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I Compete with More Immigrant Workers than You Do
Basic Labor Economics Is Superior to One-Liners
An argument I sometimes hear from less interesting critics is that I only support immigration liberalization because I don’t compete with immigrant workers. As their reasoning goes,
Alex Nowrasteh works in a protected industry with very little immigration. His arguments are theoretical and empirical abstractions with no understanding of the real-world effects. If Alex had to compete with immigrants, he would experience the negative effects that do not show up in the data and research he's so fond of.
This type of populist argument has been used for the 15 years or so I've worked on this topic, but Twitter and online comment sections have increased the supply of such statements. Every once in a while, somebody even asks me in person. Senator Ted Cruz (R-TX) ran an ad during the 2016 Republican presidential primary claiming that the debate over the economics of immigration would be very different if lawyers, bankers, or journalists were immigrating illegally. This argument seems to have spawned at least one Astroturf group claiming to represent skilled U.S. workers opposed to immigration.
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The argument itself is silly and, if applied to other arguments, would make it impossible for most people to argue about most policy topics. However, this argument misunderstands the facts about the legal immigration system. My employer, a nonprofit think-tank producing research, is exempt from H-1B numerical caps constraining private industry. Not only are many of my colleagues foreign-born, but I work in an occupation legally exposed to more potential immigrant labor competition than most. Illegal immigrants don’t tend to work in think tanks, but legal immigrants do, and many get their start on the H-1B visa.
The H-1B is a temporary work visa for migrants working in specialty occupations or as fashion models of distinguished merit and ability (seems redundant). According to the Department of Labor, “A specialty occupation is one that requires the application of a body of highly specialized knowledge and the attainment of at least a bachelor’s degree or its equivalent.”
H-1B workers must be paid wages comparable to American workers in the same occupation, but the median wage for H-1B workers in 2021 was $108,000 – above the 90th percentile. H-1B visas last for three years and can be renewed once, but they can be extended indefinitely so long as the employer has filed for an employment-based green card on behalf of the H-1B migrant. Employers of migrants on the H-1B visa do not have to demonstrate that they tried to hire an American worker. Immigration attorneys will probably email me to tell me about a crucial legal detail I missed, but I still don’t regret dropping out of law school.
There are several deficiencies related to the H-1B visa. First, an American firm must sponsor the workers. They frequently change jobs, but it is legally harder for them to change jobs than for native-born Americans. The employment-based green card creates another problem with the H-1B visa. The H-1B is one of the few dual-intent guest worker visas, meaning that workers on the H-1B can adjust to a green card and intend to stay here permanently earlier in the immigration process. Migrants on other visas cannot express that intent, even though many of them have it buried somewhere in their unexpressed thoughts. The problem is that the employment-based green card is numerically capped at a low 140,000 annually, and fewer than half of those green cards go to the workers themselves. Also, there are country caps that limit the number of new employment-based green cards issued annually to immigrants from any single country – especially affecting Indian and Chinese immigrants. Thus, the wait time for a green card for some Indians can be 90 years. A Soviet citizen waited less time for a Lada.
Many H-1B migrants intend to stay here permanently, but the green card system's failures make that extremely difficult for some immigrants. The government should make the H-1B visa more like an employment-based green card by introducing total portability between employers. Still, the main target for reform should be the employment-based green card, mainly by expanding the numbers by exempting large numbers of workers from the cap, expanding or removing the cap, increasing the numbers dramatically, or a combination. Complaints about the H-1B visa would melt away if workers on that visa could easily adjust their status to a green card.
The costliest portion of the H-1B visa is its numerical cap for U.S. firms in the private sector. Only 65,000 per year plus an additional 20,000 graduates from American universities are allowed to get an H-1B sponsored by American firms. That’s an extremely small number of skilled workers given how productive they are, equal to about 0.05 percent of the U.S. civilian labor force. The government doesn’t know the total number of H-1B workers in the United States, of course, but they estimate it’s just under 600,000, or about 0.4 percent of the U.S. civilian labor force.
