The Borjas Blog

A long hiatus...

A few loyal readers have asked me if I would start blogging again at some point. It's been some time since my last post--but a unique confluence of professional and personal circumstances have kept me away for a while.

In the meantime, we've had a full-blown economic crisis and a presidential election. Quite an interesting few months!

I'll try to blog more often now. I'm particularly interested to see how the new administration handles the immigration issue during a deepening recession. I will have much more to say about this as things develop.

6.6 Degrees of Separation

This is the coolest study I have heard about in quite some time:

With records of 30 billion electronic conversations among 180 million people from around the world, researchers have concluded that any two people on average are distanced by just 6.6 degrees of separation, meaning that they could be linked by a string of seven or fewer acquaintances.

The database covered all of Microsoft Messenger instant-messaging network in June 2006, or roughly half of the world's instant-messaging traffic at that time, researchers said.

And The Flows Go On

People move to places where they can do better. And the shifting economic fortunes of countries within the European Union illustrate that fact dramatically:

Since 2004, when the European Union added eight Eastern European countries, hundreds of thousands of Eastern Europeans have moved west -- mostly to Ireland and the United Kingdom, among the first EU countries to open their borders to workers from the new members. Now, with the Western economies flirting with recession and Eastern Europe flourishing, the wave of immigrants is slowing sharply. Many of the recent arrivals -- half of them, by some estimates -- are heading home.

The shift shows how rapidly some Eastern European economies are catching up to their Western counterparts, as their growth, wages and currencies surge. And it illustrates how a new, nimbler breed of immigrant, aided by discount airfares and technology, can hopscotch across countries to capitalize on economic cycles.

That last sentence is actually pretty striking. This new breed of "footloose' immigrants is obviously going to have a different assimilation profile than the more permanent type of immigrant, a different type of economic impact, and it fundamentally changes the nature of the "contract" between the immigrant and the receiving country.

On a personal note: Blogging has been extremely light in the past few months. I'm in the midst of finishing up the 5th edition of my Labor Economics textbook (and working on several other research projects as well). Blogging is nice and fun, but it has a sizable opportunity cost at this point. Every hour spent blogging is an hour not spent at working on my research projects or finishing my manuscript.

A Radical Policy Change?

What's going on here? First, the Bush administration more or less chooses not to enforce the law for several years, and now this:

In temporary courtrooms at a fairgrounds, nearly 300 illegal immigrants were sentenced this week to five months in prison for working at a meatpacking plant with false documents.

The prosecutions, which ended yesterday, signal a sharp escalation in the Bush administration's crackdown on illegal workers, with prosecutors bringing tough federal criminal charges against most of the immigrants who were arrested in a May 12 raid.

Previously, unauthorized workers have generally been detained by immigration officials for civil violations and rapidly deported from the country.

The convicted immigrants were among 389 workers detained at the Agriprocessors Inc. kosher meats plant in nearby Postville, in a raid that federal officials called the largest criminal enforcement operation ever carried out by immigration authorities at a workplace.

A very quick reaction: incarcerating illegal immigrants arrested in these types of raids is not cheap, but could be a very effective deterrent in the future. Why such a radical policy shift? And why now?

Immigrants Or Robots

I've long been interested in the Japanese reaction to the "shortage" of low-skill workers. Unlike the United States, they've chosen not to import such immigrants. Instead, they decided to build robots:

Robots could fill the jobs of 3.5 million people in graying Japan by 2025, a thinktank says, helping to avert worker shortages as the country's population shrinks.

Japan faces a 16 percent slide in the size of its workforce by 2030 while the number of elderly will mushroom, the government estimates, raising worries about who will do the work in a country unused to, and unwilling to contemplate, large-scale immigration.

The thinktank, the Machine Industry Memorial Foundation, says robots could help fill the gaps, ranging from microsized capsules that detect lesions to high-tech vacuum cleaners.

Which path is most beneficial for the pre-existing population of the country? Importing low-skill immigrants? Or building robots? And is the difference in the economic benefits between the two alternative policies big enough that one should pay more careful attention to this choice?

Income Effects

I'll have to add this classic to the discussion of the factors that determine the choice between labor and leisure in my labor economics textbook:

David Sneath has worked at a Ford Motor Co. parts warehouse for 34 years, but it didn't take him any time at all to walk out once he discovered he had won a $136 million Mega Millions jackpot.

"I yelled to the boss, 'I'm out of here,'" Sneath said Thursday after going to state lottery headquarters in downtown Lansing to pick up his first $1 million check.

