Are We Importing Poverty with Immigrants?

Are We Importing Poverty with Immigrants?

Are We Importing Poverty with Immigrants?

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Mark Krikorian
7:13 a.m.  Tuesday  8/20/96

The moderator raises an important question in comparing immigration and trade. Both our trade deficit and our migration surplus have increased the implicit supply of unskilled labor, but there are two important distinctions. Each year's trade deficit increases the effective supply of labor for that year, while immigration increases the supply of labor for many years (as long as the immigrant keeps working). This highlights a fundamental difference, for policymaking, between immigration and trade: trade results in the exchange of goods, services, capital and ideas, inanimate things, while immigration results in a permanent addition to the receiving society. In other words, immigrants are more than simple factors of production, to be used however economically beneficial, but rather human beings, created in the image of God, and possessing human and civil rights as residents of their new home.

Regarding the budgetary effects of immigration: This is a debate which cannot be settled objectively. The Urban Institute calculated a net fiscal benefit of immigration of nearly $30 billion, while Professor Donald Huddle of Rice University concluded that immigrants cost the public more than $40 billion, and the Center for Immigration Studies estimated a net cost of nearly $30 billion. These sums are so widely variable because they are based on varying assumptions, all of which are at least plausible. Should the costs associated with American-born children of immigrants be counted? Or the costs resulting from the displacement of American workers? Or the Social Security contributions of the employers of immigrants? The sterility of this line of inquiry should point debate in other directions.

Finally, what about the economic benefits of low-skilled immigrants? Aren't those who employ gardeners, nannies, pool men, waiters, seamstresses benefiting from low-skilled immigration? Yes, they are, and therein lies part of the problem. Not only are the poor being challenged by an increase in competition, but the well-off are benefiting from the lower labor costs. In other words, low-skilled immigration creates a shift of wealth from the poor to the rich--income redistribution of a kind not envisaged by, at least, the liberal proponents of large-scale immigration.

George Borjas
8:13 a.m.  Tuesday  8/20/96

The moderator, I think, touched on an extremely interesting fact: All four of the panelists who directly addressed the question of immigration and poverty agreed on some of the fundamental facts: Yes, immigrants today are relatively unskilled and contribute directly to poverty. Yes, today's unskilled immigrants have an adverse impact on the employment opportunities of native workers. These two questions have been the center of much debate for the past two decades, and the fact that a consensus has been reached is remarkable.

Mark Krikorian makes two valuable points about the connection between immigration and trade: Immigration is not like trade because immigrants increase the supply of labor permanently, and because immigrants are human beings that cannot be discarded like a cheap plastic toy imported from China. I want to add a third. A consensus is being reached that trade may account for 10 to 20 percent of the decline in relative wages of less-skilled workers in the United States. Is that a lot or a little? Well, it's a little less than what is usually attributed to immigration, but it's a lot more than can usually be established for other factors. The leading competing explanation, which economists call "skill-biased technological change" (a fancy way of saying that the machines now being introduced into the work place go better with skilled workers), remains a conjecture. Since this type of technological change is hard to observe and measure, there is practically no empirical evidence showing the link between it and relative wages. In the end, therefore, we are left with a very striking implication: the "globalization" of the U.S. economy may well account for about half of the decline in relative wages of less-skilled workers.

Getting back to immigration: Unskilled immigrants contribute to poverty; they add to the welfare rolls; they "take jobs away" from native workers. Nevertheless, some people still benefit. Are these benefits sufficiently large to suggest that we should continue importing less-skilled persons?

Sanford Ungar
12:27 p.m.  Tuesday  8/20/96

I confess that I evaded answering the question about importing poverty, because 1) I have no special expertise to offer on the subject, and 2) it is such a skewed way of looking at the immigration issue. Of course many of the immigrants entering the country are poor. That has always been the case, in part because of our holding out the hope that this was THE PLACE to come if one wanted to improve oneself economically (not to mention avoiding the draft or political or religious persecution in one's country of origin). So yes, to some extent, we are importing poverty; but we are also importing people willing to work hard, people who, as the moderator helpfully suggests, make many contributions after they get here. They not only pay taxes, but they also stimulate economic activity of many sorts: They buy clothes, food, cars, and housing (immigrant home-ownership has greatly increased in recent years). But we are also still importing many skilled people, and we are importing young, bright, energetic leaders of the future. (It is no accident that a third to a half of the finalists in the Westinghouse Science Talent Search every year are from immigrant families.)

