Arnold Kling  

Benefits of Immigration

PRINT
Do We Spend Too Little on Heal... A Quote that Should Have Been ...

Michael Kremer and Stanley Watt write


Since high-skilled natives with a higher opportunity cost of time are more likely to purchase domestic services from immigrants, native high-skilled workers will spend more time working in the labor market.

To the extent that migration of foreign private household workers leads highskilled natives to increase labor supply to the market, wage inequality among natives is reduced. The increase in labor supply of high-skilled workers leads to a decline in their relative wage and an increase in the relative wage of complementary low-skilled native labor. By allowing women to work more flexible hours, foreign private household workers may also reduce gender disparities among high-skilled natives and help eliminate the glass ceiling.

Moreover, when high-skilled women hire immigrant private household workers and transfer their labor from home production to market work, their output becomes taxable, providing a fiscal benefit for the population, even without considering the taxes paid by the migrants themselves.


As I wrote in this post, beware the unintended consequences of restricting immigration.

Thanks to Greg Mankiw for the pointer.

Meanwhile, Reuven Brenner discusses immigration in the context of Ireland's economic miracle.


What happened to the financial center that was once in Montreal? It moved — together with some 400,000 people — to Toronto. Where are the Cuban brains? In Florida, and that’s where they prospered while Cuba lapsed into dire poverty. Where is Mexico’s human capital? Ten percent or more has come to the United States. Where did hundreds of thousands of Russian scientists, engineers, and technicians go? Israel. And where has the talent been flowing in Europe? To Ireland: Over roughly a decade, more than 400,000 newcomers have moved there, an addition of 10 percent to the Irish population.

Read the whole thing.


Comments and Sharing





TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/571
The author at Heritage Tidbits in a related article titled Immigration's Role in Ireland's Economic Renaissance writes:
    Reuven Brenner, author of Force of Finance, on the role immigration has had in Ireland's economic resurgence: How did Ireland go from being among the poorest places in Western Europe to one of the richest? How did it attract the... [Tracked on September 30, 2006 2:34 AM]
COMMENTS (15 to date)
Lancelot Finn writes:

I think there are a number of cases for immigration that remain largely unexplored.

For example, consider the interaction of immigration with the trade deficit.

Economists sometimes assume rather blithely that if the dollar falls in value, US exports will increase and US imports will decrease. But this is not necessarily the case. If Americans consume equal amounts of foreign goods after a dollar drop, the dollar value of imports will INCREASE (while exports' dollar value will stay the same, assuming exporters price their goods in dollars and there is no elasticity of demand). If import and export demand is insufficiently inelastic, then currency depreciation will actually EXACERBATE trade imbalances, because the substitution effect will be swamped by a terms-of-trade effect. This is dangerous because it can create a vicious spiral: the dollar drops, so imports become more expensive and more dollars flow out, driving the dollar down further, and so on until... CRASH!

So it's in our interest to increase the elasticity of demand for exports. "Exports" includes tourism, and in a sense it should even include immigration (counter-intuitively): foreigners come here, using dollars, and spend dollars in order to get a start in life.

If we had open borders, there would be less danger of a dollar crash. If the dollar starts sliding, foreigners say, "Hey, hey! This is a great time to go to America." They buy dollars on the cheap and travel to America-- as tourists, or sojourners, or settlers, or maybe they don't decide beforehand how long they'll stay-- and thus shore up the dollar. Open borders is a form of insurance against financial crises.

Your post only deals with financial matters, not with what I (as a non-economist) consider economics.

Perhaps you could discuss whether developing a "nanny-employing class" is healthy for society or not.

Perhaps you could discuss how employing illegal labor leads to political_corruption.

Perhaps you could discuss how remittances encourages Mexico to send us as much cheap labor as they can, even lobbying inside the U.S. in order to do that.

If none of those are in your field, then perhaps you should provide a disclaimer saying that your post only deals with the financial aspects and not everything else.

Lancelot Finn writes:

I should have said "open borders is a form of insurance against currency crises," not against "financial crises." (That would be a different argument.)

Mr. Econotarian writes:
Perhaps you could discuss whether developing a "nanny-employing class" is healthy for society or not.

Of course it is healthy if it encourages people with greater personal capital (such as education) to concentrate on their core competancies and innovate! It is also healthy if those "Nannies" save up money, and then go start a chain of ethnic restaurants (I know a Salvadoran Nanny who did just that), and now her kids can go to college and become computer programmers.

I also consider it much healthier to have "Nannies" in the U.S. rather than "workers in the fields under the hot sun 12 hours a day making 10 cents an hour" or "sweat shop workers" in developing countries.

Matt writes:

The upshot of the argument is that cramming more squirrels into large metropolitan areas creates more productive walnut production.

True. That is why bees crowd into hives and ants into colonies.

We could simply put a hundred million squirrels into the Los Angeles basin. Using high speed transport and drugs, productively convert these squirrels into bees and ants.

