CHAPTER 13 THE EFFECTS OF IMMIGRANTS UPON INCOME DISTRIBUTION AND PRICES These three effects of immigration fall under the rubric "income distribution": 1) Immigrants affect the width and shape of the computed distribution of income; this may have a psychological effect upon the other members of society even if it does not affect their incomes. 2) Immigrants may also affect the receipt of income by persons in particular occupations and income brackets; chapter 12 contains additional data on this topic. 3) Immigration may affect relative prices. These topics will be considered in that order. EFFECTS UPON THE COMPUTED INCOME DISTRIBUTION We may separate the effects of immigrants on the computed income distribution of natives into short-run and long-run effects, first discussing the former and then the latter. Short-Run Effects If a very rich person enters the society, the computed income distribution widens in the short run even if the person does not work and even if s/he does not consume but rather simply reinvests the income from his/her investments, and therefore has only very indirect effects upon the other members of society. There may be psychological effects by way of people's perceived sense of well-being, but aside from that, the change in the income distribution may not signal any material effects for other persons in the society. It is therefore necessary to inquire why we might be interested in the computed income distribution, in the context of a study of the effects of immigration upon natives. A measure of income distribution is most useful as a supplement to a measure of average income. Two countries with the same average income but with different distributions are likely to differ both in their productive capacities and in the material welfare of the different groups within their populations. This does not imply, however, that a change in measured income distribution necessarily indicates a change in such conditions, any more than the change in computed average income the instant a baby is born indicates a change in welfare or productivity. An additional rich (or poor) person living in a country by himself/herself does not affect the production or consumption situations of the rest of the population. The effect of immigration upon the income distribution may therefore not be of economic interest with respect to natives. One might suggest, nevertheless, that the presence of additional poor or rich people in one's society can be unpleasant to natives for reasons of the pain of pity or of envy. At present such effects are beyond the scientific scope of conventional economics. Neverthess, let us adduce some theory and data that operate in the reasonably short run, on the assumption that pity and envy may matter. In theory, immigration of persons without capital, or with lower than average amounts of capital, should increase the disparities in income distribution in a society (as long as the immigrants' earnings are not above average). The theoretical process is that the additional supply of labor increases the earnings of the "capitalists" who are assumed to represent the upper-income group, while it decreases the earnings of the "workers," who are assumed to represent the lower-income group. Hence the income distribution would be wider. Operating in the opposite direction, immigrants often bring substantial amounts of capital with them, which mitigates the capital-induced widening in the income distribution. The educational and skill distributions of the immigrants influence the effect of the immigration upon the income distribution in the short run and in the long run. In recent years, the average education of immigrants has been roughly the same as for natives, with a relatively large concentration at the high-education end of the spectrum, and some relative concentration at the low-education end. And as we see in Chapter 3 -- surprisingly, in light of the view of immigration expressed by Emma Lazarus' "tired . . . poor . . . huddled masses . . . wretched refuse" and by Handlin in his famous The Uprooted -- immigrants have always come reasonably well-equipped with education and skills relative to natives, even back into the previous century (Hill, 1976). This is prima facie evidence that the most likely cause of a widening income distribution due to immigration is not present. Choosing the appropriate methods of measuring income distribution is a thorny problem; theory provides little guidance. The family rather than the individual seems the appropriate choice of unit, because family size is endiogenous, influenced by income of the earner(s). On the other hand, the economic possibilities for individuals are affected by the number of children in the family, and whether there is an adult couple or not. Immigrants' initial low positions in the distribution may understate their lifetime situations. A more satisfactory inquiry into the subject would look at a wide variety of measures, but that is beyond the scope of this chapter. One piece of evidence relevant to the question at hand is the amount of dispersion in the family earning distributions of natives and immigrants. The SIE data displayed in Table 5-2 (and discussed in the appendix to Chapter 5) show that the dispersion of incomes (as measured by the standard deviation) was in 1975 considerably less for each cohort that arrived since 1965 than it was for natives, even though average income was as high or higher for immigrants than for natives (except for the 1974 recently- arrived cohort). The dispersion