Dean Baker and Immigration

Dean Baker replies to Noah Smith regarding unskilled immigration reform:

As far as less-skilled immigration, I would want it sharply limited, except for family re-unification. The evidence is that this does lower wages, although most of the impact is on the wages of other immigrants because we have a highly segregated labor market. I don’t consider this to be a good thing. As I’ve written elsewhere, I don’t want policy to be structured to give professionals cheap help. I would be very happy with a world where no one could afford to hire nannies for their kids.

There are places in the world where jobs that are low-paying jobs here allow for a middle class standard of living. A retail clerk, custodian, or housekeeper can earn enough to support a family. We just need the right set of labor market conditions to make this possible.

I think I understand where Dean is coming from now. I was initially very skeptical at the idea that progressives, who just won a decisive victory with immigrant support, should become labor protectionists. However, I still am in favor of more flexible labor markets, for paupers and PhDs alike.

As I understand it, the crux of Dean’s argument is that an inflow of skilled professionals benefits our poor, whereas the inflow of menial laborers depresses their wages. He (rightly) argues that rigid labor markets place an undue burden on other marginal groups.

This is true. If the number of doctors, lawyers, and programmers suddenly doubled, the salaries of the top 5% may be hurt, but middle and low America would derive huge benefits from cheaper appointments, technology, and services.

Dean argues, though, that a large portion of consumer surplus derived through inflow of menial labor is allocated to the wealthy:

Of course, there is a story of labor shortages in this picture—in the sense that it will be difficult to find workers for the lowest-paying and least productive jobs. With a stagnant or declining labor force, workers will have their choice of jobs. It is unlikely that they will want to work as custodians or dishwashers for $7.25 an hour. They will either take jobs that offer higher pay or these jobs will have to substantially increase their pay in order to compete.

This means that the people who hire low-paid workers to clean their houses, serve their meals, or tend their lawns and gardens will likely have to pay higher wages. That prospect may sound like a disaster scenario for this small group of affluent people, but it sounds like great news for the tens of millions of people who hold these sorts of jobs. It should mean rapidly rising living standards for those who have been left behind over the last three decades.

And that is the basic story of fears over stagnant or declining populations. The people who hire help—the very same who also dominate economic policy debates—are terrified over the prospect that they will have to pay workers more in the future. But the rest of us can sit back and enjoy watching them sweat as ordinary workers may finally start to see their share of the gains of the economic growth of the last three decades.

This argument was made in context of shrinking populations epidemic across the rich world, but, can be extended to immigration as well. However, I have two qualms with this premise:

1. This argument may actually be somewhat true for a poor country like India. That is, my lifestyle in India is rich because we have lots of people cooking for us, driving us around, tending the lawn, etc. Simply, wealth in India manifests in labor-intensive ways. However, while undoubtedly the increased consumption by wealthy Americans creates employment (heh), it is more capital-intensive and will continue to become more so.
2. The rich will certainly take a disproportionate amount of the benefits from low-skilled laborers, sure. However, the decreased cost of menial labor will also benefit the poor. That is, most Americans buy the same food in similar grocery stores, and when there are more people processing food, the price of food will fall. Food eats a good portion of a poor man’s leftover salary, but isn’t even a consideration for the affluent. So, much of the financial surplus might go to the wealthy, but it will hardly change their lives, as it will that of the poor.
   

The idea that low-paying jobs provide a middle-class standard of living in some countries is true, but doesn’t apply for this argument. In my head, Dean’s argument sounds something like this: “If a Mexican field-hand comes and works in America, he’ll barely earn $20,000 a year. Gee, he’d be poor by American standards. But if he stayed in Mexico, that would get him a really middle-class lifestyle”. This is a pretty unfair caricature of his argument, but low end jobs in America, are low end jobs in Mexico. I don’t think there are any non-Western countries where “custodians” can live a middle-class lifestyle. Housekeepers, maybe, but for cultural reasons (i.e. maids that live in mansions).

Dean doesn’t buy Noah’s argument re: agglomeration effects:

On some more general points, Noah presents evidence that densely populated metropolitan areas have the highest productivity. I don’t have any quarrel with this or the economics of agglomeration that Noah cites, but there is a serious problem of untangling cause and effect. Certainly economically dynamic areas will attract lots of workers and workers are needed to sustain dynamism. But do we really think the benefits of a larger population increase without limit?

Mexico City’s metropolitan area has a population of more than 20 million people. Do we think the people in the area would be poorer on average if the population was just 10 million? I find that hard to believe, especially if we take into account the pollution and congestion rather than just a straight per capita GDP measure.

Because I’m working at the Santa Fe Institute on a project that is specifically concerned with socioeconomic scaling in cities, this was a really interesting point to me. And my answer is an emphatic YES! We would expect Mexico city, which is 100% larger than a city of 10 million, to be 115% richer. Of course, he’s absolutely right that pollution also increases superlinearly with population, but this isn’t as bad a thing (and will cease to be a problem with enough wealth and popular demand). The real concern for the future is water and carbon efficiency, which consistently scale sublinearly with population. The scaling laws hold true across America, Europe, and – based on some preliminary sleuthing – India as well. Cities are where ideas have sex, without birth control.

After reading this post, I’m a lot more sympathetic to the idea of labor protectionism. I’ve always been somewhat appreciative of the nativist viewpoint. Hey, I’m never going to be at the blue-collar margins, so it’s not me who has to face harder competition and maybe lower wages. But also, I’m allergic to the idea that we should prevent low-skilled laborers from entering the United States.

The poor in Mexico are surely more disempowered than those in America. Many go through months of hell to come up north, and I think it is slightly patriarchal to say “You’d have a better live in Mexico, you could be considered middle-class there”.

I found the tax treaty for skilled foreign labor a fascinating idea, though. This would not only be a great economic move, but would forge the way to much more robust relations with ‘source countries’.

Would also direct readers to Adam Ozimek’s thoughts on region-based visas. This is another idea that I’m against, but has changed at least some of my priors.