Arnold Kling  

Immigrants and measured GDP per capita

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Reader Bruce Charlton points me to a post by Half Sigma.

Unskilled low-IQ immigrants who come to the U.S. contribute slightly to higher total GDP, but they lower the GDP per capita.

Letting in a low-skilled immigrant to mow my lawn will indeed lower average productivity in this country. But I will be better off.

To the extent that low-skilled immigrants are significant, standard productivity indicators can be misleading. For example, suppose that France lets in a bunch of low-skilled immigrants and puts them on welfare, while we let in a bunch of low-skilled immigrants and put them to work. Then our GDP per capita will be higher, but France's GDP per worker will be higher and their GDP per hour of work will be higher. If you use the latter as a measure of productivity, you would say that France is following a brilliant strategy, and we should copy it.

To get closer to a relevant measure of national economic performance, you might invent something like endowment-adjusted consumption per working-age adult. By adjusting for endowment, you correct for the lower skills of immigrants. By using consumption, you get a measure that is closer to the quality of life. And by using working-age adults, you don't treat high unemployment of low-skilled workers as a good thing.

But it's important to remember that you personally don't get to consume GDP per capita. You get to consume based on the purchasing power of what you produce. If immigrants lower the cost of goods and services for us, then bully for immigrants.

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The author at Half Sigma in a related article titled The carrying costs of immigrants: a response to Arnold Kling writes:
    In response to my post on GDP per capita, Arnold Kling responded: [Tracked on May 31, 2008 10:22 AM]
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Publius writes:

I've been thinking about a different kind of economic indicator that doesn't penalize a country for low-skill immigrants.

The purpose of the metric would be to measure how well geographic areas (defined politically or otherwise) support wealth creation.

If one location used to support one person who made 40k and now supports two people, one who makes 40k and another who makes 20k, that would register as a gain.

For the measure to work, you would have to draw lines to segment different levels of income for comparison purposes. For convenience, I'll divide them into four groups:

1) People with an income of 100k or more a year ("High Income")
2) People with an income above the poverty line but beneath 100k a year
3) People with an income below the poverty line but above 1k a year (random number, but need something to separate poor people in Sudan and people in a ghetto in Detroit)
4) People with an income beneath 1k

I would consider removing people above 70 yrs old from this group, not because they don't matter, but because their income likely doesn't reflect their QoL, and also isn't necessarily relevant to what we are measuring here -- how fertile a place is for wealth creation at different levels of wealth.

We're not interested in how many millionaires there are relative to people making 40k -- we're interested in how many more millionaires and 40k earners does one area support over another.

You could divide the results by geographic size to compare if you'd like, or use the pure numbers to compare how much more dynamic the American economy is now compared to any point in the past.

This metric would properly draw attention to the fact that nation-state economies aren't static, they are dynamic, and to measure their utility you need a metric that takes into account the changes in membership.

Matt writes:

"Letting in a low-skilled immigrant to mow my lawn will indeed lower average productivity in this country. "

I am not sure they lower productivity. If we bring in low skilled immigrants and we cannot use them effectively then our system lacks productivity and low skilled immigrants would be helpful.

The problem is that American workers want a special deal, they want a two tiered system.

Lord writes:

You may not personally get to consume gdp per capita, but you most certainly don't get to consume gdp. The problem is not that they are not productive but that you gain the benefit while placing the social costs on the rest of society. The rich want the whole world to be a third world country. I want the rich to move to one and spare us their selfishness.

It is also doubtful France's gdp per worker would be higher; the additional burden should lessen gdp as well as gdp per capita as leisure would become more valued. The immigrants would be better off at the expense of everyone else.

TLB writes:

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JSBolton writes:

Not if mass immigration is itself rated a good which the market is incapable of setting a correct price on. How do market valuations get thrown away in this context; if wages are affected by immigration at all, that would be a market effect. Are we being given 'hedonic' unreason in the place where market rationality was expected? The discarding of per capita(as in the entire population, no switching of relevant terms passes unnoticed ) output measures is most suspicious. Economies are evaluated in terms of how they do per capita, not by how many immigrants they can handle. Pakistan and the Congo are not considered successful just because they have absorbed millions of immigrants, if one compares them to Japan or other rich countries which have not. If there is to be made up a 'hedonic' value for absorbing an additional immigrant, why should it be more in one country than another?

dave.s. writes:

"..If immigrants lower the cost of goods and services for us, then bully for immigrants..."