is slightly higher for the cohorts who came before 1965, but this is overbalanced by their relatively higher earnings compared to natives. Of course, a low income distribution for immigrants could widen the overall distribution even if it is narrow, but this does not appear to be the case. A more explicit and intuitive approach is to examine the proportions of families in the various age brackets. Table 13-1 shows such data from the l970 Census. The l965-l970 cohort shows a larger proportion of immigrants than natives in the lowest age brackets, but this figure is confused by the fact that the income data were for l969, before the l969 and l970 portions of the l965-l970 cohort were in the U.S. for a full year of work. The l960-64 cohort already has a substantially lower proportion of families with the lowest incomes than do natives. In the SIE sample, too, we see in Table 13-2 that starting with the second year after entry (the l974 cohort in l975), there are fewer immigrant families in the lowest income categories than among natives, and this continues to be the case up to the oldest immigrants. And for the first eleven years after entry the proportion of immigrants in the highest income brackets is lower than for natives. Including income from assets for both natives and immigrants would surely intensify this pattern. We can therefore say that for at least the first decade after entry, immigrants reduce the family income distribution at both the high and low ends. (These measures are likely to be quite misleading from a welfare-judgment point of view, of course, because of the very different age and size compositions of the native sample and the various immigrant cohorts. One could attempt to control for such variables, but that will constitute a major investigation in itself.) -------------------- Tables 13-1 and 13-2 -------------------- In order to estimate the effects of immigrants on the various earnings classes in the labor market we must consider, not the entire group of immigrant families in each cohort compared to all native families, but rather participants in the same general labor market. Therefore we examine the distribution of earnings by the male heads of families, aged 24-64, in the various immigrant cohorts and among natives,1 as seen in Table 13-3. There we see that immigrants come to have a smaller proportion of men in the lowest earnings bracket than do natives after l0-l5 years. Until that time immigrants may have a negative effect upon the lowest-earning groups. It may also be, however, that the observed effect is due to the youthful composition of new immigrant cohorts, and that if we were to hold age composition constant, the effect would disappear. Unfortunately, the numbers of persons of various ages in the various immigrant cohorts are sufficiently small that a refined analysis would be necessary to answer the question. ---------- Table 13-3 ---------- In assessing the findings in this section, the reader may wish to keep in mind that the ethnic composition of immigrants has been changing over the years, especially since l965. (See Table 3- ) The earlier-entering cohorts were much more heavily European than were the latest-entering cohorts, and there probably were changes in mean education levels as well (perhaps increases in the proportion of both low and high educational levels, with a decrease in the middle, as North [l979] suggests). This limits our capacity to extrapolate from past experience to the future. For any specified distribution of characteristics of an entry cohort, however, the data for the past cohorts could be made to yield more comparable estimates. The next section bears tangentially on this matter. Interesting corroboration comes from the Australian and Canadian data in Tables 13-4 and 13-5. The differences between mean and median incomes were smaller for immigrant families than for families with Australian-born heads, suggesting that there are fewer very large and/or very small incomes among the immigrants than among natives. This in turn implies a narrower income distribution among immigrants than among natives, and a narrower income distribution of the society as a whole due to immigration. -------------------- Tables 13-4 and 13-5 -------------------- Longer-Run Effects Now let us consider the effects of immigrants upon the overall income distribution once they have had a chance to be absorbed into the society--either just themselves, or themselves plus their children later on. In principle, one would like to compare income distributions with and without the immigrants. An empirical proxy would be to examine the income distributions of a sample of countries that have had varying amounts of immigration. But such a study would be a demanding task, and I cannot undertake it at this time. Therefore, the evidence will be more casual. One relevant fact is that though the United States has, over the past two centuries, swelled greatly by immigration, the income distribution in the U.S. is not particularly wide. A second relevant fact is that some groups with the highest earnings in the U.S.