The Lords Have Spoken

A committee of the House of Lords in Great Britain has been examining the economic impact of immigration for a few months. The Lords have spoken and the words sound familiar:

Whenever a minister is asked about high levels of immigration, the same answer is trotted out: migrants boost the economy, fill jobs that Britons cannot or will not do, and pay taxes that benefit the exchequer...

Yet an inquiry by a House of Lords committee into the economic impact of immigration - which I chaired, and reports today - found fundamental flaws in these claims. We found no evidence that net immigration (immigration minus emigration) generates significant economic benefits for the existing UK population.

The government told the inquiry that migrants contributed £6bn to Britain's GDP in 2006. Sounds great, but it's completely meaningless...the key measure of a country's standard of living is GDP per head, not total GDP. In percentage terms, immigration has increased Britain's population almost in step with the impact on GDP. So the effect on GDP per head has been roughly zero.

...Surely immigration is needed for jobs Britons refuse to do, the government argues. But they refuse to do these jobs only at current pay rates. In many cases, higher wages - never popular with employers - could solve the "shortage". In other cases increased mechanisation could bypass the need for migrant labour. Many employers today rely on the skills and hard work of migrants. But in the longer run, when wages can be increased and production methods changed, there is no valid argument for continued high net immigration.

Related to this is the effect on wages. While immigration was found to deliver a small gain in the wages of the highly paid, it has a slightly negative effect on the wages of the lowest paid, as many migrants compete for relatively low-skilled jobs. Any negative effect for people earning little more than the minimum wage must be taken seriously.

Let's see: (1) the net benefits from immigration to the pre-existing population are trivially small and (2) immigration redistributes wealth, and low-skill workers end up on the losing end. Where have I heard all this before?

(Here is a pdf of the report).

Playing Bridge While The Ship Sinks

A classic example of the principal-agent problem:

Last year, when he was still chief executive of Bear Stearns Cos., James Cayne took heat for hitting the bridge circuit during troubled times for his firm...Thursday and today, as Bear fought off a pending cash crisis that threatened to ruin its business, Mr. Cayne – who relinquished his CEO title in January and become the firm’s non-executive chairman – has been in Detroit, playing in the North American Bridge Championship.

...The playing took place between about 1 p.m. and 5 p.m. in the afternoon and 7:30 to 11 p.m. in the evening, say insiders – a period in which Bear CEO Alan Schwartz convened a series of conference calls with directors, according to people familiar with the matter, to discuss a pending cash pledge from J.P. Morgan Chase & Co. and the Federal Reserve Board. Still, Mr. Cayne participated in at least some of the dialogue, said one of these people.

The 74-year-old Mr. Cayne, who did not respond to a request for comment left at his New York office, has been back in the game today, says an attendee, amid the formal announcement of Bear’s liquidity infusion and its stock’s 47% plummet. No word yet on his performance.

Eliot Spitzer Is Unemployed

Michael Ramirez summarizes the situation. What can one possibly add?

Immigrant-Native Complementarity Revisited

I’ve often been asked what I think about the Ottaviano-Peri finding that there are strong complementarities between comparably skilled immigrants and natives—complementarities that lead them to conclude that immigration raises wages for many natives.

I’ve always been a little skeptical of the Ottaviano-Peri evidence. A couple of years ago, Jeff Grogger, Gordon Hanson, and I worked on a paper that examined the link between immigration and African-American economic status. As a by-product of that work, we explicitly attempted to replicate the Ottaviano-Peri finding--but couldn’t. Since then, we’ve been quite interested in trying to see what explains the discrepancy between our evidence and theirs.

Well, we have finally figured it out. Here’s the abstract to our new paper:

In a recent paper, Ottaviano and Peri (2007a) report evidence that immigrant and native workers are not perfect substitutes within narrowly defined skill groups. The resulting complementarities have important policy implications because immigration may then raise the wage of many native-born workers. We examine the Ottaviano-Peri empirical exercise and show that their finding of imperfect substitution is fragile and depends on the way the sample of working persons is constructed. There is a great deal of heterogeneity in labor market attachment among workers and the finding of imperfect substitution disappears once the analysis adjusts for such heterogeneity. As an example, the finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies.

English translation: The Ottaviano and Peri data includes currently enrolled high school juniors and seniors. They classify these high school juniors and seniors as part of the "high school dropout" workforce. Their finding of immigrant-native complementarity disappears if the analysis excludes these high school juniors and seniors.

Things that seem too good to be true usually aren’t.

(For the econometric geek who wants to play around with the data and see for himself/herself what is going on: We've created a STATA program archive that allows easy replication of all of the results in our paper. It is available here).