Who is the 'us' here? I do nicely: I have a good income from a job which realistically can't be done by someone not from here. I get someone eager to mow my lawn for cheap, and cheaper body work on my car when I bang it up. However, the dull kid who dropped out of a cruddy high school, is quasi-literate, and not as good at forelock-tugging as the rather humble illegal, maybe has attitude: that kid might have gotten the job absent the immigrant. Or an ex-con, on whom I am not inclined to take a flyer, but might absent another candidate. Fifteen years ago, those guys got jobs. Now, not so much. They aren't starving, though: welfare, and theft, and drug sales become more attractive alternatives.

Independent George writes:

...not as good at forelock-tugging as the rather humble illegal, maybe has attitude: that kid might have gotten the job absent the immigrant. Or an ex-con, on whom I am not inclined to take a flyer, but might absent another candidate. Fifteen years ago, those guys got jobs. Now, not so much.

That's kind of the unspoken issue with the immigration debate, isn't it? All I've got are anecdotes, but it seems that hiring illegals isn't just about lower wages, but also the fact that the border-crossing selects for the hardest-working individuals. Heck, in NYC, illegal Chinese immigrants have even started to be displaced by illegal Mexican immigrants inside of restaurant kitchens. In construction and landscaping, the good, native-born worker doesn't lose his job, but is generally put in charge of the Mexicans; it's the marginal worker who is replaced, often to the relief of the foreman. There's a considerable social cost to this, but it's not quite the one thate we're used to talking about.

Interestingly enough, that seems to imply a case for both tough of both tight borders AND a sort of amnesty. In other words, make it really hard to get into the US, then give them a wink and a nod once they're in; once the most industrious and resourceful make it through, they're too valuable to give up.

Ray G writes:

I like the Fraser Inst's index; measuring what % of GDP is spent on such things.

They aren't starving, though: welfare, and theft, and drug sales become more attractive alternatives.

I'm a master scheduler/process improvement guy in an aerospace plant.

Our largest obstacle in making good parts, on time, is the frightening shortage of skilled labor. The money is there, but the skill is not.

In other words, the only people being displaced by cheap, low-skilled immigrant labor have only themselves to blame.

Welcome to a semi-free market; put your helmet on and don't let us see you cry.

michael gordon writes:

The strange thing about the debate over immigration these days --- mainly the illegal sort, but with legal immigration itself controversial now: what with a large majority streaming in from Mexico and Central America --- is the time-frame used in even "intuitive" cost/benefit analysis.

The benefit side is evident in the short-run: wages are kept down in certain industries --- mainly sweat shops, gardening, some construction, hotels, and restaurants --- and generally those immigrants who remain here are entrepreneurial . . . even if that means creating a one-man gardening business.

The cost side isn't so evident in the short-run, and it begins to loom more and more as the future is taken into account:

1) Unlike the 19th century when the US absorbed 40-50 million poorly educated Europeans (and to an extent Asians), we have no labor shortage, the economy has shifted drastically from first agriculture to manufacturing and from manufacturing to increasingly a knowledge-based industry. As late as 1939, the average US citizen had about 9th to 10th grade education. Now you can't have a solid income --- never mind a good one, on the average anyway --- without at least a high-school diploma and some higher education.

-- None of these problems existed in the 19th and early 20th century. They do now.

-- And so what is the Hispanic high-school graduate rate, say in Los Angeles (I live in Santa Barbara, 90 miles away)? More than 60% drop out of high school before graduating . . . a rate higher than for African American students (around 55%).

-- What's more, the trend is toward ever higher drop-out rates, not lower ones. (For what it's worth, the PISA exam --- administered every three years to 15 year-olds in the OECD and some other countries to compare their competence in science and math --- is in line with this trend, alas. The latest one, carried out in 2006, found that US students were on the average below the mean for about 40-45 countries. But European-Americans (whites) were above the mean and rose several ranks, whereas African-Americans and Hispanic Americans were roughly 80-90 points below the mean. All this at a time when basic skills like this are essential to getting ahead in an increasingly knowledge-based economy.)


2) Then, too, as one poster noted here, there are the already evident social spillovers --- which economists are generally terrible at dealing with, which may at best enter a multi-regression model as a dummy variable (regarded by professional statisticians with more and more suspicion these days, not least because every dummy variable increases the chances of omitted other variables).