I am not persuaded that overall unskilled immigration necessarily harms the poor. Surely there is competition in some markets for certain jobs at the lower end of the economic scale. But historically, immigrants, by their willingness to take certain jobs at the bottom, have also helped bump others up the wage scale and brought them closer to realizing the American Dream. Surely, if we are worried about income inequality in the United States, and we should be, there are many other causes to be found besides immigration.

There are some foolish policies that have helped turn large segments of the public against immigration. Bilingual education has probably gone too far in some places, and the emphasis should always be on helping immigrants gain English-language skills that will enable them to participate more meaningfully in the economy. No one has taken employer sanctions very seriously until now, and in southern California, it is the people who speak loudest against illegal immigrants who are also the quickest to hire them to do exactly the kind of jobs described in others' submissions.

I would like to offer my own thoughts about the fence and the southern border tomorrow, but in the meantime want to remind everyone that this issue has nothing whatsoever to do with liberal/conservative arguments. Immigration cuts across the conventional political divides.

Peter Skerry
1:33 p.m.  Tuesday  8/20/96

I thought economists believed that in the long run, we're all dead. Herb Stein apparently believes that in the long run, we'll get to talk about policy. I hope so. As a Catholic, I know I should patiently prepare for the sweet bye-and-bye, but it does get difficult. In the meantime, as always, Dr. Stein's points are extremely well taken.

He asks how we know about the effect of immigration on the income of low-skilled native workers? The fact is we don't know as much as we should. And what we know has been fragmentary and very slow in coming--particularly in light of the importance of the topic and the availability of funding for much less pressing ones. Why this is so is, I believe, the really interesting question.

The answer, as with so much in our public life, involves race. "Low-skilled native workers" translates politically to "blacks." This means that research into possible competition between immigrants and black Americans has threatened the received wisdom that "people of color" (blacks, Latinos, and even Asians) have fundamental common interests.

Thus, there's been a whistling-past-the-graveyard quality to much of the research purporting to look at this issue. In The Fourth Wave, the Urban Institute broadly assured us that immigrants in metropolitan Los Angeles did not negatively impact low-skilled workers--of any racial or ethnic group. But the fine print indicated some negative wage-effects. Other studies aggregated data such that significant but localized immigration impacts were washed out. Completely ignored was the out-migration of less skilled workers from immigration-impacted areas. This dynamic was finally documented in the early 1990s by University of Michigan demographer William Frey. He showed that low-income, relatively uneducated families, especially blacks, were leaving Los Angeles--and not because they being pulled by opportunities elsewhere, but because they were being pushed out.

Finally, there's the case of William Julius Wilson's Chicago urban poverty and family life study, which revealed Mexican immigrants to be out-competing blacks along a number of work-related dimensions. The Wilson study also documented employers' accurate perceptions of these trends. Yet these data and findings have received little attention.

Of course it's easy to Monday-morning quarterback. Some of these findings (such as Frey's) necessarily awaited the passage of time and the collection of data. But as the Wilson study demonstrates, this explanation does not always apply. Meanwhile, anyone vaguely familiar with what was going on in our cities during the 1980s could see what was happening. Common sense should never be an easy substitute for policy-oriented research. But neither should it be ignored while policy elites get their act together.

Which point brings me to Herb Stein's question about the weight to be given the interests of Americans with capital and high skills who benefit from low-skilled immigration. I would argue that we have already given too much weight to the Zoe Baird Party. One reason why our policy elites have been so obtuse about the negative impacts of the present influx is their class bias--a bias that has often been cloaked in the rhetoric of racial tolerance, whose stultifying effects I have just criticized.

Don't get me wrong. As an eager entrant into this class, I believe its interests should be given due weight. But in the immigration debate, [this class] has already been afforded excessive weight. Now, of course, the losers in this process are weighing in--and getting excessive attention themselves. I await a balancing of the two.

