Immigration mechanisms

Jonathan Portes makes a vitally important point – that statistics are reality. Apparently arid numbers summarize the lived experience of real people. As Raymond Wolfinger said, “the plural of anecdote is data”. Statistics tell us about facts, whereas anecdotes are subject to sampling error.

Sadly, however, all this misses something – that it takes a theory to kill a theory. When Niall McCrae denies that migrants haven’t depressed wages by saying “Try telling that to my landscape gardener friend, who has been severely undercut by waves of east Europeans” he’s appealing for something more than just statistics. He needs a story.

Here are some I’d tell.

First, not all migrants are competing against native workers. Some are complements, and so help to raise wages. Polish roofers for example allow electricians to get more work done and so earn more. And Filipina maids allow women to work longer hours and earn more.

Secondly, even where migrants tend to reduce wages, there are offsetting mechanisms. For example:

 - The fall in wages should increase employment: if prices fall demand rises.

 - Immigrants spend their wages. When the Polish landscape gardener spends his money in Wetherspoons, he’s creating work and wages for bar staff.

 - The man who employs a cheap Polish landscape gardener has more money left over to spend on other things. This too should create jobs and raise wages.

Now, I’ll concede that these mechanisms are imperfect offsets. The price elasticity of demand for labour is low: we know this because higher minimum wages haven’t destroyed very many jobs. Migrants send some of their money home and so don’t wholly recycle it into the UK economy; and the savings made from employing migrants might be saved or spent overseas.

But then, other mechanisms come into play. If migrants do tend to cause weaker wages and aggregate demand, this should be offset by looser monetary policy. And it has been, at least in part: real interest rates have fallen as migrants have arrived. Nobody credits immigrants with cutting their mortgage payments, but perhaps they should.

And even if all this fails, there are still offsets – most obviously, rising minimum wages have mitigated any tendency for low wages to get lower.

All I’m doing here is spelling out mainstream economics (explaining why the lump of labour fallacy is a fallacy) and telling stories to explain a fact – that immigration (pdf), mostly, hasn’t (pdf) greatly depressed wages.

Yes, “migrants arrived and now my wages are lower” is a powerful story. But so too was “my son got the MMR jab and has since been diagnosed with autism. “ Both stories confuse correlation with causality. Which is not surprising. People are terrible at identifying causality in economics, and they pay insufficient attention to evidence that is important but not obvious.

Of course, it is the case that real wages have been under pressure in recent years. But why blame immigrants for this? There are many other culprits: weaker trades unions; fiscal austerity; financialization (pdf); the financial crisis; power-biased technical change; and all the things that have depressed productivity.

And let’s remember something else. It’s not just migrants who have entered the labour force in recent years. So too have older people: there are 2.2 million more over-50s in work now than ten years ago. Economically speaking, entering the labour force from retirement is the same as entering it from Poland. So why blame one for lower wages when you’re not blaming the other?

My point here is simple. Facts matter. But we must back them up with stories, with mechanisms. And there are plenty of these that largely exonerate migrants from blame for falling wages.

Comments

[Blissex]

«Some are complements, and so help to raise wages. Polish roofers for example allow electricians to get more work done and so earn more. And Filipina maids allow women to work longer hours and earn more.»

These are upward-redistribution mechanisms; I think that very few people deny that the impact of a greater labour supply can be neutral or positive in the aggregate, as upward redistribution happens.

Of course specifically immigration from low-income countries also redistributes download, from middle-income workers to low-income immigrants too, so taking into account the welfare of immigrants too, redistribution can also be neutral or positive for *worldwide* income distribution.

«it is the case that real wages have been under pressure in recent years. But why blame immigrants for this?»

Indeed that is quite arbitrary, and a straw-man argument too. There is a strong case that a relatively increased labour supply does redistribute upward, whether that is from immigration or not does not matter, and that even as to immigration, migration among countries with similar income levels does not have a redistributive effect.

I guess that our blogger (and DeLong for example) understand these arguments and their strength very well, but they think that downward redistribution from middle-income USA or UK workers to low-income second or third world workers is far more important.

[Jim]

People don't live in averages though do they? They live their own individual life. And while (arguably) the overall impact of immigration on wages is not much either way, on average, that hides lots of people for whom it has indeed been negative. And their individual negative experience cannot be ignored.

For example, if the current government implemented some benefit system change that was revenue neutral (ie the same was spent on welfare after as before) however lots of people lost out and lots of people gained, would it be acceptable to say to the losers 'Well on average no-one's any worse off?' Somehow I don't think that would fly, and the media would be full of sob stories of people who'd lost out, and there would be massive pressure to reverse the measures.

[Blissex]

«the overall impact of immigration on wages is not much either way, on average, that hides lots of people for whom it has indeed been negative.»

However note that the impact has been positive *for the immigrant* too.

Suppose that there is an scottish worker in London doing plastering work for an english employer for £12/hour and she is replaced by a romanian who used to get £2/hour in Bucarest and and now earns £8/hour: out of three people, the english employer, the scot and the romanian, two have improved their lot quite a bit. It does not matter BTW what they nationality are and whether they are native or immigrant.

