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Thursday, August 27, 2015

A Shoddy Defense of Bernie Sanders’ Closed-Borders Stance

Breathtaking both in what it claims and what it ignores

I am not surprised that Bernie Sanders is opposed to open borders. There is a long tradition of socialists, labor unions, and Marxists opposing open borders in the United States. Many left-wing intellectuals oppose liberalized immigration, let alone open borders, because it will destroy political support for redistribution and state control of the economy — and they might be right

However, I was surprised by the poor arguments made by Richard Eskrow in defense of Sanders. On how immigrants affect Americans, there is little difference between the expressed opinions of Senator Sanders and Senator Jeff Sessions (see here for a rebuttal I wrote to Senator Sessions, some of the following is borrowed from it).

Senator Sanders, at least, wants to legalize the unauthorized immigrants who are here and probably doesn’t want to seriously limit future immigration.

Below, I blockquote Eskrow’s arguments and respond to each one.

Like many libertarian ideas, ‘open borders’ is bold, has superficial intellectual appeal — and is incapable of withstanding thoughtful scrutiny. It would benefit the wealthy few at the expense of the many, here and abroad.

One of the main criticisms of immigration by restrictionists is that poor immigrants gain far more than Americans do. Harvard professor George Borjas’ famous paper on the wage effects of immigration found that Americans benefitted very slightly from it while almost all of the gains go toward the immigrants themselves.

Even excluding the economic benefits to the immigrants themselves, poor Americans just aren’t hurt by having more people here. Borjas did find that immigrants decrease the wages of lower skilled Americans relative to higher skilled American, but his work is the most negative in the economics literature and should be taken with several big grains of salt.

In that paper, he holds the supply of capital as fixed — an assumption that may be fine for an academic publication but it is not useful for making an argument against immigration in the real world. The stock of capital is dynamic and increases with the population. Ignoring that important effect would make any increase in population decrease wages.

It should further be noted that Borjas, like other economists, admits that immigration does help Americans more than it harms them, but with some distributional consequences.

Borjas’ research methods applied to different periods of time yields less negative results. This recent paper borrows Borjas’ methods but includes the wage data up through 2010 instead of stopping at 2000. It finds wage effects so small that they are statistically insignificant. That is an important rebuttal to Borjas’ findings and the serious claims that immigrant labor-market competition lowers the wages of native workers.

With the exception of the Borjas study, most of the modern research finds very small or positive wage effects from immigration through three different economic mechanisms.

The first is called the wage effect, which is that many immigrants are not substitutes for natives and so cannot displace them in the labor market. Instead, the differences between immigrant and native workers are so fast that they are mostly complementary. 

The second is called scale effects, which is the idea that a bigger market, more workers, more consumers, and bigger firms allows for more specialization, division of labor, and greater demand. These effects combine to push up wages.

The third effect that counteracts the fall in wages from an increase in the supply of workers relates to increases in total factor productivity from boosts in immigration. With more immigrants, more knowledge, technology, and productive ways of organizing the economy are discovered. The resulting increase in productivity absorbs the increase in the labor market. For a detailed and technical summary of these and other studies, read this

These three main economic reactions prevent immigrants from lowering wages for Americans, or at least attenuate the decrease, and will not disappear if immigration was liberalized — even to the point of open borders. 

Economists Gianmarco Ottaviano and Giovanni Peri assume that capital adjusts in response to immigrant inflows, doing away with the more static assumptions in Borjas’ older work. Ottaviano and Peri find that immigrants have a very small effect on the wages of native-born Americans without a high school degree (-0.1 percent to +0.6 percent) and an average positive effect on all native workers of about +0.6 percent.

Also, the negative wage effects of new immigrants are concentrated on older immigrants. Unsurprisingly, new immigrants compete with older immigrants who both share similar skills while native-born Americans benefit from a larger supply of lower-skilled workers. Native born American workers with the least skill and experience are teenagers so we’d expect them to compete the most with immigrants — but we still see very little evidence of that

Peri and Chad Sparber elsewhere find that increases in lower-skilled immigration induce lower-skilled natives to specialize in jobs that require communication in English while the immigrants specialize in manual-labor intensive occupations. Communication jobs pay more than manual-labor jobs. 

This complementary task specialization reduces the downward wage pressure because natives react by adapting and specializing in more highly paid occupations, not by dropping out of the job market. This effect decreases wage competition between lower-skilled natives and immigrants by around 75 percent.

Immigrants and natives sorting themselves into jobs by skill level explains how immigration can lower the wages in certain occupations but not lower the wages for native-born Americans. 

Peter Henry found that low-skilled immigrants to an area induced natives to improve their school performance so that they wouldn’t have to compete with lower skilled immigrants. In other words, immigrants push Americans up the skills ladder rather than into unemployment.