--people of Italian, Chinese, Irish, Japanese, and Eastern-European-Jewish extraction--are of rather recent vintage in the U.S. (Greeley). This second fact suggests that even if the short-run effect of immigrants is to increase the disparities, the longer run does not reveal such an effect; if anything, this fact of earnings higher than average suggests that immigration will narrow the disparities in income. A third relevant fact is that immigrants apparently cause little aggregate unemployment, as seen in Chapter 12; the creation of aggregate unemployment could tend to widen the distribution, ceteris paribus. It should be noted that even unskilled immigrants need not have a _l_o_n_g_-_r_u_n worsening effect upon the income distribution. Many of the Chinese and Irish arrived as unskilled railroad laborers, and many of the Italians and Jews began work without saleable skills at the unskilled bottom occupations in the big cities. But by now both groups have long ceased to drag down the bottom of the income distribution. In short, unskilled immigrants temporarily widen the income distribution in the U.S. But in the long run, this effect tends to disappear or reverse so that the distribution narrows because of them. EFFECTS UPON PARTICULAR OCCUPATIONS AND INCOME GROUPS Before beginning this section, a word needs to be said about its importance. Focusing on the effect of change upon particular groups, rather than upon all of the society, often produces a zero-sum mentality rather than a growth mentality, and increases conflict at the expense of creative work. As George Will put it, in an essay aptly entitled "The F Word": Sooner or later every parent must rise up and lay down the law to the children about the use of the word that parents often refer to delicately as "the F word." It is a four-letter word. It comes tripping off even very young tongues. It is a disturber of the peace. The word is "fair." Unless that word is banned from children's vocabularies the evening meal becomes even more stressful than it inevitably is. Arguments erupt when Billy says he has been given an unfair (slightly larger than Suzy's) stalk of broccoli and Suzy says her scoop of sherbet is unfair (slightly smaller than Bill's). Bedtime becomes bedlam as Suzy, five, says it is unfair that Billy, 15, gets to stay up later than the age difference warrants. And breakfast brings an especially virulent outbreak of fairness- mongering when Billy and Suzy, in harmony for once, say it is unfair that they have to eat oatmeal while the kids next door are tucking into bowls of fudge-coated sugar-munchies. Recently American society and the government that both shapes and reflects it have come to resemble a quarrel- some, elbow-throwing family that needs a vacation from itself and its fussing about fairness. (Newsweek, May 26, 1986, p. 80) Let us take the point. Nevertheless, differential effects certainly are of some concern to us. Additional competitors for jobs and customers can have a direct effect upon the workers in a given occupation, or upon the members of a particular income stratum. More immigrant dentists surely have a depressing effect upon the earnings of native dentists, ceteris paribus. And additional unskilled workers must cause some damage to native unskilled workers, ceteris paribus. Before we go any further, however, the importance of the ceteris paribus clause must be emphasized. If more of all occupations enter the country in the same proportions as they are found among natives--if, for example, the proportions of dentists and laborers among immigrants are the same as among natives--then native dentists and native unskilled workers will not suffer from depressed earnings. Therefore, it is necessary to inquire into the proportions of various types of persons entering as immigrants. Of great interest to many is the proportion of persons with low education and low skill, because of the threat they represent to the poorest segment of the native population. But the data shown in Tables 13-1 to 13-3 do not give much evidence of such a danger. With respect to particular occupations, such as physicians and college professors and plumbers, some occupations must be hurt in the short run, because the occupational mix of immigrants is never perfectly neutral. But this does not imply that governmental actions should be taken to prevent such damage. Here there is sound analogy to international trade in goods. Imports hurt the particular domestic industries with which they compete. But a policy to prevent the threatened immediate damage in each threatened industry condemns most of us to being worse off in the long run, because it prevents the re-allocation of labor that is required in a changing world if a leading country is to maintain its lead. There is an important difference between the movement of goods and of people, however, in that the import of goods benefits natives as consumers whereas there is no such "trade" benefit to natives from the entrance of immigrants; This is the main point of Chapter 2. On the other hand, an immigrant immediately benefits workers in all the industries in which he/she does not work by spending his/her income, and thereby increasing the demand for labor in the wide range of other industries. That is, if goods are imported in all categories of goods, there is immediate harm to workers in all industries, which is only remedied when exports are later increased to pay for the imports (which must happen eventually). But if immigrants arrive and go to work in all industries, the compensating benefit of increased sales in all industries is likely to occur almost immediately. If immigrants did not also bestow benefits of various sorts upon natives, the damage to workers in particular industries where they enter disproportionately might be reasonable grounds to bar them even though workers in other industries benefit from the immigrants, just as the damage to workers in particular industries might be reason enough