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Immigration and Poverty in the United States

Immigration and Poverty in the United States. Steven Raphael and Eugene Smolensky Goldman School of Public Policy University of California, Berkeley. Chapter outline. Document poverty trends among the native and foreign born

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Immigration and Poverty in the United States

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  1. Immigration and Poverty in the United States Steven Raphael and Eugene Smolensky Goldman School of Public Policy University of California, Berkeley

  2. Chapter outline • Document poverty trends among the native and foreign born • Examine the relationship between immigrant poverty and time in the U.S. • The compositional effect of immigration on U.S. poverty rates • The effect of immigration on native poverty via labor market competition

  3. Basic Poverty Trends • Overall poverty declines between 1970 and 2000, with a slight increase between 2000 and 2005 • Native poverty at the end of the study period lies below the poverty rate at the beginning. • Declines observed among all racial/ethnic groups with largest declines among Hispanics and African-Americans

  4. Immigrant poverty trends • Poverty among immigrants increases between 1970 and 2005 with largest increases for recent immigrants • Within country-of-origin groupings, poverty is stable or declines • Previous two patterns suggest that the composition of new immigrants has shifted decisively towards higher poverty source countries

  5. Distribution of Immigrants by Region of Origin, 1970 and 2005 45.0 40.9 40.0 35.0 30.0 27.5 25.0 1970 Percent of Resident Immigrant Population 2005 20.0 15.0 11.4 10.4 9.8 9.8 9.6 10.0 8.2 8.3 7.1 6.6 6.6 6.1 4.3 5.0 3.5 3.0 2.7 1.7 1.2 0.9 0.0 0.0 Mexican East Asia Caribbean Southeast Asia North American Eastern Europe Western Europe South American Central American India/Southwest Asian The Distribution of the immigrant population has shifted to higher poverty groups

  6. Immigrant poverty and time in the U.S.: constructing synthetic cohorts • Calculate poverty rates for specific arrival cohorts across census years • e.g. poverty among those arriving in 65 to 70 in 1970, 1980, 1990 and 2000 • Compare poverty rates across years

  7. Qualifications to these synthetic cohort results (Lubotsky 2007) • Selective return migration • Measurement error pertaining to year of arrival

  8. Contribution of immigration to poverty: compositional impact • wit – proportion of the U.S. population at time t accounted for by group i • povertyit – poverty rate for group i in time t

  9. Decomposing the change in the national poverty rate

  10. Contribution of immigration to poverty: labor market competition with natives Assume • Immigrants and natives are perfect substitutes • Capital is fixed

  11. Wages S0 S1 W0 W1 D0 Employment E2 E0 E3

  12. Are immigrants and natives perfect substitutes? • Discussion of substitutability and complementarity among factors of production • Language and cultural differences • Differences in formal educational attainment • Differences in position in the earnings distribution

  13. Is capital fixed? • Immigration decreases the capital-labor ratio, increasing the return to capital. • Capital stock should grow due to domestic savings and foreign investment

  14. Wages S0 S1 W0 W2 W1 D0 D1 Employment E2 E0 E3

  15. Simulating the effects of immigration between 1970 and 2005 on native poverty rates • Using PUMS data for 1960 through 2005, estimate a CES production function that permits • Imperfect substitution between capital and labor • Imperfect substitution between labor of different education levels • Imperfect substitution between labor of different experience levels within the same education group • Imperfect substitution between immigrant and native labor within the same education-experience groupings. • Endogenous capital accumulation • Use the estimated own-factor and cross-factor price elasticities to simulate the effect of immigration shock on the national wage distribution • Simulate the impact on household income and construct counterfactual poverty rates

  16. Relationships between substitution elasticities and poverty rates The effect of immigration on native poverty will be higher … • the higher the degree of substitutability between immigrants and natives in similar skill groups • the lower the degree of substitutability between workers of difference educational attainment levels • the lower the degree of substitutability between workers of different experience levels within educational group. • The more sluggish the response of capital supply to immigration-induced changes in the return to capital

  17. Figure 1A: Scatter Plot of the Native-Immigrant Log Wage Differential Measured by Year (1960 through 2005), Education, and Skill Groups Against the Corresponding Log Supply Differentials

  18. Summary of findings • Immigrants are poorer now than in the past, though this is driven largely by changes in source-country composition • Poverty rates decline quickly with time in the U.S. for most immigrant groups • Can’t distinguish between assimilation and selective return migration • Immigration has increased the national poverty rate through a compositional effect (by about half a percentage point). • Labor market competition between immigrants and native has had no discernable impact on native poverty rates

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