For some Economists that 2 out of 3 is a win-win :-).

[Dave Timoney]

Competition between workers is competition for the favour of employers. Stories that emphasise the nonthreatening nature of immigrants have historically been ineffective (consider the residual bigotry towards Jews and the Irish). It would be better to focus on who is actually doing the undercutting. Cui bono?

[Dipper]

seems to miss a couple of things.

UK workers may often have working tax credits. Their incentive to work more is less than an immigrants incentive.

Immigrant workers need somewhere to live. Even if they aren't pushing down wages they are pushing up accommodation costs.

[Matthew Pollock]

Social costs? Lowering of trust, cultural clashes ("Robert Putnam" costs)? Not easily measurable but costs all the same.

[Luke]

Surely the most visible example of immigrant labour is the Premier League. A massively high level of foreign labour has had no downward effect on wages.

Also FTSE 100 CEOs. I could only be bothered to look at the top ten companies, of which only two have British (born) CEOs. No obvious sign of downward pressure on wages.

[Dan Berg]

- "The fall in wages should increase employment: if prices fall demand rises.. . .
The price elasticity of demand for labour is low: we know this because higher minimum wages haven’t destroyed very many jobs."

No.

If the price elasticity of demand for labor is low, a fall in wages should increase employment VERY LITTLE; if prices fall, demand DOES NOT RISE. (source: econ 101)

[Ann Thomsen]

I don't want to press 1 for English. They should have to press 1 for Spanish.

I don't want my school district to be 30% non Engish speaking children with an average IQ below 90.

There are 600 million Latinos to the south. How many should we "save" from their own inability to self govern?

I'm not up for a murder suicide pact when the economic music is slowing and there are not 7 billion chairs.

[nicholas]

I don't think Luke is right about the effect of immigration on the wages of Premier League footballers.
Surely the relevant point is that, all other things being equal, immigration is pushing down the wages of UK born footballers. They find themselves not playing in the Premier League but in the Championship or first division, because they have been displaced by immigrant football labour.
In this respect, the situation is little different to Blissex's story about Scottish/Romanian plasterers. The winners from immigrant football labour are firstly the immigrants footballers themselves, who could not earn anything like as much playing football in, say, Ghana. The next set of winners are the clubs who get 'cheaper' labour - that is why they send scouts to third world countries. The loosers are the 'journeyman' UK born professional footballers, who are displaced to lower leagues, or out of football altogether.

[james c]

I have to disagree - when it comes to the earnings of a self-employed gardener, I would go with the annecdotal evidence every time.

First of all, we are not comparing one data point with a statistical survey of fifty thousand.

The gardener will now his own earnings and the rate for the job in his area. He will also know other gardeners, who will know the same.

Second, in a survey of 50,000 workers, there aren't going to be many self-employed gardeners.

In fact, there may be none at all.

Third, the world of the self-employed gardener is not likely to be captured accurately by an economic survey.

[Blissex]

«the situation is little different to Blissex's story about Scottish/Romanian plasterers. The winners from immigrant football labour are firstly the immigrants footballers themselves, who could not earn anything like as much playing football in, say, Ghana.»

Indeed and that is the point.
Consider again my hypothetical example: after the english employer has replaced the scottish plasterer with the romanian one the "market rate" for plastering is now £8/h instead of £12/h, and if she is lucky the scottish plasterer can get another job at £8/h. So let's assume that emmployers that used to pay £12/h for one employee now pay £16/h for two employees.

For a progressive Economist that increases welfare, it is indeed a win-win: in welfare terms the gain from £2/h to £8/h for the desperate romanian is much bigger than the loss from £12/h to £8/h for the doing-ok scottish plasterer, because of the standard assumption that the marginal welfare of income decreases with its amount, and the the £6/h gain from £2/h to £8/h is worth a lot more, not just numerical, than the £4h loss from £12/h.
Plus in the given simplistic example in which the scottish plasterer does find a new job at the new market rate, increasing the income of the english employer by £8/h (2x £(12-8)/h) and the aggregate income of workers by £4/h (£(2x8)/h-£12h) boosts aggregate GDP and will also boost house prices and house rents.

SO EVERYBODY WINS! :-)

PS a way to express some of the above is that pushing low wages lower is "complementary" to both business profits and in some measure to high wages, and to even lower range wages.

[Luke]

Nicholas,Blissex, I suspect the situation is different for Premier League footballers and plasterers. You need a plasterer who is good enough. Once they're good enough, you go with the cheapest. So immigrant labour *may* push wages down, depending on what else is going on in the economy.

But in the Premiership you hire the best you can afford. If you hire a good Ghananian for less than my mediocre Frenchman, I'll lure him away with higher wages, and you'll get relegated. So opportunities for British players may be reduced, but not wages for those that do make it.

[Blissex]

«So opportunities for British players may be reduced, but not wages for those that do make it.»

Ahhhh, that sounds plausible but it is very naive indeed. I'll explain why, but explaining the details should not be required on a refined blog like this :-).

