Scott Sumner  

Asian immigration will make America more unequal, and that's a good thing

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It seems that Asia has overtaken Latin America as the largest source of immigration to the US. Here's a recent example of that trend:

Mexicans still dominate the overall composition of immigrants in the U.S., accounting for more than a quarter of the foreign-born people. But of the 1.2 million newly arrived immigrants here legally and illegally counted in 2013 numbers, China led with 147,000, followed by India with 129,000 and Mexico with 125,000. It's a sharp contrast to the 2000, when there were 402,000 from Mexico and no more than 84,000 each from India and China. Experts say part of the reason for the decrease in Mexican immigrants is a dramatic plunge in illegal immigration.
The rest of this post will involve some ethnic generalizations, so I should probably add the usual disclaimer. Any generalizations merely reflect averages, and in some cases applies only to the subset of an ethnic group that self-selects to immigrate to the US.

One of the reasons why the US is more unequal than a place like Germany, especially at the very top, is that the US is host to economic engines like Wall Street and Silicon Valley and Hollywood. I suppose you could throw in fracking. There's no particular reason why continental Europe couldn't have its own Wall Street, or Silicon Valley or Hollywood or fracking industry, but they don't. Britain has "the City" which is sort of the Wall Street of Europe, and that adds to inequality in Britain. But Europe failed to attract the other engines of wealth creation and inequality that are as dominant as the US examples. Europe's industries tend to be less of the boom/bust variety that often lead to great wealth, although they certainly have their share of billionaires.

In one case (fracking) that is due to environmental lobbying. Europe is more left wing and more densely populated, and similar areas of the US (New York, California) also don't do much fracking. But the other failures may have had more to do with other factors, such as regulation and taxes. And I would add to that mix of other factors "ethnic diversity." The US hosts a larger than normal group of high-achieving immigrants, who have moved here from all over the world. One early example is the Jewish scientists who fled Europe in the 1930s. But it's still happening today. Elon Musk is from South Africa. Peter Thiel is from Germany. And of course many highly skilled people have been arriving from Asia (and more than you might assume from Africa, Latin America and the Middle East.)

Even if these high skilled immigrant groups form a relatively low overall share of the US population, they can have a disproportionate impact on the sectors that create great fortunes, such as finance, technology, and the media. Fracking might be the one exception, and I suppose Germany with all its engineering talent would now have a thriving fracking industry if not for environmental restrictions. But in the other cases I think immigration may have played a factor in the success of the US economy.

The downside of this trend is that it increases inequality in the US. But that doesn't mean it hurts lower income Americans; just the opposite is the case. Many California public programs that benefit Hispanic immigrants (higher ed, medical programs, etc.), are made possible by taxing the enormous incomes earned by the top 1% in California. If Silicon Valley and Hollywood moved to Germany, then tax revenues would plunge, and California state spending would look more like Mississippi's. The money Hispanics spent on movies and software would not go to Europe. The same is true for Wall Street and New York State. And if the City of London financial firms moved to Paris, Britain would be more equal, but the working class in Leeds or Liverpool would be worse off.

In New York, Mayor Bill de Blasio is trying to hold back the progress of Asians via affirmative action programs for non-Asians. That's because 70% of students at elite public high schools like Stuyvesant are now Asian. (Many are so poor they qualify for free lunches.) But even that won't stop the progress of Asians, as education is mostly about signaling. Make it tougher for Asian students via quotas and discrimination, and whatever success they do have will look all the more impressive to potential employers.

As I said at the beginning, all these generalizations have exceptions. Chinese immigrants include scientists like my wife, and illegals from Fujian who wash dishes in Chinatown and sleep 8 to a room. But the number of high achievers among the Chinese immigrants (and even more so among Indian immigrants) is greatly disproportionate to their overall numbers in the US population, just as with earlier groups such as Jewish immigrants. Even black African immigrants do considerably better than native-born blacks. This trend toward high achieving immigrant groups will change America in many ways. We'll become less equal, and also a richer, more diverse, and more interesting place to live, to the benefit of everyone except those who "don't like foreigners."

PS. Bernie Sanders helped sabotage Ted Kennedy's immigration reform bill in 2007, perhaps because he has nostalgia for the 1950s---a time when the white working class did well, and everyone else was pretty much invisible. Now he's changed his tune, but which view do you think reflects his true beliefs about immigration?