to bar imports if the import did not bestow benefits on the rest of us. But the fact is that natives as a whole do benefit from immigrants taken altogether, as much of this book shows. Therefore, it makes sense not to pay heed to the requests by injured workers in particular occupations that immigrants be barred, but rather to make attempts to smooth the adjustment of workers in those industries who wish to move to other occupations. The reduction in wages by those who remain in that industry is regretable, but the hurt must be seen as part of the pattern of gains and losses to particular groups that is the inevitable result of economic change. Evidence about the extent of damage to workers in particular broad groups may help to keep in perspective the harm that immigrants actually cause. The people that elicit most concern, to others as well as to members of the group itself, are those with low skills and low incomes. The opponents of immigration argue that natives would fill the jobs that unskilled (and especially illegal) immigrants push them out of. But the proponents of immigration argue that because natives have access to the welfare system, whereas new immigrants do not, the "reservation price" of natives (the wage at which they will choose not to work) is high enough that few of them will fill these jobs at the same wages that immmigrants will. Chapter 15 describes some experiments that bear upon this matter, tending to indicate that the substitution between natives and immigrants is relatively low; if immigrants are prevented from taking jobs in the restaurant and hotel and textile industries, for example, relatively few natives will take and keep the jobs. But the experiments do not throw much light on the more fundamental questions: If immigrants were not available, how many of the employers would raise wages enough to attract natives? How many would simply forego having the work done? And, how many would replace labor with machinery? Morgan and Gardner (1982) answer the aforegoing questions reasonably well for the case of farm workers, as described in Chapter 12. But one further question remains unanswered there: How many of the native workers who do not find jobs in the industry in question find jobs elsewhere? And, how much lower are their wages there? Without some answers to these questions, it is not possible to estimate the damage to the groups in question. Effects on Prices Effects of immigration upon prices affect groups differentially, because the mix of purchases differs, which is why the subject is treated in this chapter. The effect of immigration upon prices is very diffused, and should be even harder to detect than the effects upon wages of a sub-group such as black teen- agers. Yet to ignore the diffused and indirect effects because they are not obvious is to violate one of the major elements of wisdom of economics. It is a great merit of Muller and Espenshade (1985) that they made a bold attempt to estimate the effects of Hispanics upon price levels in Los Angeles County. Muller and Espenshade found a slower increase in the Consumer Price Index than in comparison cities San Francisco and San Diego, and a lower increase in the BLS computed cost of living than for the U.S. as a whole. However, this might be simply a chance variation, or due to a variety of other factors; Muller and Espenshade perform no tests of significance. They do examine the finer structure of prices, however, as follows: Specific items for which relative price increases in Los Angeles were lower than the U.S. average included personal care, homeownership, apparel, entertainment, food away from home, and household goods and operations. Price increases for apparel and for entertainment were sharply lower than the average increase for the United States. Prices for medical care, rental housing, private transportation, and fuel rose faster than prices nationwide, and the price of rental housing was noticeably higher. These price changes follow the pattern one would more or less expect to accompany a growth in the immigrant population. Professional services such as medical care would not be affected by the availability of low-wage labor, but personal care would be. Apparel prices would be expected to be somewhat lower because large quantities produced in Los Angeles are for the local and regional markets. Because most immigrants live in rental units, the rental housing market would experience substantial pressure from the rising immigrant-induced demand (pp. 152-153). SUMMARY In theory, immigration of persons without capital, or with lower-than-average amounts of capital, should increase the disparities in income distribution in the society (as long as the immigrant's earnings also are not above average). The theoretical process is that the additional supply of labor increases the earnings of the capitalists who are assumed to represent the upper-income group, hence widening the income distribution. We have no direct evidence to test this proposition. But several facts cast doubt on this theoretical outcome. One such fact is that though the United States has swelled more by immigration than has almost any other country, the income distribution in the U.S. is not extraordinarily wide. A second such fact is that some groups with the highest earnings in the U.S.