Why do we want to do this? Anybody have a clue? Is there some return on investment that I might obtain from this process?

Matt writes:

"..greater personal capital (such as education) to concentrate on their core competancies and innovate!.."

OK, the economic argument is that this will occur. It may occur because the badness of it has not yet entered into the value units that the public economy uses.

Economists forget that values change and their equations are predicated on measuring current and near term value. They are very poor at writing predictive equations outside of a limited period because the unit of value changes dramatically.

Taken to an extreme, I become a bee as I narrow my focus. As a bee, my ability to measure value of being a squirrel is dimished, and never reflected in the public economy. I may never escape, bees in their limited abilities never give back to economists the value of squirrelness.

Economists are very bad about handling this instability, and as a result they fail to predict civil wars and other human catastrophes.

Martin Kelly writes:

An alternative view of the benefits of mass immigration into the Irish republic can be found here -

http://www.vdare.com/misc/060316_kelly.htm

Lancelot Finn writes:
We could simply put a hundred million squirrels into the Los Angeles basin. Using high speed transport and drugs, productively convert these squirrels into bees and ants.

Why do we want to do this? Anybody have a clue? Is there some return on investment that I might obtain from this process?

This is easy. Urban land is scarce. There is plenty of rural land, plenty of open, empty space. Far more than any but a tiny minority of Americans really want. What is scarce is land in metropolitan centers. People are always voting with their feet for high concentration-- that's why we have cities. (Otherwise people would just spread out evenly across the landscape.)

More immigration means bigger cities, more concentration, more of the scarce, desirable resource-- urban land-- and less (though only a tiny bit less, proportionally) of the abundant, less desirable rural and empty land.

Of course, for any given, stationary, city- or suburb-dweller, growth of cities may be inconvenient, because they will find themselves "migrating" from low-concentration to high-concentration land while standing still. But they can always move, and the market will richly compensate them for their inconvenience.

Of course it is healthy if it encourages people with greater personal capital (such as education) to concentrate on their core competancies and innovate!

III here. If we assume that people are just insects whose only goal is to make money, then yes, of course it's healthy.

However, if my comments above weren't enough of a clue, developing a "servant-employing class" is not necessarily a good thing.

For instance, it leads to our leaders becoming even more separated from the rest of us. And, it can lead to personal corruption as our leaders decide to save a few pennies by employing illegal alien help rather than the domestic variety. That may lead to them then promoting illegal labor in order to get cheaper servants and in order to help others of their class get cheaper servants. And, that may lead to them promoting illegal activity and working to undermine our political system.

In other words, there are variables other than simple economic ones. Mr. Econotarian and Kling are ignoring all those other variables and concentrating only on the first-level economic factors.

John S Bolton writes:

It also involves a counterfactual assumption that aggression is not part of what happens when you add unskilled foreigners into a welfare society/diseconomy; as if we owed no loyalty to fellow citizens above the foreigner, when foreigners stateside increase the aggression on the net taxpayer here.

Kenji writes:

The National Review editorial presents an insufficient explanation of the Irish miracle. I have posted something on this at my blog, in case anyone is interested.

Uriah Heep writes:

Kling,

Hiring an immigrant to cut my yard once a week is going to increase the supply of highly skilled workers? Are doctors and engineers entering back into the work force because they now have someone to do their shrub trimming for them?


Highly skilled people never did any of this work for themselves. Now they are just paying a little less for the services.

Dezakin writes:

It certainly encourages natives to consider getting skills if they wish to command a higher wage. The higher wages become a slightly juicier carrot because they can now command more gardeners, and the base wage becomes a sharper stick because you have to compete with more gardeners.

Loki on the run writes:
It certainly encourages natives to consider getting skills if they wish to command a higher wage. The higher wages become a slightly juicier carrot because they can now command more gardeners, and the base wage becomes a sharper stick because you have to compete with more gardeners.

This simplistic view ignores the fact that not all natives are the same. Some can acquire higher skills and some can't. That is, there is a normal distribution.

Unless you take the view that (illegal) immigrants are less intelligent than all natives, what are we to do with those natives, who, through no fault of their own, are less educable?

Moreover, the argument put forward breaks down at some point when the supply of immigrants in exhausted. Then we are all natives, and the dispatities in income that those (illegal) immigrants have some how alleviated among natives have magically reappeared.

Sheesh. Do I have to do all your thinking for you?

Lance F writes:

"The increase in labor supply of high-skilled workers leads to a decline in their relative wage and an increase in the relative wage of complementary low-skilled native labor."

While I agree with the first part of this statement, there is no reason that we should see an increase in the relative wage of the complementary low-skilled native labor. If we are discussing legal low-skilled imigrants, the effect will be just the opposite. The available pool of complementary low-skilled workers will be greater, therefore driving down the equilibrium wage.

Comments for this entry have been closed
Return to top