Immigration and the lump of labor fallacy

I have been appalled recently by the low quality of the debate on immigration from politicians throughout the political spectrum. Immigration defenders have claimed that immigrants do jobs Americans don’t – as if cities with few immigrants did not have garbage men. Immigration critics have said that immigrants steal American jobs. They seem to believe that the number of jobs in the economy is fixed and that one person must be getting the job at the expense of the other.

This is the lump of labor fallacy – the number of jobs in the economy is not fixed! By coming to a country immigrants increase the supply of labor and hence reduce wages. In turn, cheaper labor increases the potential return to employers to build new factories or expand their operations. In so doing, they create extra demand for workers.

The Mariel boatlift where 125,000 Cubans ended up in Miami between April 15 and October 31, 1980 provides an interesting opportunity to study the impact of a large number of immigrants on a city. A study by David Card of Berkeley showed no increase in the unemployment rate in Miami over the time period of the assimilation of the immigrants in the labor force. The Miami economy responded to influx of new labor by creating jobs to take advantage of that labor.

Inversely, when French politicians mandated a 35 hour work-week believing it would mean that companies would need more people to keep the total hours worked constant thus reducing unemployment – companies decreased the overall number of hours worked. Unemployment did not decrease.

That is not to say that immigration does not potentially have potential negative impact on certain segments of the population. Over the past 25 years wage equality has decreased in the U.S. and immigration could be partly to blame. Immigrants to the U.S. are mostly low-skilled and thus potentially pushing down the relative wages of low-skilled Americans.

David Card compared wage trends in cities with lots of immigrants such as Los Angeles, with those in places with only a few, such as Indianapolis. If immigration had a big effect on relative pay, you would expect this to be reflected in differences between wage trends. Mr. Card’s research suggests that immigrants had no significant effect on low-skilled workers’ pay. Mr. Card also tested the idea that perhaps low-skilled natives leave cities with lots of immigrants rather than compete with them for jobs, so that immigration indirectly pushes up the supply of low-skilled workers elsewhere and pushes down their wages but found no evidence that it does.

Given my personal value judgment in favor of equality of opportunity and my admiration for those willing to bear the huge fixed costs of immigration – leaving their family behind, coming to a new culture in an uncertain environment – to pursue the American dream in the land of opportunity, I am happy that empirical evidence disproves the claims that immigration is negative for this country.

For full disclosure, I am an immigrant on an H1B visa and David Card was my thesis advisor at Princeton 🙂

  • Let’s put things in the proper context. The debate in Congress was about the millions of illegal immigrants who have been living in the country for decades.
    In my opinion the first problem lying here is not economical ( whether or not immigration is good for economy is a tricky problem: what kind of immigrants, what country, what economy, what period?) but political; should a sovereign country (with defined borders and laws) forgive hard working illegals and allow them to live in the country? In this case, what message does the US send to anybody willing to pay a smuggler to cross the border?

  • The immigration problems in the U.S., the way the press and administration is presenting them, are becoming a “domino effect”. It’s a political problem which has huge economical, moral and organizational effects because of the multi-layer treatment of legal and non-legal aliens in the U.S. in contradiction with the evolution of a globally oriented modern society. This specific topic is also poorly and badly managed by the relevant press (CNN-Lou Dobbs) which doesn’t help to find a solution to the problems at all (Yes, I say problems and not problem, because there are many of them linked to the word “immigration”).

    Let’s go through the “domino effect”.

    1 – National Security (or National Hypocrisy?). – If someone (Lou Dobbs who’s desperately promoting his book on outsourcing America) didn’t notice after the discussion concerning the American ports that the U.S. borders were not secure and as a consequence of that there was illegal immigration (nobody knows why they should be related), I hardly believe anyone at this specific moment in time would have wanted to rise the problem concerning the immigration because the American immigration structure is a huge monster that needs just a drop to collapse. So, after spending 90% of the worldwide overall budget in military offensive/defensive programs, the U.S. is facing the problem of broken borders and no troupes to control them. Instead to solve the budget problems there is a diversion towards the illegal immigration.