The government does not limit the number of H-1B visas for U.S. nonprofit research institutions. Universities, university-associated research institutes, nonprofit research labs, and think tanks are exempted from the H-1B cap. Those organizations must comply with the other wage regulations and features of the H-1B, but the numerical doesn’t exist.
The Cato Institute is H-1B cap-exempt. As a worker at the Cato Institute, I compete with many more potential legal migrant workers from around the world than in just about any other sector of the U.S. economy. Ditto for researchers at other research institutions and universities who employ people who tend to favor freer immigration policies. Those who say I support expanded legal immigration because I labor in a protected sector are just wrong. I favor expanded legal immigration for a whole host of consequentialist, ethical, and patriotic reasons. Immigrants help make America great while enriching themselves, Americans, and the world. My exposure to a highly competitive global labor market has done nothing to dampen my support for immigration, just the opposite. My foreign-born colleagues and friends at other think tanks who are foreign-born have produced a more vibrant, interesting, and productive industry that benefits us all.
Part of my job is to read a vast amount of research on immigration and economics. Some of it has influenced my work in important ways that have increased my productivity. My research on crime, terrorism, assimilation, generalized social trust, and the effect of immigrants on economic freedom and growth have all come from reading the work of others – many of them foreign-born workers in the H-1B cap-exempt sectors of the economy. These are just anecdotes, so don’t pay them much mind, but there is a large foreign-born contribution to knowledge in my small corner of the research.
The rest of the labor market should be just as legally open to global talent as the nonprofit research sector of the U.S. economy is. I can't get granular data on the foreign-born percentage of workers in U.S. think tanks, but I suspect it is above the U.S. average of about 16.5 percent of all workers. Regardless, I potentially compete against workers around the world. The supply of researchers is likely more inelastic than in other sectors of the economy and English language skills are vital. More people worldwide could work in construction than in a think tank. Of course, the labor market effects would vary under an immigration policy that treated the rest of the economy as I suggest. Still, the net effect would be positive for Americans because labor demand is elastic.
Furthermore, there are more white-collar immigrants than ever before. In 2021, 33.8 percent of immigrants had a college degree or a higher level of education compared to 27.4 percent in 2010. The average education of new immigrants (who arrived in the last five years) is also up. According to the 2021 American Community Survey, 16.7 percent of journalists, reporters, and news analysts are immigrants. In the same year, 8.8 percent of lawyers, judges, magistrates, and other judicial workers are immigrants. I can’t confirm it, but I suspect that the percentage of immigrant lawyers in the private sector is probably higher as immigrants are less likely to work for the government than natives. The economic sector that includes think tanks, but is not limited to them, is over 20 percent foreign-born.
Most Americans Don’t Compete Much with Immigrants
The above is somewhat tongue-in-cheek, but I don’t want you to get the impression that there is a lot of labor competition between immigrants and natives. On the contrary, the evidence shows little labor market competition between native-born Americans and immigrants. Most economists who study immigration focus on the labor market, even though prices in other markets, such as housing, are much more affected by immigration. The supply of labor and the demand for labor set wages, like all market prices. Immigration's impact on labor supply is obvious – it increases it. But that is usually where the analysis stops. Thinking about the impact of immigration on wages while only considering supply is as daft as trying to cut a piece of paper using only one blade on a pair of scissors. Demand curves matter too.
Labor demand curves are determined by the marginal value product of the worker (MVP), which is the quantity of goods or services created by a worker multiplied by the market price. In other words, the MVP is the market value of what the worker can produce. Employers hire people and pay them wages in exchange for their labor, which is a valuable production input. Firms then sell that output in the hopes of making a profit. Employers hire a worker if his wage is at or below the worker’s MVP. In other words, employers will pay a worker $10 an hour if the worker produces $10 an hour or more in value. Immigrants have higher wages in the United States because their MVP is higher here than in their home countries. In other words, immigrants have higher wages in the United States because they are more productive here.
