Immigration’s effect on wages: ‘Definitely positive, without any doubt whatsoever’

April 17, 2013

Freddie Quell works at a cabbage farm alongside migrant workers in PT Anderson’s "The Master." (The Weinstein Company)

Michael Clemens is a senior fellow at the Center for Global Development and leads its Migration and Development initiative. An economist by training, he has worked as a consultant for the World Bank and the United Nations Development Programme, among other groups.

Clemens is an expert on migration policy and recently provided guidance to the House Education & the Workforce Committee's Subcommittee on Workforce Protections on the benefits of guest worker programs to foreign workers. We spoke Wednesday morning. A lightly edited transcript follows.

Dylan Matthews: So one thing that confused me a bit in the Senate immigration bill was whether guest workers on the new W visa can apply to transfer to an immigrant visa, so as to get on track to become permanent residents or citizens. What's your read on that?

Michael Clemens: It's clear that they do not. In the law, it says none of the merit visas can go to someone who entered on a W. Lawyers can determine if that does in fact eliminate Ws' potential to become citizens altogether.

DM: Do you think that's good policy or is it a problem?

MC: That's a controversial point, I don't see that as a problem at all. I see that as a binding political constraint on allowing in enough low-skill foreign workers to do what those guys do. Given that nobody is talking about creating hundreds of thousands of low-skill employment-based immigration visas, creating this other status which does not allow conversion is a win all around. Given that constraint, given that nobody is talking about low-skilled green cards, then it's fantastic that there'd be another status that has to be time-bound. And that means non-convertible.

It's all relative. Is it wonderful with respect to utopia? Of course not. Is it wonderful with respect to reality, which is that not in this bill and not in any immigration reform proposal in the recent past has anyone proposed massively increasing low-skilled green cards? Yes.


Vinod Khosla (left), an Indian-born entrepreneur, and Andy Bechtolsheim (third from left), a German-born entrepreneur, with, from left, Bill Joy, and Scott McNeely, their cofounders at Sun Microsystems and native-born Americans who they helped make exceedingly wealthy. (Source: Sun Microsystems)

DM: What do you make of the bill's provision allowing spouses and children of guest workers to accompany them? That seems like it would reduce the remittance effect on the home country's economy.

MC: That's one of many really positive aspects of this thing. Throughout the text you can see a better consideration of the families of migrants. One fantastic one is in the high-skilled visas. Under current law, all your dependents count against the high-skilled work visa quota, which dramatically reduces the number of actual high-skilled workers. Under the bill, just the worker counts against the quota.

In the W visa, there's the remittance effect, sure, but it's a tremendous hardship to be away from your family. These people are going back home for sure, so let's compare two scenarios. I have a W visa, and my wife comes along with me and also has a work permission. So both of us get to be temporarily in the U.S. And we'll both be making hundreds of percents and thousands of percents more than what we're earning at home.

Compare that to: just one of us has a high wage job and sends money to the other one. Which of those is more beneficial to the family is clear: it's the former. Which is more beneficial for the origin country is less clear, but it's not at all clear that the repatriated savings from work in the U.S. would be less than the remittances. just because the earnings of a couple is greater than one person.

People are not good at checking repatriated savings. If you ask a wife in a home country, "How much does he send home?", she'll tell you. But if you ask, "How much does he bring home at the end?", it is often a lot of money, so they're cagey. There's much worse data on repatriated savings than on remittances. If it were two earners temporarily earning on the order of double what one guy could be making, it could be large amounts of money. How big it is compared to the remittances that the guy would have sent the spouse is an empirical question. But it doesn't need to come out as negative.

DM: It's easy to imagine W visa holders having kids in the U.S. who would then be U.S. citizens. And given that the bill makes immediate family visas unlimited, that could be an avenue for a lot of W visa holders to get permanent residency and citizenship later on, no?

MC: In order for that to affect the status of the parents, the kid would have to grow up, become established in the U.S., have a job, and then sponsor them for a parental green card, which would be at least 25 years later, by which time it would be decades since they would have to have gone back home, even if they had a child while they were on W.

It would have to be that the child grew up in the origin country, with U.S. citizenship, but they're not going to do that without their parents. They're going to have to grow up with their parents and then come sponsor them. That could happen, but a) it wouldn't happen for a quarter century and b) it's unclear at what rate that would realistically happen.

