Posted by Dr. ARUDOU, Debito on May 7th, 2010
Hi Blog. We had two articles come out in Newsweek over the past two months on the effects of immigration. One from last March cites an academic saying how influxes of foreign workers boost economies, raising average incomes (based upon 50 years of data) 0.5% for every percent increase in the workforce that is foreign-born. The other guest column that came out late April cites other academics suggesting the opposite.
My take: I feel that we’ve got some posturing going on. I’m reminded of the movie THE RIGHT STUFF, where we have the character of Werner Von Braun saying that the Americans are going to win the space race against the Soviets because “our German [scientists] are better than their German [scientists]”. Same here, where the April article brandishes its scientists vigorously, throwing in undeveloped citations like rocks (some aimed at “activists” and “multicuturalists” shrouding the debate in phony “half-truths”), and name-dropping academics with insufficient development of the science involved.
Myself, I’ll trust a half-century of data collated in the March Newsweek article, and believe that countries are enriched by immigration. Would anyone argue that places like the United States have NOT benefited through labor migration to its shores? The only issue is of quantifying how much, which the April column in my view hardly accomplishes.
And if proper attraction and assimilation of immigrants is key (which the April article hints at but won’t come out and say plainly), then the argument once again supports those half-truthy “multiculturalists” and their purportedly phony solutions. Arudou Debito in Sapporo
Why Immigration Boosts Wages—and Not Just In California
By Tony Dokoupil | NEWSWEEK
Published Mar 12, 2010
From the magazine issue dated Mar 22, 2010, Courtesy of BC
As the white house revives immigration reform—an issue the president is discussing with congressional leaders—it may want to ponder the effects of curbing foreign labor. While immigrants are blamed for dragging down American wages and stealing jobs, University of California, Davis, economist Giovanni Peri comes to a different conclusion. In a National Bureau of Economic Research working paper, Peri trowels through nearly five decades of immigration data and finds that foreign workers have boosted the economy, jacking up average income without crowding out American laborers. For each percentage of the workforce that is foreign-born, he found an almost 0.5 percent bump in average wages. In California, where the percentage of immigrants in the workforce has jumped more than 25 points since 1960, that means an almost 13 percent bonus—roughly $8,000. Immigrants, Peri says, push native-born workers into better-paying positions, expanding the size of the job pie so unskilled Americans aren’t left out.
What’s obvious to an economist, however, is hard to translate into politics. The most popular stances on immigration involve citizenship for illegals already here and border security to shut out everyone else. Less likely to land votes: a guest-worker program that brings in labor to meet demand and keep wages afloat. But without such a program, says Peri, “the U.S. is essentially giving up on gains.”
Link to the actual paper here (fee required)
The official summary of the paper (courtesy http://www.nber.org/digest/mar10/w15507.html):
The Effect of Immigration on Productivity: Evidence from US States
A one percent increase in employment in a US state, attributable only to immigration, is associated with a 0.4-0.5 percent increase in income per worker in that state.
Immigration during the 1990s and the 2000s significantly increased the presence of foreign-born workers in the United States, but the increase was very unequal across states. In The Effect of Immigration on Productivity: Evidence from US States (NBER Working Paper No. 15507), NBER Research Associate Giovanni Peri analyzes state-by-state data to determine the impact of immigration on a variety of labor market outcomes, including employment, average hours worked, and average skill intensity, and on productivity and income per worker.
Peri reports a number of distinct findings. First, immigrants do not crowd-out employment of (or hours worked by) natives; they add to total employment and reduce the share of highly educated workers, because of their larger share of islow-skilled relative to native workers. Second, immigrants increase total factor productivity. These productivity gains may arise because of the more efficient allocation of skills to tasks, as immigrants are allocated to manual-intensive jobs, promoting competition and pushing natives to perform communication-intensive tasks more efficiently. Indeed, a measure of task-specialization of native workers induced by immigrants explains half to two thirds of the positive effect on productivity.
Third, Peri finds that inflows of immigrants decrease capital intensity and the skill-bias of production technologies. The decrease in capital intensity comes from an increase in total factor productivity; the capital-to-labor ratio remains unchanged because investment rises coincident with the inflow of immigrants. The reduction in the skill-intensity of production occurs as immigrants influence the choice of production techniques toward those that more efficiently use less educated workers and are less capital intensive.
Finally, Peri finds that for less educated natives, higher immigration has very little effect on wages, while for highly educated natives, the wage effect of higher immigration is positive. In summary, he finds that a one percent increase in employment in a US state, attributable only to immigration, is associated with a 0.4 to 0.5 percent increase in income per worker in that state.