The worker's labor, human capital, physical capital available to the worker supplied by the employer, land that the worker uses, and the quality of entrepreneurship determine the MVP. An entrepreneur combines those factors of production to (hopefully) produce a valuable good or service that he can then sell to consumers for a profit. That profit compensates the entrepreneur for organizing those factors and provides a valuable market incentive to organize these scarce factors well. The relative prices of those factors of production affect the MVP and hence the worker's wages. Other producers supply additional land, capital, and entrepreneurship when the relative price for those items increases.
The relative prices matter. An increased supply of workers might reduce wages and increase the relative price of capital workers use. As a result, owners of capital earn higher profits that incentivize investors to create more capital. Entrepreneurs then buy that capital that, in turn, increases worker MVP, resulting in higher wages.
A construction site provides a good example. Imagine a construction entrepreneur employs 10 workers who use 10 hammers to build a house. Each worker has one hammer. If the entrepreneur hires an 11th worker and all 11 workers must now share 10 hammers, those workers that share will have a lower MVP and a lower wage as a result. They will be able to hammer less because the original 10 workers would have to pass a hammer to the 11th worker. That also makes hammers relatively more valuable compared to workers and thus raises the price of hammers. That higher price incentivizes hammer manufacturers to create more hammers that the entrepreneur will buy for the 11th construction worker. Once that 11th construction worker gets a hammer, his MVP increases, and so will his wage. They then build more houses more quickly. If the employer does not raise the worker’s wages after he gets a hammer, then another entrepreneur with enough hammers can hire away the worker for a higher wage.
The above price changes and reaction times mean that this doesn’t happen instantaneously. The time from when additional workers show up to when capital and other prices adjust is called the long run, how long it takes the economy to adjust to a change and reach equilibrium again. The length of time until the long run varies because entrepreneurs, consumers, and workers also try to anticipate the future. For instance, some entrepreneurs anticipate that the supply of workers will grow, so they invest in making new capital goods today even before the workers arrive so that the immigrants can use the additional hammer almost immediately after arrival. That means that the long run might arrive very quickly.
So quickly that the initial wage decline described above might not even happen because entrepreneurs already anticipated it and acted in their self-interest.
The lesson from the above is that labor demand is relatively elastic in the long run, meaning that an immigrant-induced increase in the supply of workers has a small impact on wages. The overall long-run wage effect of immigration is approximately zero, and it can't be any other way because of how the supply of the factors of production changes in reaction to the immigrant-induced change in prices. Capital increases the MVP of labor, so more capital, relative to the size of the larger labor force, raises overall nationwide wages back to where they were before the arrival of the immigrants. The relative long-run wage effect for native-born American or immigrant workers will differ based on their skill level, with native-born American workers gaining and longer-settled immigrant workers losing on average, but the overall impact on nationwide wages will be zero in the long run.
The National Academy of Sciences (NAS) literature survey reported long-term ranges of wage elasticities for natives. The effect of a 1 percent increase in labor supply due to immigration on the relative wages of native-born Americans ranges from ‑0.4 to +0.1, meaning that a 1 percent immigrant-induced increase in the supply of labor affects native wages by between negative 0.4 and positive 0.1. The effects differ by experience and education.
The two most important studies are from George Borjas and Gianmarco Ottaviano and Giovanni Peri (OP). They are parts of the so-called skill cell subset of the wage literature that also combines structural methods to study how immigrants with specific levels of experience and education affect the relative wages of natives with the same levels of experience and education. The relative wage effects are compared to natives with different education and experience levels; they are not absolute wage changes. Structural methods help estimate the long-run effect by including other research that estimates the speed and extent to which capital adjusts to labor market changes and elasticities of substitution between workers by skill. Capital matters because workers need tools to make goods and services, and the supply of those tools helps determine their MVP.
