Tuesday, April 18, 2006

Debunking An Economic Myth of Illegal Immigration

A recent NY Times report is casting doubt on the claim that illegal immigrants undercut the wages of Americans. Below is the first four paragraphs:

California may seem the best place to study the impact of illegal immigration on the prospects of American workers. Hordes of immigrants rushed into the state in the last 25 years, competing for jobs with the least educated among the native population. The wages of high school dropouts in California fell 17 percent from 1980 to 2004.

But before concluding that immigrants are undercutting the wages of the least fortunate Americans, perhaps one should consider Ohio. Unlike California, Ohio remains mostly free of illegal immigrants. And what happened to the wages of Ohio's high school dropouts from 1980 to 2004? They fell 31 percent.

As Congress debates an overhaul of the nation's immigration laws, several economists and news media pundits have sounded the alarm, contending that illegal immigrants are causing harm to Americans in the competition for jobs.

Yet a more careful examination of the economic data suggests that the argument is, at the very least, overstated. There is scant evidence that illegal immigrants have caused any significant damage to the wages of American workers.

Aside from the economics of it all, how the US should deal with its illegal immigrants is a complicated question, that will require a complicated solution. One thing it cannot do simply ignore it because it will create an American underclass, a 'shadow society'. In the end those illegal immigrants will eventually become citizens by marrying or having children in the US. In the mean time, the more we simply adopt an 'ignore them' policy, it will create a problem when they are legal citizens because then they will carry the resentment of being ignored and distance themselves from American civic society.


At 5:42 AM, Blogger Unlisted said...

Well, no, not exactly. What about the cost of living difference between California and Ohio? Don't they tell you in Econ 101 and in Journalism 101 to always adjust for the cost of living?

According to the data gathered by the nonprofit organization ACCRA, which measures cost of living so corporations can fairly adjust the salaries of employees they relocate, in 2004 California has the highest cost of living in the country with an index of 150.8 (where 100 is the national norm). Ohio is below average at 95.4. So, relative to the national average cost of living, high school dropouts in Ohio average $8.77 versus $5.78 for the equivalent in California. That means they are 52% better off in Ohio than in California!

So, the Law of Supply and Demand hasn't been repealed after all...

One obvious cause of this huge difference in the cost of living is that during the same 1980 to 2004 period, housing inflation in California was 315% versus 155% in Ohio, according to the Laboratory of the States.

Even failing to adjust for the striking disparities in the inflation rate between Ohio and California, one obvious differences is that high school dropouts used to be paid a lot more in Ohio, probably due to greater unionization. In contrast, Southern California was traditionally anti-union. The 1980 wage in Ohio was $12.13 versus $10.49 in California. Obviously, the decline in unionized heavy industry jobs hit rust belt Ohio harder than growing California, which had fewer unionized heavy industry jobs to lose.

Here's the data from the NYT's graphic, in which 9 states were cherry-picked to make it look like the higher the percentage of illegal immigrants in a state's population, the better off high school dropouts are (r=+0.58). I've added the two right hand columns to adjust for the big cost of living differences as of 2004. We then find a negative correlation of r = -0.46 between the percentage of illegal immigrants and the cost-of-living-adjusted median wage for high school dropouts. Quite a difference

At 5:47 AM, Blogger Unlisted said...

Sorry, the chart won't post, but the point that is constantly overlooked is that American citizens ought to be compensated with higher wages for moving from their native state to fast growing states to meet the demand for labor. But, instead, illegal immigrants are beating them to the boomtowns, driving down wages.

You might expect that economists will write in to the New York Times en masse to protest this fiasco of an "Economic View" article. But you would be wrong, because professional standards mean nothing when the topic is immigration.

Interpreting these numbers sensibly doesn't require a mastery of quantum mechanics. It's all just Econ 101, but the American upper middle class so despises the American working class today that self-evidently shoddy thinking deleterious to the welfare of the American working man is routinely trumpeted in both conservative newspapers like the Wall Street Journal and liberal newspapers like the New York Times.

At 9:29 PM, Blogger Dunia's Stranger said...

Good points unlisted,

There is the possibility that these cases were 'cherry picked' by the economists.

The article mentions that this study was in response to a study last year by Harvard economists that estimated that the inflow illegal immigrants had reduced the wage of high school drop-outs.

Ultimately, no one side is going to decisively be able to prove their point because of the dynamic nature of wages.

Considering that, I still stand by my conclusion that Americans need to deal with the illegal immigrant issue.

On another note, you might be onto something about liberals and conservatives ganging up together to bash the working class.

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