There's always the possibility that people come on W and then overstay, but that's the status quo. We have a massive flow of unauthorized people, and if they stay they'd be in the same irregular status. A big misconception people have around legal reforms of this kind is that when you're talking about the law you're talking about movement, and the law and movement are completely different things. The law is a set of mechanisms for handling movement that is already happening and will happen anyway. That is happening now, that might happen in the W visa, the only question is what the legal treatment will be.


(Ross Franklin/AP)

DM: If the flow is really that inevitable, that seems to bode ill for the border control trigger in the bill, which in turn bodes ill for the legalization measures. Do you think that could kill the path to citizenship aspect of the bill?

MC: Whether or not they can actually meet the requirements, I don't have any expertise in, and what it would take to do so, I don't know, I don't have research on that.

I do know that massive increases in enforcement in the past have led to low observable difference in flows. And by "massive" I mean hundreds of percent increases in resources spent and hours of patrol time. Gordon Hanson at UCSD has some research on this.

You can see some effects on the smuggling price. The price human traffickers get paid goes up because they have to do more complex machinations to get around the barrier, but the flows of people are determined almost completely by the economic conditions in the United States.

If there were a full militarization along the lines of the Berlin Wall, which was also frequently breached, by the way, but even on the order of shoot to kill orders and full 24/7 surveillance by an active duty military, could it be lessened? Probably, hypothetically. But whether that's actually going to happen I don't know.

It's unclear to me that that would be beneficial to anyone. There's a labor market that's massively beneficial to the U.S and to Mexico. I'm unaware of a single terrorist attack that was known to be interdicted at the Mexican border. It's clear there has been at the Canadian border. There was the guy caught with explosives he was going to use to blow up LAX. But nobody is talking about militarizing that border.

There's no economic or security justification for the kind of militarization that it might take to reach these trigger levels. But that's a normative question. You're asking if it can be done, and I don't know the answer there.

DM: One thing we're likely to hear about in coming days is the effect of immigration on low-income Americans. George Borjas has famously found negative effects on nominal wages, but there's real controversy there.

MC: First of all, Borjas finds that 20 years of cumulative immigration — by cumulative I mean, this is at the end of 20 years of millions and millions of people, authorized and unauthorized — he finds that it decreased the wages of workers by 3 percent. Other top researchers, notably Giovanni Peri at UC Davis, found that it caused an increase of 1 percent.

All of this is in a context in which the income of average workers is going up by dozens of percent, so we're talking about incredibly small effects on either size. Both of these are close to zero.

And that's just the effect on nominal wages. Let's take the most pessimistic estimate of Borjas, 3 percent decline. First, that's an effect on nominal wages. It's not an effect on real wages because it doesn't take into account the fact that immigration makes a lot of things less expensive. Patricia Cortes at Boston University has found this in a famous Journal of Political Economy paper. In cities that have gotten more migrants, childcare is cheaper, food service is cheaper, lawn care is cheaper, down the line. The basket of goods that lots of people consume is cheaper, and that offsets any decline in nominal wages, because real wages are determined by what those nominal wages are spent on. That is not accounted for in the Borjas analysis or the Peri analysis.

There are other things that those analyses don't take into account. Much is made of the subgroups in the Borjas analysis. He finds that high school dropouts have a larger wage effect than the 3 percent, which is the effect on average American workers. They go down 8 percent, if I remember that right. There is a problem with that, which is that it's cumulative over 20 years. There was a generation that decided whether or not to become a high school dropouts in that. There weren't a set of 18-year-olds who sat around. There were new generations, and each of them was successively deciding to stay or leave.

And when high school dropout wages go down, the return to staying in high school goes up. Those are precisely the same statement. Jennifer Hunt at Rutgers, who just became the chief economist for the Department of Labor, has a new paper showing that caused more people to stay in high school. In black communities with high high school dropout rates that got more immigrants, high school dropout rates have gone down more, precisely because people don't want to be competing with immigrants who often have less than high school educations.

In all social classes, high school dropout rates have been going down over the last 30 years. What Jennifer Hunt is showing is that immigration is part of that fact. Even if you believe Borjas's estimate, you have to temper that with the fact that lots of people left that category just because of immigration, which means that the impact on real people is less.

I can keep going, if you want.

DM: Please do.

MC: Patricia Cortes at BU has other research which is really groundbreaking, nobody did this before, showing that in U.S. cities that have gotten more immigration, labor force participation by skilled women is higher. Child care is cheaper, women with master's and PhDs are likelier to be working. It's often elder care, stuff that women are doing in homes where hiring someone else to do it allows them to enter the labor force. And that makes not just them more productive, it adds value to the entire economy.