Barry Chiswick
1:49 p.m.  Tuesday  8/20/96

The moderator has raised two issues: the labor market impact of immigrants on the native born and the impact on government budgets.

A-The Impact on the Native Born:

We know from numerous studies that the demand curve for workers of a given skill level is negatively sloped, and that workers of different skill levels (say, high-skilled and low-skilled) are complements in production. So the immigration of large numbers of low-skilled workers, whether legal or illegal aliens, would depress the wages and employment of low-skilled workers and increase the wages and employment of high-skilled workers. This increases the low-income population in two ways. One is the low-skilled, low-income immigrants themselves. And the other is through depressing the income of low-skilled natives.

For some time, much of the empirical research in this area was on the wrong track. By looking at wages in cities or states that are different in the percent of immigrants in the work force, the literature concluded incorrectly that there were no labor market effects. Yet this absence of a relation between immigration and wages across areas was due to the equalizing effect of internal trade and labor mobility.

One needs to be careful not to slip from the conclusion that low-skilled immigrants have an adverse effect to the conclusion that all immigration should be curtailed. The benefits of high-skilled immigration to the economy as a whole in terms of aggregate or average income, and in terms of reducing income inequality and reducing poverty (by raising the incomes of low-skilled natives), are important. What these arguments suggest is that the U.S. should change the skill composition of immigrants in favor of high-skilled workers.

One panelist implied that the U.S. should admit all the low-skilled workers who wish to enter the U.S. as a way of ending illegal immigration. This would be the worst of all possible policies. There would be an even larger number of low-skilled workers depressing the wages of all low-skilled workers, and the new immigrants would be eligible for the range of income-transfers currently offered.

B-Impact of Immigrants on the Budget:

The policy issue to me is the impact on the economic welfare of the native population. The impact on the budget, or the net transfers to the natives from immigrants through the budget, is only one dimension of the impact on the native population. Most studies of budget impacts focus on taxes paid by immigrants and benefits received by immigrants in a year. The broader issues of fiscal impacts currently and over time are ignored. As a result, there tends to be a good estimate of taxes paid, but by focusing on a small set of income-transfer programs, the fiscal impact is substantially underestimated. Moreover, indirect effects, such as increased welfare benefits received by the native population, are generally ignored.

The relevant question is not the overall budget impact of immigration since ending all immigration is not a realistic policy option. Rather, the research question should be what is the effect on the budget of changes in the number and characteristics of immigrants. The full budgetary impact of high-skilled immigrants would be much more favorable than that of low-skilled immigrants.

The "fiscal impact" approach would also call for an expansion of high-skilled immigration and a reduction of low-skilled immigration.

Herb Stein
2:40 p.m.  Tuesday  8/20/96

We have been talking about "just the facts" for a day and a half and Peter Skerry is eager to get to the policy matters. I am not going to stand in the way. Some panelists have already jumped the gun anyway.

Although Sanford Ungar may disagree, suppose we start with the proposition that the present volume and character of immigration makes the incomes of unskilled native workers less than they would otherwise be. That is what intuition and Economics 101 would lead you to expect, although, as I remember, Economics 101 was always very good at saying "more" or "less" but silent about how much more or less. But let us also accept what the studies seem to show, that in this case the result is "significantly less." Then what is to be done?

I was surprised at Krikorian's saying that controlling immigration was the only thing that Congress could do to improve the lot of the lowest-income Americans. There are people who suggest a lot of other things. Some would prohibit imports from countries with lower average wages than ours. Since a large proportion of our poor are in families headed by single mothers, there are people who think that "tough love"--i.e., welfare reform--will help. Others emphasize the improvement of education in the poor neighborhoods. And there is a large school of people who count on the rising tide to lift all the boats, although there is much disagreement about how to get the tide to rise.

But those are not the problems for this panel. What should we do about immigration? In his acceptance speech, Bob Dole said that there should not be a single illegal immigrant. Would that solve the problem? Is there any feasible restraint on illegal immigration that would solve the problem? How do we begin to think about what is the proper number of legal immigrants of various kinds? These questions lead us into the area of the non-economic considerations that are relevant. I welcome the panelists' further thoughts.