Liberal economist David Card wrote an excellent comment called “The Elusive Search for Negative Wage Impacts of Immigration” that eviscerates the fear of immigrants taking American jobs and lowering wages. The wage ratio between high school and less than high school educated workers is very similar over time despite the large infusion of immigrant workers into the less than high school educated workers into the market. 

Furthermore, immigrants aren’t just workers but are also consumers. Because immigrants buy things here, they increase the demand for goods and services produced by other workers which in turn boosts demand for workers. This counteracts some or most of the supposed negative wage effects that would occur by just adding large amounts of workers and ignoring that they actually buy things. 

As for poor foreigners themselves, it’s almost impossible to imagine how open borders could not vastly improve their quality of life.

The place premium, the higher wages an identical marginal worker can make in the United States as compared to their home countries, is enormous. Vietnamese workers see their wages rise by 649 percent, Haitians by over 1000 percent, and Mexicans by about 253 percent.

Those gains are so dramatic because those workers are much more productive in the United States than in their home countries.

Looking at numerous estimates of how open borders would affect incomes by allowing people to move from countries where they are relatively unproductive to ones where they can be productive, economist Michael Clemens estimates a 50 to 150 percent increase in gross world product.

That estimate assumes an unrealistic large-scale movement of people in response to wage pressures, but estimates 1/10 as large are still gigantic. It’s hard to see how that won’t pull more poor people out of poverty than any other policy change.

Bier claims that it is ‘patently untrue’ that an open borders policy ‘would make everybody in America poorer,’ and cites a study from the (Koch Brothers-funded) Cato Institute as evidence. Unfortunately, that study based on a far lower rate of immigration than an open borders policy would produce, rendering his interpretation of it meaningless.

Eskrow linked to two Cato publications. The first is the Cato Journal edition where numerous professors contributed essays on the economic benefits of immigration to the United States.

UCLA Professor Raul Hinojosa-Ojeda’s paper used a Computable General Equilibrium model called GMig2 to estimate the economic impact of immigration. That work and the rest in our series by other professors like Joshua C. Hall, Richard K. Vedder, Pia M. Orrenius, Madeline Zavodny, Giovanni Peri, and Gordon H. Hanson cannot be dismissed via ad hominem

The second Cato piece that Eskrow dismissed without reading was a rebuttal to a popular but highly flawed report written by the Center for Immigration Studies (CIS). They claimed that all of the new jobs created in the recent past went to immigrants, a claim that I found to be untrue after reproducing their results.

Cato’s research on this issue, and that produced by dozens of academics and economists, cannot be seriously dismissed in the manner Mr. Eskrow did so. I look forward to a serious response from Eskrow after he’s read the research.

The Southern Poverty Law Center issued a report on ‘guest worker’ programs in the United States — programs which might be considered a model for the open borders concept — and entitled it ‘Close to Slavery.’

Eskrow’s weirdest argument is that open-borders would be bad because America’s current practically closed borders guest worker visa programs unintentionally expose migrants to poor treatment.

Guest workers, however, are the result of a heavily restricted and government managed immigration system and not a consequence of open borders. The guest worker abuse that Eskrow described are a result of our practically closed borders immigration system, not open borders. 

Guest worker programs tie migrants to particular employers in order to prevent them from competing with too many Americans for jobs. After all, if migrants could switch jobs easily then they could come in to work for Company X in Montana but then move to work for Company Y in Illinois.

A lack of migrant mobility is the policy response of fears, expressed by Senator Sanders, that migrants take American jobs. However, restricting migrant mobility means that they cannot quit jobs or leave bad employers who abuse them. Guest worker visa rules designed to protect American workers unintentionally hurt migrants.

Allowing migrants to switch jobs would virtually eliminate this problem, as I have proposed before (here and here). The problem of migrant worker abuse exists because guest worker programs are more restrictive, designed to protect American workers, and regulated than an open borders immigration system. 

Bier mocks the idea that an open borders policy means ‘doing away with the concept of the nation state.’ But his policy prescription would leave a sovereign people unable to set its own minimum wage or determine its own employment policies.

The laws of economics limit the ability of governments to arbitrarily set price controls, too, so does that mean the United States is not a sovereign country? Will we not be a “sovereign people” until we declare our independence from scarcity, gravity, mortality, psychology, and all of the other inconvenient limitations on human behavior? I’ve never read a criticism of open borders based on the sovereignty argument that is compelling — including Eskrow’s and Sanders’.

Eskrow did not respond to Bier’s historical claim that the United States must not have been sovereign until 1882 because it had open borders prior to that time. National sovereignty depends upon keeping out other sovereigns, not on regulating international labor markets.

Eskrow’s defense of Senator Sanders’ comments is very weak. There may good arguments against open borders — I analyze some of them here — but you won’t find them by listening to Senator Sanders or his defenders.

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