Friday, January 6, 2017

Rebuttal of Senator Tom Cotton’s Anti-Legal-Immigration Oped

By Alex Nowrasteh of Cato.
"Senator Tom Cotton (R-AR) recently penned an op-ed for the New York Times in which he calls for a large reduction in legal immigration, something he believes will raise American wages. It’s nice when immigration restrictionists are honest about their intention to cut legal immigration, but Senator Cotton would be disappointed if his policy ever came to fruition. Senator Cotton does make some cursory arguments for expanding high-skilled immigration—a positive policy—but I will focus here on his argument to restrict it. I will respond to a few of Senator Cotton’s comments below. His will be in block quotes while my responses will follow. 
Higher wages, better benefits and more security for American workers are features, not bugs, of sound immigration reform. For too long, our immigration policy has skewed toward the interests of the wealthy and powerful: Employers get cheaper labor, and professionals get cheaper personal services like housekeeping. We now need an immigration policy that focuses less on the most powerful and more on everyone else.
Senator Cotton argues that skilled native workers are complementary to low-skilled immigrants, meaning that the former’s wages rise rather than fall when more of the latter arrive. This is because low-skilled immigrants and higher skilled workers don’t compete for the same jobs but instead work together, expanding productivity and compensation for both parties. These complementarities do exist, but there is also much evidence that lower-skilled American workers are actually complementary with low-skilled immigrants. Economists Gianmarco Ottaviano and Giovanni Peri found that immigration had a small positive relative effect on the wages of native workers with no high school degree (between +0.6 percent and +1.7 percent) and a small positive effect on average native wages (+0.6%) from 1990 to 2006. Immigrants are complementary to native workers but substitutable for other immigrants who experienced a substantial relative negative effect (−6.7 percent) from immigration. It should not be surprising that new immigrants compete with older immigrants who both share similar skills while native-born American workers benefit overall.

Language differences are a major reason why immigrants and natives with the same skill level are complementary according to economists Peri and Chad Sparber. Low-skilled immigration incentivizes low-skilled natives to specialize in jobs that require communication in English. Meanwhile, immigrants specialize in jobs that are more manual-labor intensive and require less English-language proficiency. Communication jobs are more highly compensated than manual-labor jobs. This complementary task specialization reduces the downward wage pressure because natives react by adapting and specializing in more highly paid occupations, not by dropping out of the job market or accepting lower wages. This effect decreases wage competition between lower-skilled natives and immigrants by around 75 percent. Economist Peter Henry also found that low-skilled immigrants to an area induced natives to improve their school performance so that they wouldn’t have to compete with lower-skilled immigrants. Immigrants tend to push Americans upward rather than downward.
More low-skilled workers incentivize more Americans to enter the labor market. A good example of this is provided by economists Patricia Cortes and Jose Tessada, who found that skilled American women with young children reentered the workforce faster when they lived in cities with many low-skilled immigrants who could work as nannies. In this case, an immigrant with a job increases the number of working skilled American women.
After all, the law of supply and demand is not magically suspended in the labor market. As immigrant labor has flooded the country, working-class wages have collapsed. Wages for Americans with only high school diplomas have declined by 2 percent since the late 1970s, and for those who didn’t finish high school, they have declined by nearly 20 percent, according to Economic Policy Institute figures.
Senator Cotton rightly tells us to pay attention to the law of supply and demand but then promptly ignores demand. Immigrants boost demand by buying goods and services, which create more jobs than are occupied by the immigrant workers themselves according to research by Gihoon Hong and John McLaren. If immigrants are removed from an area they take their purchasing power, and the jobs that their purchases support, with them. An example will help explain this. Let’s say you own a small local business. One day the government rounds up half of your customers, some of whom are your employees, and deports them. As a business owner, would you be eager to hire more workers at a higher wage to replace those who were deported or would you refrain because your revenues are about to take a substantial hit? The answer is obvious. Now multiply that by 11 million unauthorized immigrant consumers.

Some will claim that money sent abroad by immigrants in the form of remittances, about $135 billion in 2015, does nothing to help the U.S. economy. First off, most of that money wouldn’t have been made had it not been for immigrants earning it—the economy is not a fixed pie. Secondly, that money eventually returns to the United States in the form of exports or foreign investment.