There are at least two big issues with that, and the first is that while wages have not gone down in an absolute sense, or have increased, would they have gone up, or even more, if the supply of potential footballers had not increased? That sounds far more plausible than the red herring of "but still they are so high".

There is however a bigger second issue, and it is that footballer "wages" are not really wages, they are almost entirely rents of position.

The stream of rents comes from TV rights and other royalty fees, mostly for premier league (as pointed our also by "PaulB" in comments here), and the number of footballers in premier league is fixed by rules: that many and no more. The whole premier league job market is 20 teams, that is 220+220 "workers".

That means that employers must compete for the 440 best players, and share their royalty rent streams with them. That changes the situation quite a lot, also as to the impact of a much bigger supply.

Before royalty rent players were paid real wages, that is middle class (at best) ones.

http://www.telegraph.co.uk/sport/football/competitions/premier-league/8265851/How-footballers-wages-have-changed-over-the-years-in-numbers.html
«1947: Jimmy Guthrie takes over as chairman of the Players' Union with the maximum wage still only £12 a week (£10 in the summer).
1961: New PFA new chairman Jimmy Hill finally wins abolition of maximum wage. Johnny Haynes becomes first £100-a-week player.»

That £12/week in 1947 around £20,000/year via RPI, and £100/week in 1961 around £110,000 via RPI.

An amusing quote here:

http://thecynicaltendency.blogspot.co.uk/2016/09/football-crackers.html
«In the late 1940's, it was a puzzle to me that the players and the manager of our town's soccer team in The Football League managed to enjoy the lifestyle they did. Despite having middling wages and liable for tax etc. at the same high levels that were imposed they could afford to spend a great deal of time enjoying themselves. Money did not seem to be a problem, they could even afford whisky. Also, finding a decent place to rent was very difficult but they were able to move straight in to nice houses. They had far better clothing and seemed untroubled by the food rationing that the rest of us had to accept. I could go on. Being an enquiring youngster I once asked someone close to the club how this could be. All he would say was that the answer was what they found in their boots. Quite what he meant I did not know until much later.»

[Blissex]

«You need a plasterer who is good enough. Once they're good enough, you go with the cheapest.»

Employee plasterers are paid by the hours by their employer, and their employer is a contractor often paid per-job by their customer. The employer has thus every incentive to put the employee plasterer in competition as to both speed and pay. A much larger supply of potential plasterers means that they have a wider choice of both better and cheaper employees.

Being an employer of semi-skilled and unskilled immigrant labour in southern England has been a fantastic windfall since Thatcher and Blair: many former working class southern english cleaners and plasterers are now affluent, often quite wealthy, employers of polish and romanian immigrants, and they no longer have to do the job themselves: they charge companies and private customers £14-20/h for cleaning and plastering, pay their half-dozen/dozen employeers £7/h, pocket the difference which is nearly entirely net profit, on which they pay very little tax (usually quite a chunk is cash-in-hand from private individuals), and pay themselves from low-tax dividends and capital gains via the ltd. shells they use as employers. Note: I am omitting for "brevity" some important details. It is the thatcherite/blarite dream that has made them into «aspirational voters who shop at John Lewis and Waitrose».

[dilberto]

The changes to the nature of a society's population and workforce is the truest and most impartial measure of the inherent bias in how a society and economy are changing because it is indicative of which population groups are favoured and disfavoured by that change.

A society's general acceptance of that change only reflects the bias imbued in the population by that process of change and selection and reflects the changing nature of the population which results from its adaptation to that social change and how it has created within that population, particularly those who prosper most by it, a vested interest in its continuance.

Mass immigration is therefore indicative of the divergence of the nature of a society and economy from its traditional native character and people indicating the anti-native bias of that society.

[William C]

Some interesting insights here:

http://www.spiegel.de/international/world/eight-myths-about-migration-and-refugees-explained-a-1138053.html

Note the importance of the world total population for the number of migrants - a factor which generally gets ignored.

[Tynnie Todgers]

A fact's relevance largely depends on your assumptions. And, really, only one fact has been repeatedly adduced here : that economists find only small correlation of wages with immigrant density. Having sat on both sides of wage negotiations where threat of replacement with (mostly E. European) contractors is a routine bargaining chip, that doesn't surprise me at all. Nine times out of ten, the threat backed up by the fact of open borders is enough. Not that my anecdotal experience trumps statistics, just that the statistic isn't particularly relevant.

[quote]Yes, “migrants arrived and now my wages are lower” is a powerful story.[/quote]

No, it's a poorly articulated shorthand for something more subtle and pervasive, which these economists are taking literally. That's not how the race to the bottom works. They aren't finding a significant effect because they aren't even looking for a significant part of it. Of course vastly expanding the pool of cheap labour depresses wages - nothing racist about it. The millions who abandoned Labour for UKIP aren't saying "send them back", they're asking for immigration policy based on actual labour shortages. They aren't "blaming migrants", they're blaming immigration policy and the political class who abandoned them for hokey identity politics.