COMMENTS (12 to date)
Richard A. writes:

Bernie Sanders simply opposes the free flow of indentured labor. Shouldn't foreign workers who come to the US have the right to sell their services to the highest bidder? Guest workers can't.

The restrictionist Numbers USA actually gives Bernie Sanders an F- on immigration.

AS writes:

The argument that inequality is good because of built-in redistributive mechanisms is a novel and compelling argument. Why does Piketty call for even higher taxes on the rich? Aren't they high enough? The top 20% pay the entire net tax bill according to Mankiw.

Brian Donohue writes:

Great post, Scott. The focus on within-country inequality is largely counterproductive.

As far as low skill and illegal immigration though, there are groups in this country that probably suffer on net from economic competitors. You hear a lot of noise from white people on this score, but, oddly, not much from black Americans, who may suffer the most.

ThomasH writes:

Not everything that increases inequality is bad and not everything that decreases it is good. Immigration is a good example of "good" inequality. "Hollywood" not so good -- copyrights are probably too strong. "Wall Street" arguably even less; I'm not persuaded that we have made financial firms internalize the systemic risk they jointly produce.

Policies that replaced concealed "progressive" transfers with explicit transfers (EITC instead of minimum wages, SS and Medicare financed with general revenues not a wage tax for example) financed more with Pigou taxes and a progressive consumption tax would make us richer and more equal.

Scott Sumner writes:

Richard, Agree on guest workers. Here's what Sanders believes:

"Back then, the Vermont independent warned that the immigration bill — a product from then-Sen. Ted Kennedy (D-Mass.) and Sen. John McCain (R-Ariz.) — would drive down wages for lower-income workers, an argument that’s been used by hard-liner reform opponents."

Read more:

AS, I'm not saying inequality is good, I'm saying the sort of inequality produced by more Asian immigration would be good. It would add wealth at the top of American society, without hurting the poor. Inequality, ceteris paribus, is worse than equality, in my view.

Brian , Interesting point.

Sieben writes:
to the benefit of everyone except those who "don't like foreigners."

Don't forget the people who don't like inequality.

Scott Sumner writes:

Thomas, Good point. Hollywood does benefit from excessive intellectual property protections. Even Mickey Mouse is not in the public domain. Wall Street is more complex, but there are certainly reforms I'd like to see, such as less subsidy of debt.

Sieben, Good point.

AS writes:

Sieben, does inequality enter directly or indirectly into their utility function? what is the model?

TallDave writes:

Great post. My highly paid Filipina wife who took the citizenship test yesterday is also helping make the country more unequal.

Investors and consumers freely choose to make some people wealthier than others. From LeBron to Wall Street, the reasons why are complex and subjective and wonderful.

IVV writes:

What about non-institutional barriers?

In Europe, the history of monarchy leaves many believing that the people born at the top should remain at the top--a sort of noble class that the United States never really developed (The USA has its nobility, but it's a nobility that you can aspire to and fall out of).

As a result, if you're not an established company with a long history, you're little more than a thief in Europe. The profits of the grand new idea are supposed to be the domain of Siemens or Bosch. The goal of acquisition is to dismantle the opposition, in a sort of modern corporate conquering. What, you have a great new idea? Well, you'd better get the Great Company to believe you and become a cog in their system. If you start your own thing, you're trying to break the natural order.

William Francis writes:

"There's no particular reason why continental Europe couldn't have its own Wall Street, or Silicon Valley or Hollywood or fracking industry"

There actually is a reason why Europe or any other country outside the U.S., hasn't developed an oil and gas industry in which non state actor can aggregate a disproportionate share of wealth for that particular industry. That's due to the fact that there isn't another country in the world in which private property owners, and not the government, also own the rights to the oil and gas underneath their property and are capable of engaging in contracts with entrepreneurs for them to engage in the experimentation of drilling an oil and gas wells upon their property. This leaves the barrier to entry for anyone in Europe or anywhere else for that matter, both in terms of capital and political influence, astronomically high.

victor yodaiken writes:

You have a point, but too much facile theorizing. For example, California has a lot of fracking, contrary to your supposition. I could easily construct a more fact based argument that there is less fracking in Europe because the state cannot so easily violate private property rights via eminent domain and legal principles giving precedence to adjacent landowners economic activity which weaken the private property rights of neighbors.

There may also be an issue of suitable geology.

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