Question

t/f/u why?

comparative advantage allows for improved economic and social conditions as a result of

immigration in a domestic economy.

Draw a diagram/table showing improvements/digressions

as a result of comparative advantage and immigration.

Answer 1

Immigration policy involves fundamental issues about what and who we are as a

country. There are no simple answers on immigration policy because different people

can legitimately assign different weights to the welfare of new immigrants, recent

immigrants, and various groups of natives. In addition, there is considerable debate and

disagreement among economists about the economic impacts of immigration.

The Comprehensive Immigration Reform Act of 2006 that was reported out of the

Senate Judiciary Committee last week seems to represent a reasonable compromise in

view of the competing interests of different stakeholders. Two important economic

issues have been overlooked in this debate, however. First, confident predictions that

immigrant inflows have depressed the wages and employment opportunities of U.S.

workers, particularly of the less skilled, belie an unsettled and often unsupportive

research base. The best available evidence does not support the view that large waves of

immigrants in the past have had a detrimental effect on the labor market opportunities of

natives, including the less skilled and minorities. Any claim that increased immigration

resulting from the Senate Judiciary Committee’s bill will necessarily reduce the wages of

incumbent workers should be viewed as speculation with little solid research support.

Second, a guest worker program that does not permit free mobility by foreign workers

admitted to the U.S. carries significant risks to the U.S. economy. Job shopping is an

essential protection against exploitation and inefficient allocation of resources. Limiting

the mobility of guest workers would be a step backward for the U.S. economy. Each of

these points is elaborated on below.

None of these comments are meant to deny the fact that problems faced by low-

skilled workers in the labor market are serious, or to argue that public policy should not

address the problems of less skilled workers. Real earnings for those at the bottom of the

income distribution have been stagnant or falling for a generation. There are many

policies that would be helpful for less skilled workers that deserve consideration, such as

an expansion of the Earned Income Tax Credit, an increase in the child tax credit, a boost

in the minimum wage, and increased job training. Stricter immigration policy, however,

is unlikely to materially affect the earnings or job prospects of less skilled workers.

Effect of Immigration on Natives’ Wages and Job Opportunities

● One of the clearest and most compelling studies of the effect of immigration on

natives’ labor market opportunities was conducted by David Card of the University of California at Berkeley and published in Industrial & Labor Relations Review in 1990.

Specifically, Professor Card examined the effect of the Mariel Boatlift — which resulted

in 125,000 new Cuban immigrants arriving in southern Florida between May and

September of 1980 — on the labor market in Miami. This sudden and unexpected wave

of immigration increased the city’s labor force by 7 percent. Most of the new workers

were unskilled. Yet Professor Card found that the wages and employment opportunities

of unskilled workers who already lived in Miami were not hurt by this large inflow of

immigrants. “Even among the Cuban population,” he concluded, “wages and

unemployment rates of earlier immigrants were not substantially affected by the arrival of

the Mariels.” He reached his conclusions by comparing Miami with other cities that were

not affected by the Mariel Boatlift. This study, which is a model for research, was

specifically mentioned in Professor Card’s citation when he was awarded the Clark

Medal, a prize given by the American Economic Association every other year.

● The central finding of David Card’s study of the Mariel Boatlift — that an

unanticipated influx of immigrants does not have a harmful effect on the employment or

wages of natives — has been replicated in other settings by other researchers. For

example, Professor Jennifer Hunt of McGill University found similar results in a study of

the impact on the French labor market of 900,000 people who were repatriated from

Algeria in 1962. In addition, Rachel Friedberg of Brown University found that a large

inflow of Russian immigrants into Israel after emigration restrictions in the Soviet Union

were lifted, which resulted in a 12 percent jump in Israel’s population, did not have a

harmful effect on the labor market outcomes of other Israelis.

● Another line of research uses cross-city data to examine how natives’ job market

outcomes vary with the share of the workforce in the city contributed by immigrants.

This line of research finds mixed results, but is arguably less compelling than studies that

focus on large influxes of immigrants to a particular labor because immigrants choose the

city in which they settle, and economic conditions in the city are probably an important

factor in that decision. By contrast, studies that focus on the natural experiment created

by a sudden and unanticipated influx of immigrants to a specific country or labor market

have the advantage of analyzing an event in which immigrants entered a labor market for

reasons largely beyond their control and unrelated to the state of the economy in the labor

market where they sought work. In addition, because these natural experiments are often

large relative to the size of the labor market, it is hard to argue that any effect of

immigration was offset by an outflow of other residents.

