
The Final Word? • Perhaps not really • Card quite critical of Borjas results • Borjas has 3 education groups – college, HS, drop-out (Card-Lemiuex had 2) • Card argues it is important to distinguish between college/high school and high school/drop-put. • Card argues the former wage ratio is sensitive to relative supplies but the latter is not • It is the latter that, in the US in recent years, has been most affected by immigration.
What’s the big deal about immigration? • Economists routinely fail to find large effects of immigration on natives • The effects they do find are often positive • Perhaps this misses the point because people get very upset about immigration
A Recent NBER Working PaperImmigration, Wages, and Compositional Amenities Card, Dustmann and Preston • Economic theory says effects of immigration like effects of trade • But people much more hostile to immigration than free trade • Perhaps because immigration also alters communities as well as economies • These effects seem at least as important
