2005 February 24 Thursday
Columbia Economists Estimate $68 Billion Yearly Cost From Immigrants

Columbia University economists David Weinstein and Donald Davis present a new approach for analysing the costs of immigrants.

This study employs a new approach to examine the impact of immigration on the U.S. economy. Unlike earlier studies, we do not treat the movement of immigrant labor into this country in isolation. Older studies assumed that abundant resources and demand for labor was the primary reason for immigration, assumptions more appropriate to the 19th century. We start by assuming that the technological superiority of the modern American economy and resulting high standard of living is the primary factor motivating immigration. The study also takes into account the new global economy, including the movement of capital as well as trade. Our findings show that immigration creates a net loss for natives of nearly $70 billion annually.

Among the reportís findings:

  • In 2002, the net loss to U.S. natives from immigration was $68 billion.
  • This $68 billion annual loss represents a $14 billion increase just since 1998. As the size of the immigrant population has continued to increase, so has the loss.
  • The decline in wages is relative to the price of goods and services, so the study takes into account any change in consumer prices brought about by immigration.
  • The negative effect comes from increases in the supply of labor and not the legal status of immigrants.
  • While natives lose from immigration, the findings show that immigrants themselves benefit substantially by coming to America.
  • Those who remain behind in their home countries also benefit from the migration of their countrymen.

The model used in this study can be summarized as follows: High U.S. productivity motivates the entry of foreign workers and capital. As a consequence, the movement of foreign labor and capital into the United States expands U.S. exports and reduces exports by foreign countries who now have fewer workers and less capital. This depresses the prices of U.S. exports while raising the price of its imports, which is bad for U.S. natives. While the addition of immigrant workers makes the overall U.S. economy larger, natives in the United States are worse off because immigrants take not just the increase in income, but other income as well. This is because American workers are now competing with foreign workers who, because they have entered the United States, now have access to superior American technology, which is the primary source of American workersí competitive advantage in the international economy. In other words, American workers are better off competing with foreigners if the foreign workers stay in their own countries and donít have access to American technology. By allowing the foreign workers into the United States, Americans face competition with foreigners equipped with American technology.

This is an interesting argument. Their approach is valuable because they at least put the higher productivity of the US economy at the center of their analysis. But the analysis fails to take account for the reasons why American workers have access to superior technology. Most notably, American workers possess the capacity to develop advanced technology in the first place. Therefore it makes sense to differentiate between those immigrants who enhance our ability to develop productivity-increasing technology and those immigrants who detract from it. For example, engineers who develop ways to make car factories more productive are assets to the economy as a whole because they do work that raises the productivity of the American work force. By contrast, low riders who develop new ways to steal cars are quite glaring drags on the economy.

One of the reasons I favor a far more restrictionist approach to immigration is that our current mix of immigrants includes too many people who are not contributing to making the economy more productive and who are instead contributing to making the economy less productive. Take criminals for example. They destroy things and harm victims. But they also cause the labor of many more skilled workers to be diverted away from productivity-enhancing work. People who work as prosecuting attorneys and defense attorneys are people who are not working as patent lawyers, accountants, architects, engineers, or medical researchers among other more constructive occupations. Social workers spend their days dealing with the problems created by lower classes of society. Those social workers might otherwise be more productively employed in customer service and technical support of medical devices and software companies for example.

Put aside the mythology which has been promoted about all immigrants as beneficial to America and look at the actual empirical social science evidence on Hispanic immigrants in particular. The Hispanics create a number of problems for Americans. Hispanics are very poorly educated when they arrive, do not rise scholastically to American average levels over successive generations (and, generally speaking, immigrants quickly reach the level of scholastic achievement that their group will stay at in later generations, earn lower incomes (and hence pay less in taxes than they receive in benefits), have kids illegitimately at higher rates, and commit crimes at higher rates (and also see here).

Our country is made richer by innovators, inventors, venture capitalists, engineers, scientists, and sharp managers. Those people tend to be smarter and have advanced training in quite difficult subjects. Immigrant groups whose members are greatly underrepresented in higher educational attainment and in those occupations are not raising America up to higher living standards and better environments. The mythology that argues that all immigrants are beneficial to America is obviously false and we can no longer afford to embrace it just because it sounds nice and makes lots of people feel good.

Steve Sailer has a great quote from social scientist James Q. Wilson (whose books Thinking About Crime and Crime & Human Nature are worth the time to read btw) that sums up my own attitude about immigration:

The great achievement of Western culture since the Enlightenment is to make many of us peer over the wall and grant some respect to people outside it; the great failure of Western culture is to deny that walls are inevitable or important.

Share |      By Randall Parker at 2005 February 24 11:00 AM  Immigration Economics

John S Bolton said at February 24, 2005 4:45 PM:

These economists should be nominated for a Nobel prize. Their analysis uses theory and equations which have been available since the 19th century. For some reason, no economists before these had seen fit to do this analysis of the negative terms of trade effects of immigration from a low to a high productivity country. I suspect the reason is that government funded institutions are biased towards emphasizing that which allows for the increase of intercommunal conflicts, thus setting the stage for an increase in official discretion. The magnitude of the terms of trade losses to the citizenry is of the same order as the lower per capita income growth rates which have prevailed over the last thirty years, coinciding with the swelling currents of third world immigration.

Invisible Scientist said at February 26, 2005 1:18 AM:

The Columbia economists are correct, but perhaps they were only looking at the
cost of subsidizing the underqualified immigrants, because had they taken into account the
net financial benefit that the high quality type immigrants bring to the US, they might
have insisted that immigration will be a net benefit to the US PROVIDED that we raise
the quality of the immigrants by attracting kids with IQ over 140 to the US.
Just look at the incredibly irrelevant lottery that gives 50,000 green cards to random
candidates every year. This lottery should have a certain minimum IQ requirement for registration.

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