A central challenge in establishing a causal link between immigration and economic outcomes is the fact that immigrants may be disproportionately attracted to states with strong economic performance. Peri recognizes this problem, and uses information on state characteristics, such as the location of a state relative to the Mexican border, the number of ports of entry, as well as the existence of communities of immigrants there before 1960 to predict immigrant inflows. He then studies how these predicted inflows, rather than actual inflows, are related to labor market outcomes. He argues that the state characteristics that underlie his predictions are not likely to be associated with either labor market outcomes or productivity. He also controls for several other determinants of productivity that may vary with geography such as R and D spending, computer adoption, international competition in the form of exports, and sector composition.
Japan’s Phony Solution
The half-truths about immigration.
Should Japan welcome more immigrants? Diehard multiculturalists insist that migration to Japan is not only inevitable but also enhances “mutual understanding.” Others fear the opposite: the chaos these outsiders, or gaijin, conceivably bring to Japan’s safe streets and largely homogeneous society. Both extremes understand the politics of emotion far better than the economics of immigration, keeping the issue shrouded in half-truths.
The problem is usually described in apocalyptic terms, roughly as follows. According to the National Institute of Population and Social Security Research, Japan’s population has peaked. A downward turn is expected to follow, reaching close to 100 million in 2050 and 45 million in 2105. That means fewer workers paying fewer taxes to support an already expanding army of senior citizens. With social security, pensions, and interest payments on the national debt occupying more than 50 percent of Japan’s national budget in 2009 (up from 19 percent in 1960), the government, sooner or later, will face a decision of crisis proportions. Does it raise taxes sharply? Cut benefits drastically? Go deeper into debt? Or throw open the doors to young foreigners to restore balance between workers and retirees?
What the debate misses, however, is that immigration reform will likely have a muted impact on Japan’s standard of living if productivity continues to sour and Japanese women remain underutilized. Robert Alan Feldman, chief economist at Morgan Stanley Japan, figures that Japan would need between 7.4 million and 11 million immigrants to maintain a comparable standard of living in 2012 alone, depending on the decline in Japan’s local productivity. Should immigrants bring dependent families, Feldman says this “avalanche” would have to be closer to 20 million.
Hardly anyone realizes how unlikely Japan is to open up to an immigration boom of such magnitude without answering some difficult questions: what kind of immigrants does it want and how to attract them? One problem is that bringing in too many low-skilled immigrants too quickly risks increasing competition for low-skilled jobs and reducing the earnings of low-skilled native-born workers, according to immigration economist Barry R. Chiswick. In this view, because of their low earnings, low-skilled immigrants tend to pay less in taxes than they receive in public benefits. So while the presence of low-skilled immigrant workers may raise the profits of their employers, Chiswick notes, “they tend to have a negative effect on the well-being of the low-skilled native-born population, and on the native economy as a whole.”
Highly skilled, high-wage immigrants present their own problems. Feldman’s Japan model assumes that the average immigrant would be less productive than local hires because of different languages, work habits, traditions, and educational needs. And what’s never explained is how to attract the “right” immigrants and assimilate them in the first place. Right now, Japan’s average compensation per employee (adjusted for purchasing-power parity) is 36 percent lower than in the U.S. and 15 percent lower than in the euro area, according to the OECD. Worse, monthly cash earnings have been falling slowly for the past decade. If Japan wants to attract doctors, nurses, and engineers, and keep them, it needs to pay them more. And therein lies the rub. Is it really worth it in the long run?
Japan’s Ministry of Health, Labor and Welfare estimates the fiscal cost and benefits of an influx at three different stages of an immigrant’s life. In stage one, when only single youths are admitted, the government gains more in tax payments than it pays in benefits. In stage two (with spouse) and stage three (with spouse and two children), the benefits paid by the local and central governments far exceed the tax revenues. If 500,000 migrants were to enter Japan in stage three, the ministry estimates, the net loss would become a whopping ¥1.1 trillion, or about $12 billion.
No one knows for certain the extent of the blowback if Japan were to be the migrant sponge of East Asia’s and Latin America’s poor. Instead of a cost-benefit analysis, pundits, activists, and the mainstream media focus mainly on the politics, rarely the economics. Either immigrants are depicted as a feel-good panacea to everything that ails Japan, who are kept at bay by a xenophobic Japanese government, or they are deemed devious criminals and a threat to society. Neither is accurate. Both are distracting. It’s time the focus of debate changed.
Scalise is research fellow at the Institute of Contemporary Asian Studies, Temple University, Japan Campus.