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Nov 26, 2016

Immigration's losers and gainers - who's who

From Mises.ca, NOVEMBER 26, 2016
Excerpted from the Claremont Review of Books
This is the sort of common-sense conclusion that you need not ever spend a day in economics class to understand. Yet for three decades economists have clung doggedly to the doctrine that immigrants can offer efficiencies to an economy without lowering the wage in the industries where they work. This is nonsense on the conceptual level: the lowered wages are the efficiencies.
Borjas focuses on a celebrated 1990 study of the Mariel boatlift, by Princeton labor economist David Card. In the course of a few weeks in 1980, 125,000 people—a variety of dissidents, criminals, and ambitious youngsters—were allowed to flee Cuba, and wound up in Florida. Despite what was considered, in the days before China joined the world economy, a massive labor shock, Card found no evidence that the newcomers depressed general wages around Miami. Politicians have thus quoted his study ever since. Barack Obama dredged it up in 2014. It is useful. But it is, Borjas shows, wrong. Card had looked at the workers in metropolitan Miami as a whole. The Miamians with whom the Marielitos competed most directly—high-school dropouts—were effectively “tucked away” inside this larger group. But once poorer workers were isolated, it was easy to show that their weekly wage fell between 1979 and 1985. It fell, in fact, by an astonishing $100 a week. Incantations about diversity do not abolish the laws of supply and demand. After a 2006 raid on a chicken plant in Stillmore, Georgia, which rousted out illegal workers, the plant had to hire locals, and did so at significantly higher wages.
Whether immigrants help or hurt a sector of the economy has to do with whether they enter it as “complements” or competitors. Today’s immigrants are complements for rich people, who tend not to act as their own valets, chefs, gardeners, or maids. Others do those jobs. If the cost of them gets cheaper, rich people’s lives get better, and the number of people who can live like rich people may increase. The lives of the natives who used to perform those tasks get worse. The rule of thumb is that a 10% increase in the workforce of a given sector will result in a 3% fall in wages.