● Studies that claim to find a deleterious effect of immigration on natives’ wages are

typically based on theoretical predictions, not actual experience. These theoretical

predictions are very sensitive to their underlying assumptions, which are often

controversial. Existing theoretical predictions typically do not factor in relevant

consequences of immigration, such as an increase in demand for goods and services

produced in the U.S. that results from greater demand due to immigrants.

● Why does immigration apparently have such a benign effect on natives’ wages and

employment opportunities? The answer to this question is not clear, but it is probably

more complicated than the simple response that immigrants take jobs that U.S. workers

do not want. One likely factor is that, in addition to increasing the supply of labor,

immigrants increase the demand for goods and services produced in the U.S. This leads

to higher wages and employment for all workers in the U.S. Immigration can also result

in an increase in capital investment. And many immigrants become entrepreneurs,

creating jobs for other immigrants and natives. Immigrant entrepreneurs may be

particularly likely to develop export opportunities for American products given their

connections abroad and language skills.

Guest Workers (H-2c Nonimmigrant Visas) and the Labor Market

● Economic efficiency requires that all workers in the U.S. labor market are treated on a

level playing field. This means that the same set of legal protections apply to all workers.

The notion of employment at will, or the ability of employers to dismiss workers at will

and the ability of employees to leave a job for a better opportunity or for any other

reason, is a hallmark of the U.S. labor market. Free mobility of labor is a bulwark against

exploitation. Workers who feel mistreated can leave their job to search for another one or

exit the labor force. Free mobility is also economically efficient. Workers move to the

opportunities that value their services most highly. If guest workers do not have the

opportunity to change jobs with minimal administrative burden, other workers in the U.S.

will potentially suffer because employers will have some scope to exploit guest workers

and lower labor conditions more generally.

● It is important that guest workers are paid wages and fringe benefits that meet the

market level and that they are afforded all of the protections under the labor laws that are

available to other workers in their position. If not, then the guest worker program will

favor industries that hire guest workers over other industries. This type of industrial

policy would result in an inefficient allocation of resources. To ensure that workers are

paid appropriately and afforded adequate protections is to allow them to change jobs if

they so choose.

● The President has proposed that immigration reform include a guest worker program.

The Senate Judiciary Committee bill allows up to 400,000 nonimmigrant workers to enter

the U.S. each year. This is the equivalent of 38 percent of annual job growth in the last

four years. The provisions of the Senate Judiciary Committee bill call for the temporary

visa to expire if the guest worker is unemployed for 60 or more days. The median

duration of an unemployment spell in the U.S. currently is 9.6 weeks. Workers can

become unemployed for reasons completely unrelated to their job performance; for

example, their plant could close. The 60-day restriction could prove to be burdensome

for many temporary workers, causing them to quickly find work that is not well suited for

their talents or return home. Workers who qualify for Unemployment Insurance are

usually eligible for 26 weeks or more of unemployment benefits. Guest workers will

presumably pay UI taxes, yet they would not be able to receive more than 60 days of

benefits. Treating guest workers differently than other workers will result in an uneven

playing field.

● If the only route to citizenship for temporary and immigrant workers is for employers

to sponsor them for citizenship after a period of years, then it is inevitable that employers

will hold an advantage over temporary and immigrant workers that they do not hold over

other workers. This advantage could lead to exploitation that would hurt both foreign

workers and domestic workers. One partial solution to this concern is to allow others

besides employers to sponsor immigrant and nonimmigrant workers for a Green Card and

for citizenship, such as religious organizations, nonprofit volunteer organizations, and

community groups. Reducing the scope for employers to exploit immigrant and

nonimmigrant guest workers will help protect domestic workers by preventing a race to

the bottom.

● The experience with H1-B visas has been that enforcement is inadequate to ensure that

all workers are paid what they are promised or paid the prevailing wage. Regulation is

unlikely to provide adequate protection for nonimmigrant workers unless they are free to

move between jobs with minimal administrative burden and unless they can spend

adequate periods of time searching for work should they become unemployed.

● Past experience has been that a great many of those admitted as “short-term” guest

workers eventually stay. One concern, however, is that because of their temporary

horizons the guest workers fail to acculturate and invest in human capital.

● The guest worker visas, if they are included in the Act, should be available for the

largest number of industries and occupations possible to avoid favoring certain industries

and occupations. Historically, large guest worker programs were only started during

emergencies. The U.S. currently faces, and is forecasted to face, more intense labor

shortages for skilled workers than for unskilled workers. Guest worker visas should not

be limited to agriculture and other industries that intensively use unskilled workers. The

best way to allocate H-2c visas would be to have employers pay a fee that is determined

in an open auction in order to bring a worker in the U.S. under an H-2c visa. Once the

workers are in the U.S., they should be allowed to move between jobs without risk.