George J. Borjas of the Kennedy School of Government at Harvard University has been working on the problem of labor market effects of immigration for 20 years. He is coming out with an important new paper in the Quarterly Journal of Economics on the subject entitled "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market (PDF format).
This paper introduces a new approach for estimating the labor market impact of immigration. The analysis builds on the assumption that similarly educated workers who have different levels of experience are not perfect substitutes. Defining skill groups in terms of educational attainment and work experience introduces a great deal of variation in the data. In some years, the influx of immigrant with a particular level of schooling mainly affects younger workers, in other years it mainly affects older workers. In contrast to the existing literature, the evidence reported in this paper consistently indicates that immigration reduces the wage and labor supply of competing native workers, as suggested by the simplest textbook model of a competitive labor market. Moreover, the evidence indicates that spatial correlations conceal around two-thirds of the national impact of immigration on wages.
My estimates of the own factor price elasticity cluster between -0.3 and -0.4. These estimates, combined with the very large immigrant influx in recent decades, imply that immigration has substantially worsened the labor market opportunities faced by many native workers. Between 1980 and 2000, immigration increased the labor supply of working men by 11.0 percent. Even after accounting for the beneficial cross-effects of low-skill (high-skill) immigration on the earnings of high-skill (low-skill) workers, my analysis implies that this immigrant influx reduced the wage of the average native worker by 3.2 percent. The wage impact differed dramatically across education groups, with the wage falling by 8.9 percent for high school dropouts, 4.9 percent for college graduates, 2.6 percent for high school graduates, and barely changing for workers with some college.
The paper is 55 pages long and the body of it features a great many equations that are only going to be of interest to economists with the requisite training to make sense of them. However, he has a few pages of introduction and a conclusion that are both readily understandable by the layman.
Notice that he italicises the "is" in the title of the paper. A downward sloping demand curve refers to a plot where supply is on the X horizontal axis and price is on the Y vertical axis. As more supply becomes available the price that purchasers are willing to pay drops. Some have argued that increasng the supply of labor does not exert downward pressure on labor pricing. The demand curve, in their view, does not slope down because, presented with more labor, the economy expands and develops greater economies of scale and greater demand for labor. Borjas's result suggests that labor really does follow the pattern of classic supply curves and slopes down to have lower prices when more supply is available.
Borjas acknowledges that his work is far from a complete study of all the effects of immigration. He even explicitly acknowledges that an influx of high skill immigrants may spur technological changes that may bring important benefits. However, one big problem with the current influx of immigrants is that most of them are low skilled (two thirds of Mexican immigrants did not graduate from high school - note that some never attended high school at all) and hence not going to make contributions to advances in science and technology.
|Share |||By Randall Parker at 2003 June 26 05:13 PM Immigration Economics|