James C.W. Ahiakpor, Ph.D.
(Foreign-born) Professor of Economics
California State University, East Bay
Permit me to comment on Virginia Postrel's piece posted as USA-Africa Dialogue no. 1308. The piece summarizes a recent research paper by Giammarco Ottaviano and Giovanni Peri claiming that immigration raises the average wage of U.S.-born workers. I suspect that the piece was posted at this site because many, if not most, of the readers here are foreign born. They would thus be expected to take comfort in a publication purporting to make an argument they might use when others remark about the negative consequences for American-born workers from their being employed here. But several of the arguments made by the original authors (one of whom is himself a foreign-born worker in the U.S.) is misleading, if not outrightly false. If foreign-born workers should feel the need to defend their contributions to the U.S. economy, they have better arguments to make than those suggested by Ottaviano and Peri, and repeated by Postrel. Below are some of them.
First, U.S. employers are not running houses of charity. Thus, when they choose to hire a foreign-born worker instead of a native-born alternative, it must be that the former contributes more to the employer's enterprise or profits than the latter. And that would occur if the employer can pay the foreign-born worker a lower wage for the same output or productivity that the U.S.-born worker would yield. Otherwise, the employer must expect to derive more output or productivity from the foreign-born worker than hiring the native-born worker for the same amount of pay.
It is true that foreign-born and native-born workers are not perfect substitutes. In the first place, they don't speak with the same accent as American workers, different as American accents are across the different regions -- south, north-east, mid-west, north, and west, and places in between. And being able to communicate well with clients or customers is quite important in several production activities, including education, medical, hospitality, financial, and transportation services.
Secondly, foreign-born workers have a lot to learn about the institutional and cultural background of the U.S., at least when they do not acquire college degrees from the U.S. The prospective employer needs worry about workplace complementarity of the prospective employees. This is why to select the foreign-born over the native-born prospective employee, the former must have some demonstrable edge over the latter.
The above two arguments lead to the conclusion that the inflow of foreign-born workers may at least slow down the rate of growth of native-born workers, but not raise it. Thus, data showing that "From a flow of migrants that increases total employment by 10%, with a distribution among skills just as the one observed in the nineties, US-born workers experience an increase of 3-4 percentage points of their wage" (Ottaviano and Peri, 2005, p. 28)must not be interpreted as the authors have done. Correlation is not causality, as is well known. I don't think that the authors of this paper seriously want to argue that, had there been no in-migration of workers to the U.S. during the nineties, average wages would have risen. Rather, it is the rising demand for workers -- of various skills -- that causes wage rates to rise and at the same time beckons the increased flow of foreign-born workers. Thus the increased flow can only slow down the rise of wages, but not cause the wages to rise.
The error of the authors' interpretation of the data is easily seen thus: Things that are plentiful do not cost more than when they are abundant. This is one of the fundamental truths we learn in economics. It is the equivalent of the physical law of nature: water does not run upstream!
The authors are correct in noting that "A Chinese cook is not the same as a barbecue chef." But the services of a Chinese cook diminishes the demand for the services of the barbecue chef when some of the potential customers go to eat Chinese food. Thus, in the absence of the Chinese cook, barbecue chefs, Italian meal preparers, etc., would earn more.
There is another misleading aspect of the authors' argument. As Postrel restates it, "As businesses expand, hiring foreign-born workers to do one job may also require hiring more native-born workers with complementary skills. Immigrant engineers, for instance, may create demand for native-born patent lawyers and marketing executives." Surely, there must be pretty rare skills that foreign-born workers possess that native-born workers would not have. Certainly, not engineering skills. Even for foreign languages in high demand, lots of native-born students learn them in order to take advantage of the employment opportunities (and the attractive wages for them). Such technical terms as "estimated elasticities of substitution between skills" should not cause people to lose their hold on reality. And few native-born workers are going to be impressed with the argument that the employment of foreign-born workers causes increased demand for their skills and thus higher wages for them. They know better than to be fooled by such talk.
So what can anyone intent on arguing the benefits of immigration to the U.S. economy say? First, they should point out that the hiring of foreign workers enables more goods and services to be produced. This because production costs would have been higher otherwise. Second, with more goods and services produced, consumers are able to acquire them at cheaper prices than otherwise would have been the case. A third argument could be made, namely, that the hiring of foreign-born workers may enable higher quality goods and services to be produced where restricting employment to native-born workers only would have meant passing up higher quality workers. Think, for example, of American baseball without foreign-born players.
It is at the overall economy level that a persuasive argument on behalf of foreign-born workers readily can be made. The principal reason people work is to earn income to consume. Thus, the cheaper the prices people have to pay and the higher the quality of the things they purchase for those prices, the better off they are. Foreign-born workers are in competition with native-born workers in practically all occupations. A notable exception is the presidency. There is no point foreign-born workers attempting to convince those with whom they compete that the competition causes the latter's incomes to rise. People inclined to make an argument in favor of foreign-born workers' contributions to the U.S. economy must not choose one that easily can be shown to be erroneous.