None of that can be captured by the kind of analysis that Borjas does. I could keep going. I've studied farm workers a lot recently. There are entire sectors of agriculture that could not exist in the United States without immigrant labor. There are a lot of manually picked things that no one has figured out a way to mechanize, that could not be produced without migrants coming in. Cucumbers, say, or Christmas trees. There's no mechanized apple-picking. Machines are used in part of the process, but huge amounts of manual labor are required. Americans cannot provide manual labor they need.

So migrants come in and pick them, or we import them, which means that their production is no longer part of GDP. We have to buy them with other parts of GDP and GDP goes down, and when GDP goes down jobs are lost across the economy. People sometimes talk about the supervisor jobs that are created by the manual pickers, but it's more expensive than that. If these sectors disappeared because of a lack of immigrant labor, that means the whole economy gets so much smaller.

This is a long list of reasons why the nominal wage impact of very large scale immigration is just about zero. They do compete with some small segment of the U.S. population but they also do all these other things. They sustain entire industries that wouldn't exist without them, and those multiplying effects balance the competition effects, and you get no net effect. You get no net effect at the individual level on the wages of the average American worker. At the macroeconomic level, you get a larger and more prosperous economy, which means there are all kinds of greater opportunities. The fact that there is a big prosperous market here is why Instagram and Google can be so successful here as start-ups. None of these things can be captured in these very simple wage analyses, all of which, again, find that the impact is roughly zero.

DM: And that's just the nominal impact. Is the real wage impact on American workers also zero, or is it actually positive because immigrants cut prices so much?

MC: Definitely positive, without any doubt whatsoever. Ask yourself, what is the experience of America with immigration? In 1900 this country was a fourth of the size it is today. A little over half of that increase came from immigration, and what happens to unemployment rates? Nothing at all. Actually zero effect. Unemployment was 5 percent in 1900, exactly, and 105 years later in 2005 it was…5 percent.

All of that immigration led to a massively more prosperous economy. Everyone across the board is way way better off now. The whole economy is the richest and most powerful in the world, and of all time, and that's the effect that quadrupling our population, largely through immigration, had. There's no research that suggests that would be different now.

It's so strange to hear these discussions about hypothetical things that might happen, as if we've never had mass immigration, as if we've never had mass low-skill immigration, as if we've never had problems with assimilation and language-learning. We've had these patterns for centuries and we've massively benefited for centuries.

DM: Circling back to the role of the law here, if economic patterns are actually all that determine flows, then what's the economic case for having that immigration be legal rather than illegal? Why would a reform bill help? Obviously it's a great thing for the immigrants in that they get to come out of the shadows, but are there other benefits?

MC: There a couple of analyses of that out there, one which just came out from the Center for American Progress, another from Raúl Hinojosa-Ojeda at UCLA, another by Silvia Helena Barcellos at RAND, and another by Pia M. Orrenius and Madeline Zavodny at the Dallas Fed and Agnes Scott. All find massive benefits to regularization, and to flows that are legal rather than unauthorized.

There are all kinds of channels by which that happens. When there's a huge black market it's black market workers who U.S. workers are competing against. If you're a farmer or a contractor, if you are a parent who needs child care or — I was actually in this position myself — an employer of an elder care worker, you face this choice.

In the case of elder care, I know exactly how it works. The black market wages were about half, which means my mom's retirement savings would last twice as long, because elder care was the main expense she had. That's a real tradeoff, as we're talking about limited retirement savings and how much care you're going to get out of them, which means those people are in complete competition. Immigrants with no worker protections, that's not something that's good for American workers to be competing against. Obviously workers are safer, more productive, happier when they're not competing against a Wild West of no regulation whatsoever.

I think there are lots of other reasons why regularization is beneficial. Tax revenue from them is higher. Unauthorized migrants do pay taxes, and it's a myth that they don't. They pay sales taxes and excise taxes, Social Security taxes for false numbers, and property taxes, but they pay more, including income taxes, when they're authorized. That has all kinds of circular effects. It helps local and state governments deal with large flows, which helps mitigate political opposition to immigration. You can cycle in the opposite direction, as Arizona and Alabama have done, but there's a virtuous cycle on the other side, in which making migrants part of the system makes them contributors to the system and erodes the anti-immigrant sentiments that lead to what Alabama and Arizona did.

From a research perspective, it's notable that the only analyses I've ever seen from a dispassionate economic point of view show massive economic benefits.

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