    2 – Illegal immigration (every country has this problem) – When a country like the U.S. discovers through the CNN in the year 2006 that there are between 11 Millions and 20 Millions of illegal aliens (not a few hundreds) there is definitely something wrong. Immigration is a huge economical event connected to the globalization effect. People migrate from one country to another for multiple reasons and try to move to the country they consider the closest to their expectations. Most of the immigrants are hard workers and willing to learn and to integrate in other societies but, of course, they don’t want to give up to their roots and traditions which is healthy to survive in different environments. When the interest around the immigration started unnaturally pushed by the CNN we assisted to tens of polls. The most interesting of them explain why the American public is not ready to answer questions related to the immigration. The major contradiction comes out when the results of the polls said that the American viewers didn’t want to give” amnesty” to the illegal aliens and that it was not true that the illegal emigrants took jobs the American didn’t want. On the other hand, when the poll proposed to send them home, the results of the poll were of opposite sign. What to do now? The easiest way not to solve a problem both sides was raising Mexican flags on one side as if it was only a Mexican problem or raising American flags on the other side (Lou Dobbs is an expert in that) or other useless “patriotic” behaviors while the problem is still there.

    3 – Immigration – When I lived in Paris, France 2 (French television) broadcasted a very interesting program concerning Italy, my country, and its struggle with the immigration problems. The unexpected result of this analysis revealed that taking into account the growing number of people roaming from country to country, Italy needed approximately 19 millions new immigrants to face its economical and job problems. This analysis faced the fact that, no matter if some immigrants do jobs local people want to do or not to do, a lot of people move to countries and leave their countries for multiple reasons. In the same way there were new people arriving in Italy to look for something new and put roots there, there were also a consistent number of Italians who left Italy for multiple reasons including professional reasons like myself. In the same way the U.S. is now facing the situation that there are many Americans who are leaving the U.S. to find new opportunities not necessarily connected to a personal financial growth but just for the pleasure to understand the rest of the world. Said that, Lou Dobbs with his outsourcing America, is the symbol of how the U.S. is not prepared to globalization and to face immigration in the most immigrated country in the world after Italy.

    4 – Legal immigration – Because of the huge pyramid of Visas, status and green cards, the U.S. is the only country in the industrialized world where being a professional immigrant is sometimes really humiliating and more humiliating now than ever once they don’t know what to do with the illegal aliens.
    • Employers who have to spend a huge amount of money to sponsor visas;
    • Changing job means also the risk to loose your status and a new employer have to spend again a lot of money for a petition;
    • Discrimination, because many companies don’t hire non American citizens or people without a green card;
    • Companies that hire local professional with much less experience to save money and not to get lost in the immigration burocracy (the same companies will have to change the personnel again in one year because they don’t have a clear strategy in place loosing huge amounts of money and risking never to take off in the business).

    5 – The domino effect – At this point this is just the beginning of the domino effect.
    The American people are scared because they have no national security in place and because they don’t want but they need the immigrants and they don’t know what to do.
    The illegal immigrants who don’t want to understand they have no rights to invade another country but they are honest persons and good workers.
    The legal emigrants that are paying huge sums of money with the perspective never to have a green card because their visa can expire before the green card approval, considering that the immigration machine is too complex, overloaded and inefficient.

    Not just because I’m writing this note I’m sponsoring myself, but I think this is a good start not to solve the problems but at least to distinguish and select them in the right order.

  • A few pragmatic points seem to be left out of the debate as well, regardless of whether you are “for or against” immigration (legal and/or illegal):
    – If you are going to throw out, or jail a lot of illegal immigrants, who is going to pay for it? Is it more productive to pay lots of money to do that, rather than to let them get on with their jobs and contribute to the economy?
    – Border control: building fences and having extensive border-control, as some anti-immigrant people have proposed will definitely create something very close to a police-state system. Do americans really want that? A “show me your papers!”-world, (in a german accent..).
    – Am I the only one who gets Berlin- and North Korea flashbacks with the talk about fences and barriers?..

    On a side note:
    Considering your investments, shouldn’t you qualify for a permanent Visa on the “inwards investment” basis or whatever it is called? It is basically a Visa given if you invest a certain amount of money into new companies and job creation..

  • There’s another question that I feel is important. Indeed, I think it’s the elephant in the room.