--people of Italian, Chinese, Irish, Japanese, and Eastern- European-Jewish extraction--are of rather recent vintage in the U.S. This second fact suggests that even if the short-run effect of immigrants is to increase the disparities, the longer run does not reveal such an effect; if anything, this fact suggest that immigration will narrow the disparities in income. Also, immigrants often bring substantial amounts of financial capital with them, which mitigates the capital-induced widening in the income distribution. The skill distribution of the immigrants also influences the short-run effect of the immigrant upon the income distribution. If the immigration policy were to require evidence of training, then the immigrants would not come in at the bottom end of the income ladder. But we should take note that even unskilled immigrants need not have a long-run worsening effect upon income distribution; many of the Chinese and Irish came in as unskilled railroad laborers, and many of the Italians and Jews began without salable skills at the unskilled bottom occupations in big cities. But by now both groups have long ceased to drag down the bottom of the income distribution. There is no doubt that workers in some industries suffer immediate injury from the addition of workers in the same category. But exactly the same may be said about those workers if more of the goods that they make are imported from abroad. And in many cases immigration is a substitute for production abroad because of restrictions on imports, as in the case of vegetables grown in the U. S. near the Mexican border. Therefore, it would seem reasonable that the two sorts of complaints for the same special interests should receive the same sort of sympathy--or lack of it. And it might seem appropriate to suggest that one source of melioration of the position of low-skill workers who suffer from increased competition would be an increase in the number of high-skill immigrants which would increase the complementary demand for low-skill workers. Therefore those writers who oppose immigration in general on the ground that it injures low-skill workers (which is not generally true of legal immigration) call their credibility into question if they are not prepared to urge an increase in high-skill or general immigration. Even if some group of persons in the economy suffer loss because of a disproportionate flow of immigrants into their sector, it might be shortsighted even for them as a group to conclude that they would be better off without the immigration. The immediate static "classical" effects are likely to be small relative to the dynamic effects mentioned below, and are likely to be small even relative to the immediate welfare-and-tax effect. It is this orientation away from the shortest run and toward the longer run which is crucial in getting a balanced view of the welfare effects of immigrants upon natives. 86-86 Incdis12 1/21/87 FOOTNOTES 1The 24-64 break rather than the more common 25-64 break was simply for convenience. 86-86 Incdis12 11/19/86 INSERT MOVED FROM CHAPTER 12 (DISPL11): It is difficult to even know how to think about, let alone measure, the relationship between low-skill immigrants and the unemployment of low- skill natives. Consider, for example, the following not atypical news story about the difficulty that employers have in recruiting low-skill workers: Help Wanted: Burger Flippers, Teens Preferred Berlin, N.J.--Betty Hagen stands out among the employees at the Kentucky Fried Chicken restaurant here, not because her uniform is usually covered in biscuit flour, but because the hair tucked under her cap is gray. While nearly all her colleagues are teen-agers, Mrs.Hagen is a 60-year-old grandmother. About 3.5 million people work in fast-food outlets, and nearly three-fourths of the workers are between the ages of 16 and 20. But lately, youngsters have become more choosy about their jobs. Many don't like the fast-food product, pay, or image. The result is giving many fast-food managers headaches. More of them are closing the gap by recruiting people like Mrs. Hagen; McDonald's Corp. and Kentucky Fried Chicken Corp. look for help in churches and retirement homes. But generally, fast-food managers are tackling the problem head-on, vigorously going after the nation's teen-agers. This summer, for instance, Wendy's International Inc. will recruit at a national Boy Scout Jamboree. In the Northeast, Marriott Corp.'s Roy Rogers division offers jobs on the spot to regular customers. To retain young workers, Pillsbury Co.'s Burger King offers its workers a bonus of up to $2,000, depending upon length of employment, that goes toward paying for college. (The Wall Street Journal, May 28, 1985, p. 33.) If the flow of low-skill immigrants is suffieiently great that employers do not actively recruit young people and retired persons, should that be counted as employment harm to natives? In some sense, surely yes, even though the harm would not appear in the unemployment rate. And some native workers' wages are higher than they would be if there were more immigrants applying for these jobs. On the other hand, some jobs are standing open, with no harm to natives, and some are mechanized, that would be filled if there were more immigrants. It would contribute to an enlightened understanding if we knew the quantitative relationships among these phenomena -- numbers of immigrants, wage rates, jobs filled by natives, open jobs, unemployed natives, and so on. But even then, any reasonable understanding would have to go beyond one-industry short-run considerations, just as with tariffs and other trade barriers, to make real sense of the matter. And in a long-run perspective, these short-run effects wash out. 84-07 Incdis12 June 25, 1986