Immigration and Stinginess

Jim Pethokoukis draws our attention to an important new study from Michele Battisti, Gabriel Felbermayr, Giovanni Peri, and Panu Poutvaara on the effects of immigration on the native-born population in 20 countries. One of the co-authors, Giovanni Peri of UC Davis, is a widely-cited immigration scholar, who has, among other things, proposed rationalizing U.S. immigration policy by using an auction-based system to allocate temporary employment visas. The Economist summarizes the work of Battisti et al., and it highlights their intriguing finding that an increase in immigration levels is more beneficial in countries with welfare states that are relatively less generous to immigrants, like the United States, than those with welfare states that are relatively more generous towards them, like Belgium:

In America, a one-percentage point increase in the proportion of immigrants in the population made the native-born 0.05% better off. The opposite was true in some countries with generous or ill-designed welfare states, however. A one-point rise in immigration made the native-born slightly worse off in Austria, Belgium, Germany, Luxembourg, the Netherlands, Sweden and Switzerland. In Belgium, immigrants who lose jobs can receive almost two-thirds of their most recent wage in state benefits, which must make the hunt for a new job less urgent.

None of these effects was large, but the study undermines the claim that immigrants steal jobs from natives or drag down their wages. Many immigrants take jobs that Americans do not want, says Mr Peri. This “smooths” the labour market and ultimately creates more jobs for locals. Native-owned grocery stores do better business because there are immigrants to pick the fruit they sell. Indian boffins help American software firms expand. A previous study by Mr Peri found that because immigrants typically earn less than locals with similar skills, they boost corporate profits, prompting companies to grow and hire more locals.

This is an intriguing passage. It’s not obvious to me that corporate profits ought to be prioritized over the labor share of income, but we’ll leave that aside. Notice that Battisti et al. do not address the impact on immigrants currently residing in the countries in question. This is fair enough. Not everyone believes that previous immigrants should count in this kind of analysis. But Peri has found that increased immigration has a substantial negative impact on the wages of previous immigrants, and because the foreign-born share of the population in several of the countries Battisti et al. analyze is quite large, one wonders if this negative impact is large enough to significantly offset the (quite meager) benefits to the native population.

Moreover, as David Card observes in a 2009 literature review, the concentration of immigrants in the upper and lower tails of the skill distribution means that immigration contributes to wage inequality — he finds that immigration accounted for a modest 5 percent of the increase in overall wage inequality from 1980 to 2000. Though immigration is not one of the primary drivers of rising inequality, it is worth noting that rising inequality has been used as a justification for the expansion of the welfare state; so has the rising poverty level, which is in part a function of the fact that the U.S. foreign-born population is substantially poorer than the native-born population. The poverty of the unauthorized immigrant population has raised related concerns: because the earning power of unauthorized immigrants is so low, and because it would continue to be low even if unauthorized immigrants secured legal status, it is unlikely that they would be able to provide for the nutritional needs, let alone other needs, without substantial public assistance. It is true that low-skilled Mexican-born immigrants appear to improve the spatial allocation labor, as Brian Cadena and Brian Kovak have found. Essentially, because these immigrants are largely ineligible for unemployment benefits and many other forms of public assistance, they face severe deprivation if they don’t rapidly flee economically depressed regions, hence their responsiveness to changing conditions. It’s not obvious this threat of extreme deprivation is good news for the U.S.-born children of the Mexican-born, who will eventually become part of the U.S. workforce.

Overall, one gets the impression that countries with “stingy” welfare states for immigrants are “buying” the modest benefits of immigration for the native-born population at the expense of the children of immigrants. This suggests that an immigration policy that emphasizes skills, like those adopted by Australia, Canada, and Switzerland, might be preferable to one that does not. In Australia, Canada, and Switzerland, immigration tends to leave high-skilled native-born individuals slightly worse off, thus dampening inequality at the margin, yet the children of immigrants are far less likely to live in poverty and they are far more likely to enter the economic mainstream. My view is straightforward: there is a strong case for an immigration policy that is more selective about who gets in while also being more generous to those we allow in the country. Given the large supply of skilled workers eager to settle in the United States, this view is compatible with a high level of immigration. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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