-- In Santa Barbara, where I live, there have always been Hispanic gangs, but in the last several years they have mushroomed in size and violence. Last year, there were three gang-killings in the city, two in downtown Santa Barbara itself . . . a city that thrives on tourism as its main business. Several armed robberies involving gang members have been found. Drug-dealing and connections with larger gangs elsewhere are spreading too, or so it seems. (I have no hard data here.)

In L.A., those Hispanic gangs also spill over national boundaries and are heavily involved in the drug trade . . . not to mention heavily armed.


3) The time-frame, if moved into the future, is not at all encouraging on the cost side then.

Meaning what in a nutshell? In effect this: a new, increasingly large ethnic-based underclass is emerging: ever larger numbers of single mother-headed families, poor and likely ever poorer school performance, growing youth gangs (which go along with fatherless families as a clear correlation), and ever incresing frictions between black and Hispanic youths when in the same schools in large numbers . . . a built-in social conflict captured in the mid-1990s in opinion-surveys.

-- These surveys found that Hispanics and blacks had increasingly unfavorable opinions of one another, and in fact both groups, interestingly, had more negative views of African-Americans than white Americans did.


4) Back to economics. The hard fact is that economists, with only some change at the margins with the emergence of behavioral economics, are not trained to go out and do opinion surveys, or to do observant-participation case-studies, or do not carry out small-group studies of the sort social psychologists have done for generations, or do anything much except to take existing data and run ever increasingly complex statistical models. I'm pretty good at statistics myself, but find that if I read articles in economics journals these days, I spend a fair amount of time looking up new statistical techniques. And since the surveys and other techniques often collide with the statistical models using ready-made data that supposedly validate the preferred theory (or reject the disliked theories of others), their data and outcomes are shrugged off as unimportant or junk-stuff.

-- And it gets worse. For economists aren't deftly savvy -- or maybe even care --- when it comes to pinning down the wider costs of some policy over decades or generations that they favor right now.

That kind of long shadow-of-the-future perspective, you see, would require using more inferential techniques or alternative scenario-creations (with subjective probabilities attached to them) or simply admitting they don't know. And it would require, moreover, doing empirical work of the sort mentioned in the previous paragraph.


5) And last but not least, libertarian free-market economists --- thanks to a resolute and stubborn fixation on individual economic actors as the only ones who enter their modeling (whether workers, consumers, business firms, interest groups (each group treated atomistically), investors or politicians aka the government) --- have an added reason not to be concerned with the wider social problems that result as spillovers (negative externalities) from their favored policies migh accrue to the wider community of policies they favor right now, inferred from apriori theoretical premises. They simply refuse to consider, as noted earlier, communities --- whether local, regional, or national --- as "real" ontologically, and show suspicion of those scholars who don't share their reductionist and atomistic view of, say, American life.

And, to boot, with thoses not sharing this ontological outlook regarded, somehow, as economic illiterates and hence to be pitied or ignored, if not treated contemptuously. And in certain circles, to go further, with yearnings for what 18th century philosophes in France called a "benevolent despot" to implement their apriori image of the right sort of economy.


6) Fortunately, we aren't ruled by a benevolent despot --- whatever that might mean in practice. And except for some politicians on the left and politically correct types who brand all their opponents as racists or bigots --- and on the right free-market dogmatists and the interest groups representing certain industries relying on cheap unskilled labor immigrating here --- virtually all politicians, local and national, have finally got the message brought out in one poll after another that Americans want illegal immigration stopped (if need be, presumably, as a national security issue) and favor some restructuring of legal immigration policies that are more realistic about the long-term social and economic costs than the existing ones implemented since 1965.

Or as Lincoln put it better than the despot-loving philosophes of the 18th century French sort, you can fool some of the people all the time, and all the people some of the time, but you can't fool all the people all the time.

--- Michael Gordon, AKA, the buggy professor:

eddie writes:

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JSBolton writes:

Why assume that the per capita production of the existing population will be higher than it would otherwise be, after a large 'wants to work' cohort immigrates? It can't be true by definition, or one is just assuming what was to be argued for. Why just assume that immigrants want to work, and that if they do, they do not ruinously increase the net public subsidy to be supported by the existing population? Why assume equality between the two populations, while assuming them also unequal at the outset, isn't that contradictory? Such assumptions are not allowed to stand unchallenged by the honest.

bjk writes:

If this were true, then California would be doing great. Instead its got 9% sales tax and a $15 billion budget deficit. What could explain it? It's so puzzling. What's even more puzzling is that economists turn off their analytical faculties when it comes to immigration.

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