When Borjas and OP assume some labor market complementarities, they find about the same overall wage impact on native-born Americans of a +0.5 to +0.6 percent relative increase in wages. These are not elasticities but the effect of immigration on the relative wages of natives. But they differ as to the impact of immigration on the wages of native high school dropouts. Borjas finds that the wages of native-born American dropouts fell by a relative ‑1.7 percent, whereas OP found a relative +1.1 percent wage increase for the same group. The different results come from minute methodological differences.
None of this means that some natives don't face labor market competition with immigrants, some do. But it does mean that the national effect on natives is positive, with some potential concentrated costs on native dropouts. Aren’t we supposed to be concerned with what’s in the national interest? If so, more immigration fits the bill. Furthermore, some occupations may see wages decline. The evidence is overwhelming that immigrants have lowered slaughterhouse wages, for instance. Natives who continued to work in slaughterhouses as their real wages declined had lower wages because of immigrant workers, but most natives reacted to the decline in slaughterhouse wages by switching jobs to higher-wage occupations. The occupational mobility of workers attenuates much of the potential wage declines, which is one reason immigrants positively impacted most Americans' wages.
Immigrants have a tiny effect on the relative wages of natives, but they have a much larger effect on the wages of other immigrants. Borjas and OP agree that immigrants lower the relative wages of other immigrants more than natives because they have more similar skills, comparable experience, and live in the same regions of the United States. Every education group of immigrant workers experiences relative wage declines from new immigrants. New immigrants substituting for and lowering the relative wages of older immigrants is a common finding in the literature. This is why other writers who oppose liberalized immigration focus on how immigrant wages are the most affected (who are they appealing to?), but immigrants are still much more supportive of liberalization than natives. Of course, labor economics is more complicated than that because immigrants are also consumers who shift the labor demand curve slightly upward, for instance, but those are the basics.
There’s a large interest in policy arguments based on "lived experience," which are often unverifiable anecdotes that support personal opinions and substitute for reasoned arguments and appeals to facts. Perhaps the people who use them do so because they don't have anything else to say. Economic theory and empirical research are dense, and most people rationally decide to stay away from them. Or perhaps lazy arguments dominate every policy debate because people have opinions but aren't sure why or don't want to say why. The marginal impact of an opinion on policy outcomes is approximately zero (there are exceptions) and not affected by the investment to acquire a more knowledgeable opinion, so why do it?
My best defense is that lived experience arguments are a way to see whether somebody has skin in the game and would bear a cost if he were wrong or benefit if he were right. Too often, pundits face no downside to making bold predictions and gain enormous prestige for being correct. Right or wrong, they are still respected. The incentive is to write much and only recount those times he was correct. Bets help reduce that downside, allowing the rest of us to appropriately weigh predictions and opinions based on a track record. But the problem remains. Here’s my proposal: Allow free immigration for researchers who work in non-profit research institutions like think tanks. Automatic green cards and no wage regulations or other labor market tests. Surely some member of Congress would support this type of reform in the hopes of proving me wrong, at least. If I’m wrong, such a reform would at least put the elite chattering class in its place. I could imagine somebody saying, “you want more immigration, here you go! Suffer the consequences.” I welcome the policy experiment.
The projected version of this lazy type of argument that I've encountered is, "you wouldn't like immigration so much if you competed against them.” In the absence of the proposed reform above, I am working in a sector of the economy that is operating under a legal regime closest to free immigration. Here I am using my lived experience and wielding anecdotes to make an argument, but at least I support my opinion with facts about the law, economic theory, and empirical results. Most Americans don't compete against immigrants and even see relative wage increases as a result. In this case, my lived experience is more on point legally than for most workers in almost all sectors of the U.S. economy. If lived experience counts for anything, which I’m skeptical about, then immigration restrictionists should take my arguments more seriously. Does that mean they will? I doubt it.
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