There is not a fixed number of jobs in the economy, so an employed immigrant does not automatically force a native out of the job market. Immigrants “taking” jobs from natives, also known as displacement, is a minor phenomenon when it exists at all. One prominent study found that an increase in the foreigner share of a population by 10 percent reduces native employment by 0.2 to 0.7 percent, a result exacerbated by labor market regulations. Many of those Americans displaced by immigrants tend to get better-paid jobs that exist due to the complementarities described above. David Card and Ethan Lewis found that most of the workers displaced were actually immigrants themselves, although this was confined to just a handful of cities.

The wage decline figures provided by the left-wing Economic Policy Institute have been soundly rebutted when proper inflation indices are used.  A forthcoming Mercatus Center paper by Scott Winship, a visiting fellow at the Foundation for Research on Equal Opportunity, finds that wages for workers in the 20th percentile who are most likely to be only high school graduates have increased slightly since 1970. Wages for workers with less than a high school degree have likely fallen somewhat since 1970.

However, the U.S. workforce is a lot more educated than it was in 1970. In that year, there were 47.2 million native-born American high school dropouts who were 25 years or older. They comprised 46.4 percent of the native population in that age category. In 2015, there were only 16.8 million native high school dropouts in the same age range and they comprised a mere 9.4 percent of the natives. Both the absolute and percentage of native-born Americans with less than a high school degree has crashed since 1970.

The number of natives who are at least 25 years old with only a high school degree increased from 43.5 million in 1970 to 51.1 million in 2015, but their percentage of the population dropped from 42.8 to 28.6 percent. Native high school dropouts and those with only a high school degree numbered almost 91 million in 1970 and comprised 89 percent of natives who were at least 25 years old. In 2015, they numbered 67.9 million and a mere 38 percent of natives in the same age range. Even if Senator Cotton’s figures were correct (they aren’t) the percentage and number of native-born Americans who suffer is much reduced from 45 years ago.

Interestingly, workers with only a high school degree might be the most complementary to those with less than a high school degree. There is some evidence that Miamians with less than a high school degree suffered wage declines after the Mariel Boaltift dropped about 125,000 mostly low-skilled Cubans in Miami in 1980. However, the wages for native-born Miamians with only a high school degree shot up afterward and likely overwhelmed the wage decline for those with less than a high school degree. If these results are generalizable (a huge if) then halting immigrants with less than a high school degree could stop wage growth for high school graduates. That’s disincentives climbing the skills ladder.
It’s been a quarter-century since Congress substantially reformed the immigration system. In that time, the population of people who are in this country illegally has nearly tripled, to more than 11 million. We’ve also accepted one million legal immigrants annually — and a vast majority are unskilled or low-skilled.
If controlling immigration to the United States was as easy as flipping a policy switch, then there would be no debate over immigration reform. There would be no illegal immigrants and the system would behave as its designers intended. In the real world, people respond to incentives and are not passive objects that just accept government laws. When laws, like our heavily restrictive immigration laws, erect legal barriers to voluntary exchange then the result is a vast black market represented by 11 to 12 million illegal immigrants. More restrictions are unlikely to reduce the size of the black market. Assume, for the sake of argument, that Senator Cotton is correct that wages for Americans with less than a high school degree will rise if millions of illegal immigrants are deported and the future legal flow is halted. Foreigners will then have even more of an incentive to sneak in illegally to work, overstay visas, or find other ways to circumvent American labor market regulations. More comprehensive enforcement will just raise wages, which will attract more illegal immigrants, who will then lower wages again, which in turn will be countered by better enforcement—and so on in a familiar and predictable cycle. All is not hopeless, however: there is a way out.

The only times in American history when our immigration laws were largely obeyed was when the Great Depression turned off the “jobs magnet,” a world war prevented the crossing of borders, and a large-scale guest-worker program funneled would-be illegal immigrants into the legal system (the Bracero program). Since 1964, we have not had a Great Depression (thank God), world war (double-thank God), or a functional guest-worker visa program for lower-skilled workers. As a result, we have a large problem with illegal immigration that enforcement cannot halt except by triggering a world war or economic depression. Foreigners want to sell their labor to Americans and Americans want to buy it. The law does dent that flow but there will always be a large black market so long as the government tries to enforce laws that conflict so much with reality. A functional legal immigration system can prevent or substantially reduce illegal immigration far more cheaply and effectively than expanding an already vast border bureaucracy.

Immigration produces a net-benefit for Americans. Economist David Card called research on the topic “the elusive search for negative wage impacts of immigration.” Although some noted economists like George Borjas at Harvard do find relative wage declines for some groups of American workers, even his work shows that wages for native-born Americans benefit overall, although by a small amount. An honest discussion of immigration policy must consider the known economic benefits of immigration as well as the costs."

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