Arnold Kling  

The Case for More Skilled Immigrants

Concerns with the CBO... My PSST op-ed...

Nick Schulz makes it.

According to recent estimates, the stock of human capital is over $750 trillion.6 According to a research report from JP Morgan called "U.S. Recession and Repression Are Only in Our Minds," this is much greater than the roughly $70 trillion of physical and financial assets owned by American households

Think of high-skilled immigrants as raising this stock of capital.

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COMMENTS (7 to date)
djf writes:

From what I read, a huge number of American-born engineers are working in other fields, or not at all, because engineering positions are not available to them or pay too little. Why doesn't American industry make use of the human capital we already have in these fields? Just a thought.

Ari T writes:

I'm willing if you are. (:

Steve Sailer writes:

Does this imply "The Case for Fewer Unskilled Immigrants?"

Ghost of Christmas Past writes:

It would be very naïve to suppose that adding immigrants willy-nilly would increase America's total human capital along a trend even roughly linear with population. Also, adding high-skilled immigrants is a rather different proposition than adding low-skilled ones.

First a subtle point: suppose that prospective immigrant Mr. I appears to have human capital value exactly equivalent to the human capital value of some citizen Mr. C (same age/ skills/ whatever), a value of $X. In fact, in the short run, adding Mr. I to the US population will not increase total human capital by $X, because each human capital value is the capitalized value of the subject's potential future earnings, and as soon as Mr. I enters the country he competes with Mr. C, so neither commands the same wages as before, giving each of them a new human capital value of $(X - z), for a total definitely less than 2*$X in the short run (of course Mr. I might be such a contributor as to increase overall productivity to the point where both he and Mr. C are worth more, but that usually cannot happen instantly). The more Mr. I's you add, the worse the problem.

Second, and not so subtle, with respect to djf's comment, note that "human capital" can only be estimated in the context of material capital and economic conditions. Just as the low human capital value of, say, a well-qualified doctor in Malawi would suddenly be much higher if he immigrated to the USA, the "human capital" of an American engineer becomes much lower as soon as thousands of immigrant engineers arrive to compete with him, because material capital (again, in the short run-- and pretty clearly in the medium run as well) only "wants" to employ so many engineers at a time.

(When candidates compete for jobs either wages fall, or political interventions (minimum wages and licensing schemes, anyone?) protect wages for some at the expense of underemployment for others. I'm sure Prof. Kling has noted the remarkable increase in occupational licensure in recent decades. I suspect some of that is due to natives trying to protect their wages from immigrant competition, deadweight-losses be damned.)

Owners of existing material capital resources may favor reducing the human capital of their current workforce (why do you think tech-firm executives keep clamoring for more indentured (H1-B) foreign workers?), but it's not clear why the workforce should favor that.

Finally, estimates of human capital based on "pre-tax" earnings are flawed. The government forcibly seizes something like 20% to 40% of every American wage worker's income already (sales taxes + payroll taxes + income taxes) leaving aside taxes on material capital, and low-skilled immigration imposes a stiff burden on taxpayers (that is a fact beyond dispute and if challenged I can provide a raft of references). Numbers like Nick Shulz is throwing around should be re-estimated so "human capital" numbers represent the capitalized value of potential future after-tax income, and then the expected values of immigrants should be discounted by the amount they and their children will reduce citizens' human capital.

Many prospective low-skilled immigrants would likely have negative "adjusted for taxes" human-capital values upon arrival in the USA, since their future earnings would be less than the costs they would impose on current citizens. (Without a minimum wage law, wages for any large number of low-skilled immigrants would fall to "subsistence net of subsidies ('social spending')" which is to say, below subsistence. With a minimum wage law, many immigrants would subsist on subsidies (and/or fruits of crime) only. In either case the legitimate estimate of their human capital would be less than zero.)

Roger Sweeny writes:

Of course, there is a difference between highly-skilled and highly-schooled.

Can you imagine a country trying to get rich by offering immigration incentives to this year's law school and cultural studies graduates?

Robert Paul writes:

The biggest question I have with regard to skilled or even unskilled labor is what's in it for me?

From what I can tell, there is a big advantage for the skilled immigrant coming to work here.

There seems to be an advantage to tax revenues, but I'm not sure what my direct benefit is.

There is an increase in per capita GDP; however, how much of that benefit goes to the people already living here. I know there is more competition for career, which drive my wages down. I know there is more competition for housing, which drive my cost of living higher. I definitely know that there is more competition for education, so there will be fewer spots for my children whild driving up the costs. I also know that it creates cultural tention, which I noticed living in Miami and New York compared to my home city in Western New York.

I just get the feeling that it is one of the cases where in theory, theory and practice are the same but in practice they are different. It could also be a matter of degrees. Also, wouldn't it be better for everyone if what is working in the United States is adopted by other countries?

ajb writes:

I'm for a clear cut trade. More high skilled immigrants but severe cuts in overall immigration from Latin countries; no more family reunification outside of minors and spouses; and lots more money for border controls.

I bet such a trade would be easy to sell to the American public too.

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