Saturday, June 15, 2013

On Why Immigration DOESN'T Depress Wages

a) Immigrants often represent a different type of labor. As economist Ben Powell frequently points out, American labor tends to cluster around the mean for both wages and skill sets, while immigrants, they, on the other hand, have a tendency to cluster around either the very high (70% of PhDs in the country are foreign born) or very low (a majority of farm hands and housekeepers are also foreign born) in both of these two variables and, so, hence, the two populations tend to compete infrequently.............And b) it isn't just the supply (of labor) curve that is being modified here. The demand curve (for labor, goods, and services) is also being modified and the end result, according to the Journal of Economic Perspectives, is essentially a wash (only the wages of high school drop-outs are truly effected and even with them it is only an 8% decrease).

21 comments:

Jerry Critter said...

With 70% of PhDs foreign born, it seems to be that they must impact significantly the demand and hence the wages of American PhDs. Get rid of all foreign born PhDs, (and I am NOT advocating this) and now you have about 1 PhD for every 3 available PhD level jobs. I think it is ridiculous to say the end result is a wash. It certainly isn't at least at the high end of the market. Demand and wages both will skyrocket.

Will "take no prisoners" Hart said...

For the economy as a whole it is a wash (at least according to Professor Powell and the Journal of Economic Perspectives). As for the total number of PhDs and how that effects the wages of PhDs, I suspect that a lot of that has to do with what the PhD is in (the marketability of the discipline) and whether or not the influx of foreign born PhDs causes a glut of them (in which case it would make them less valuable).

Will "take no prisoners" Hart said...

Jerry, I'm PRO immigration. I thought that that was supposed to be a good thing in the mind of liberals; "give us your tired and poor", more potential Democratic voters, etc..

Rusty Shackelford said...



What % of the PhD's are from south of the border? I'd be willing to bet the majority of them are either Asian or from India.

This Phd argument has absolutely nothing to do with the immigration issue......I doubt if many Phd's are changing the bedding in Las Vegas hotels.

Will "take no prisoners" Hart said...

Your assessment is a correct one, Russ. Most of the PhDs either come from Asia or Africa (my wife's neurosurgeon came from Kenya).

Jerry Critter said...

So why did you even bring it up, Will, if it is not an issue?

Will "take no prisoners" Hart said...

I brought it up because there are a lot of people on both sides of the aisle who claim that immigration depresses American wages and is bad for the economy in general.

Jerry Critter said...

And I pointed out a way that it does.

dmarks said...

Conservatives tend to be more bigoted/hostile/ignorant in regards to non-native (non-American) workers inside the US, and liberals tend to be more bigoted/hostile/ignorant in regards to such workers making a living in their native countries.

Will "take no prisoners" Hart said...

The way that I understood your point, Jerry, is that foreign born PhDs increase the wages of American PhDs. You were saying the opposite?......I think that you have to look at the distribution pattern of immigrants versus native born Americans. The distribution pattern of the latter is like an apple; heavy in the center and light on the top and bottom. This, while the distribution pattern of immigrants is more like an hour glass; skinny in the middle and heavy on the top and bottom. The two patterns compliment each other much more than they disturb each other.......Another thing on the foreign born PhDs is that they are spending money here in addition to filling a job (i.e., they're moving not just the supply curve but the demand curve as well). That, and an economy obviously works better when a job can be filled.

Will "take no prisoners" Hart said...

dmarks, I try to think of immigration as an example of foreign aid which actually works (this, in that the money actually goes to the people and not to the rulers).

Jerry Critter said...

Yes, I meant the opposite. Foreign born PhDs decrease wages of all PhDs because they lower the demand for PhDs. Yes, the economy will do better people working. That's one reason it does better with low unemployment then with high unemployment. But, within a segment of that economy, worker wages are higher when there is a worker shortage.

My point was that individual workers have higher wages when their services are in demand. Employers will pay as low a salary as they can. They want to have a lot of workers competing for a job opening. That means they won't have to pay as high a wage. After all, workers are an expense, and managements job is to minimize expense to maximize profit.

Will "take no prisoners" Hart said...

Here's where we're miscommunicating, Jerry. You're operating under the supposition that there are only a fixed number of PhD jobs that an economy can create. That clearly isn't the case as we see. In a vibrant high tech economy, new high skilled labor is being created all the time, a) through a moving of the demand curve and b) through company competition (company A has a PhD who creates a new product and company B in an effort to keep up with compaby A in turn hires a new PhD to create an even beter product). The Journal of Economic Perspectives looked at the effects of immigration across the board and found that only high school dropouts are effected in terms of wage suppression and even with them it's only an 8% decrease.

Jerry Critter said...

At the high end, immigration keeps the PhD wages stable. Without immigration, as new PhD jobs are created, demand for PhDs will increase and hence wages would increase. Increasing wages may encourage people to switch jobs, may encourage people to stay in their current job, may encourage more American workers to get their PhD. Workers benefit. Businesses see their expenses go up.

Jerry Critter said...

Simple supply and demand.

Will "take no prisoners" Hart said...

It all depends what the PhDs are in (and the "high end" isn't composed strictly of people with PhDs; Gates and Jobs didn't even have a BA), Jerry (and didn't you initially say that the influx of PhDs would bring the wages of PhDs down?). If they're in history, sociology, and psychology, yeah, there is a fixed number of openings there relatively speaking and the end result would probably be lower wages. But if they're in the tech and science field, that's an entirely different ballgame. More scientific breakthroughs leads to more scientific breakthroughs leads to.....And, yeah, if you artificially and in a draconian manner reduce the supply of something (in this case by keeping smart people from coming into your country and/or throwing the folks out), you're going to increase the value of what is left. But that wasn't the point of the post. The point of the post was to say that immigration (which even when it is occurring at a furious pace is a relatively gradual process) doesn't SUPPRESS wages except for high school dropouts and I don't believe that you've disputed that.

Will "take no prisoners" Hart said...

As for the supply and demand curve, you do realize that it isn't a static situation. They both move and sometimes one moves more than the other.

dmarks said...

Jerry said: "Workers benefit. Businesses see their expenses go up."

And then inflation spirals, as high expenses force businesses to raise prices. Workers suffer from soaring prices.

Will "take no prisoners" Hart said...

I took a position that I though Jerry would be proud of but instead he started nibbling me around the edges. PhDs are a tiny part of not just the total population (and, yes, some of them in nongrowth areas will probably get dinged) but of the top 1% as well. I just kind of used them as an example.

Jerry Critter said...

I present a simple example and suddenly there are all sorts mis-interpretations and a variety of qualifications. Oh well, justifying one's position can become quite convoluted.

Will "take no prisoners" Hart said...

My position is fairly simple. Immigration does not OVERALL suppress wages because the two populations; native born and immigrants, GENERALLY do not compete for the same labor. Yes, in a free market setting, some individuals and groups could end up being hurt (native born PhDs in liberal arts and high school dropouts, for example) but overall immigration has always been a net positive for America and I think that you probably agree with that.