An increase in the supply of labor lowers wages only if nothing else changes. But when immigrants enter the workforce two very important other things change. First, immigrant workers spend or invest their earnings, both of which activities increase the demand for labor – thus putting upward pressure on wages. By focusing only on immigrants’ effect on the supply of labor, Mr. Burwell overlooks immigrants’ effect on the demand for labor.
A second change is one that was emphasized by Adam Smith: larger supplies of workers, as well as more consumers of the economy’s output, lead to greater specialization. Jobs change. As Smith explained, this greater specialization makes workers more productive. This increased productivity, in turn, causes wages to rise.
Peter Turchin would disagree. In Ages of Discord, he finds a strong historical correlation between periods of high rates of immigration and stagnant wages for ordinary workers. I have read through Turchin’s book once, and I mean to write a review. But I keep procrastinating. I am tempted to say that the book, while it appeared to be very interesting on a first pass, is un-rereadable. The data that lands in Turchin’s charts takes a very circuitous route to get there, and it hard for me to stay on top of the relationship between the underlying data and what Turchin says that they represent.
From the stocks and flows file, does Turchin stop his observation window right before the other changes take hold?
I find it hard to believe that Boudreaux is being very serious. An immigrant who increased demand for labor by as much or more as he met the demand for labor (at or below the previous market price) would be imminently unsustainable: Not all spending or investment goes to wages or other direct labor costs. A low-skilled immigrant’s demand for labor will at most mitigate his downward pressure on wages.
As to the idea that specialized jobs will appear to provide displaced workers with well-paying new jobs, I am reminded of how it takes time, trial, and error to establish new PSSTs.
Sadly, this is exactly how he thinks, extremely superficially.
Sigh…no it isn’t.
So, does the marginal (in the economic sense) worker “increase” or “decrease” economic activity?
The actual question is why that worker doesn’t increase economic activity in his home country. The answer is obvious, and it is the same reason we need to be judicious in allowing immigrants.
That’s it, change the subject. As long as the rich prosper, let losers be losers.
In a heavily globalized world i’m not sure why borders matter. If China moves farmers to factories, people seem to think that puts pressure on low-skilled wages. Yet if those same Chinese were to move to the US instead it wouldn’t?
An low-skill immigrant may increase demand for labor by being a consumer, but presumably this demand would be pretty representative of the current mix of low skill and high skill labor. The notion that he could possibly increase net demand for low-skill labor by more than one person is unlikely
You know, Boudreaux just wrote his “why the furious debate” post about the minimum wage on December 17th. He makes a clever analogy about orange rocks displacing water in swimming pools, and notices progressive economists desperately trying to ignore fundamental findings about supply, demand, and price in order to arrive at desired results.
The effect of immigration on domestic wages are the buoyant orange rocks of many libertarian economists. Maybe including him too, apparently.
I am also reminded of that news story (and now lawsuit) about Disney telling its soon-to-be terminated IT staff that, if they wanted their severance paychecks, they had to train their cheaper H1-B visa foreign replacements. I suppose that doesn’t tell us anything conclusive because of the potential ambiguous effect on overall consumption and labor demand.
This has always struck me as well. When it comes to minimum wage, the libertarian economists are all insistent that the simple supply-and-demand basics explain everything.
Yet, when it comes to immigration, all of a sudden the simple supply-and-demand basics aren’t enough, and now there are important secondary effects that need to be considered.
Not really. For both minimum wage and immigration the decline in prices combined with increased demand for labor from the new (now also consuming) workers offsets the decline in wages enough that more is gained than lost. Pretty straightforward.
This is just a quick note to encourage Arnold Kling in his attempts to review Peter Turchin’s book. I’ve started several of his books, but have finished none. While generally sympathetic to what Turchin is trying to do, I’ve found him frustrating to read and remain unconvinced by arguments that seem insufficiently supported. Before giving up, I’d like to hear what Mr. Kling has to say.
Cornflour,
I found Turchin’s War and Peace and War was excellent and worth repeated readings and that his Ultrasociety was probably the best book of 2015.
That said, I can’t even get myself to pick up a copy of his latest. I follow his blog, and find his cliodynamic “science” stuff to be shallow. He gathers data on social trends where both the numerator and denominator are affected by median wages, and then acts amazed when the trends are correlated. In addition, his elite overproduction concept seems rooted in a zero sum worldview which ignores that elites can specialize in value creating activities assuming reasonable institutional incentives.
Turchin is fixated on inequality of outcome, has trouble getting the intrinsic conflict between rule egalitarianism and results equality, has a super shallow understanding of business (he actually uses Oliver Stone movies to illustrate how markets work) and he operates under a folk theory of economics.
I too hope Kling finishes his review, just to see how far Turchin goes astray on his latest.
I found _War and Peace and War_ provocative, though I didn’t finish it. But like Dr. Johnson I rarely finish any book. I’ve still never “finished” William H. McNeill’s _Rise of the West_,
I found useful Turchin’s claim that empires tend to form on “meta-ethnic frontiers.”
Assabiya–how to operationalize measurement of it, I wonder?
Check out George Borjas’ writings on immigration. I used to be pretty much an open borders guy. I’m now in favor of much more restrictive immigration policy. This is probably the major policy position where I’ve changed my mind the most in the last 10 years.
FWIW, Thomas Sowell is also a lot less enthusiastic about immigration than you’d expect a libertarian economist to be.
In the wake of Trump’s election victory, many commentators and a few prominent libertarians have written posts urging a mostly progressive audience to moderate and consider that (1) their opponents are perhaps not simply dumb evil bigots and deplorable trash, but (2) that may actually be mistaken regarding some of their beliefs, and (3) that, at the very least, they should be able to pass an ideological Turing test and familiarize themselves with the strong form of the opposing viewpoint.
Except for Garrett Jones and our esteemed host, I don’t see many of these commentators doing this themselves with regard to even expressing open-mindedness about immigration-related issues and the downsides of expansionary policies. And no, mere political backlash against those policies doesn’t count, I mean real harms to domestic social welfare resulting from the policy.
It’s hard to imagine any of the usual suspects writing something like “How I might be wrong about the low skilled” or “a principal against using Bayesian evaluation of likely social risk or contribution given a demographic profile is a mistake.”
Can anyone point to real problems from immigration?
Seems like everyone got hot over immigration as it was reversing because the recession finally got them woke to global capital flows.
What i mean is this: I see a lot of people starting to be concerned about things that I worry is because they are being caught up in the general mood. Where is the data?
Yes there are terrorists. Nobody seems to have proven any method works to stop terrorism or identify terrorists a priori. Yes, I assume immigrants depress wages in their category short-term. I don’t believe in excuses like diversity or charity, I believe in freedom. Yes, I understand there are cultural and aesthetic concerns and I, for one, consider those legitimate.
But where is the data? Detroit’s problems aren’t from immigrants. California has a lot of immigrants and their economy seems to be adjusting.
It always bothers me that these immigration discussions always focus on effects independent of the rate of population and economic growth in the receiving economy.
There are no absolute values to be followed in immigration. We have a native population that is shrinking. We have a system that is addicted to a particular range of economic growth. We have an economy that needs a wide range of workers and skill levels. Any observations and conclusions about letting a particular class of workers into America should be situational.
Has anyone ever proposed a reasonable theory on how best to calculate the optimal number of immigrants to let into America in a given year?