    What is The Right Number Of People? Obviously, no country can support an infinite number of people. I’ve seen a few analyses suggesting that the world as a whole can maybe support a half billion people at first-world (not American) standards of living–if we put up a whole lot of solar panels and wind turbines and railways and bike shops! Each country has some number of people it can support, and of course that varies with the degree of international trade–Canada can produce more than enough clean power for itself and the USA combined, but Iceland could not supply its own demand for wine (“standard of living” is a weird concept).

    If the average American family has 1.7 children, immigration plays a role in keeping our population on the increase. Is that what we want? Despite what many economists would like to believe, there is no such thing as stable population growth, and indeed, each country is going to stabilise at some population that it can sustain (or oscillate around it, he said ominously). Yes, technology might change that population, but increasing the population before the technology is available to do it safely is terribly clever.

    But some problems are global. The oceans are dying. The climate is destabilising, perhaps catastrophically. Some countries are downriver of other countries. One country can destroy another country just by trying to avoid sustainability–by dumping trash into an international commons. And any country that exceeds its sustainable population limit is extremely likely to “need” to make unequitable use of a global commons. This often takes the form of dumping trash into it, to borrow against cleanup costs.

    Some people emigrate because their home country has too many people. As the population grows, the amount of raw material available per capita decreases, and personal wealth that is measured as access to raw material (fundamentally a good place to start, it seems to me) decreases. Lands of opportunity have often been new worlds, not just because of fresh, agile policymakers, but also because of resources that have not been exploited for centuries.

    But it is important that we solve the population problem, and it is in every country’s interest to make sure that no country needs to borrow against future cleanup costs, or overburden common global resources. Therefore it seems reasonable that immigration be limited–if a country can exhaust its own resources and then move on to another country that had managed them better and exhaust those as well, then every country is doomed.

    I suppose I’m after two things. There is an incentive argument here–allow immigration only from countries whose populations are sustainable. No country should be an overflow buffer, for pollution _or_ for people, because if an overflow valve seems to exist, then why take care of your own problems? But there’s also a simpler message: each country needs to figure out how many people it actually can support in whatever lifestyle it believes to be important, and then balance immigration and “other factors” (family planning, empowerment of women, one-child laws, Obamacare death panels ;), whatever, in order to sustain the sustainable.

  • Ben:

    Malthusian concerns don’t worry me because the system is self regulating. We’ve seen it time and time again: when countries get richer death rates fall but birth rates stay high leading to a population explosion. Eventually real estate, child care, etc. starts increasing in price and people have fewer kids. Eventually countries end up around the 2.1 child per woman steady state (or actually lower than that).

    It’s happening on a global level as we speak. The world’s population is unlikely to exceed 11 billion. Besides if the world could not support it, food would become expensive and the system would eventually self regulate. Granted it lead to a painful transition, but I am not too worried.

    I would make a similar argument for fossil fuels. If we put a $5 / gallon gas tax, taxed oil to make it the equivalent of $300 / barrel and introduced congestion charges, I think you would be surprised at the speed at which human ingenuity comes up with alternatives.

  • “the system is self regulating”–then why does anything at all worry you, ever? Yes, of course humans aren’t likely to destroy the Earth. We can boil the oceans, convert the atmosphere to methane, kill every living thing, and it’s likely that, once again, life will evolve free from mankind’s genocidal tendencies. See, self-regulation. Yay?

    Immigration is far more immediately self-regulating than that. If we get enough immigrants (for any value of “we”) then at some point the country will be too poor to attract more. Stable equilibrium or limit cycle again. Again, yay?

    There’s ample evidence that 11 billion people is too many, perhaps by a factor of 20 if we really get our act together, and maybe by a factor of hundreds if we don’t. Economic prosperity and gender equality will help us self-regulate, but I see no evidence anywhere that that will happen fast enough to avoid unpleasant transitions. I don’t _like_ unpleasant transitions!! I thought that the goal of policy was to mitigate unpleasant transitions?

    My question (and your question!) was: assuming we define some value function over population density / diversity / economy / sustainability etc. Then we can strive to make policy that maximises that value function. Your value function seemed to consider only short-term economic expansion, which is fine for your argument, but I wanted to introduce the idea that your value function is, er, going to cause trouble in the longer term. If “the economy is a wholly-owned subsidiary of the environment” then how does that affect your recommendation? I don’t know the answer either, but I know the question!