UCSD ECON 139 - ECON 139 set 10

Page 1 of 9 June 2nd, 2015 Labor Mobility (continuing) Some add-ons to the previous notes: ECON 139 SP ‘15 Antonovics 9 6-2-15 1Page 2 of 9 Today’s Lecture:Page 3 of 9 Positive and Negative Selection • PANEL A: positive selection. • PANEL B: negative selection Implications • Immigrants from countries with egalitarian income distributions (like Sweden) are positively selected. • Immigrants from countries with high levels of inequality (like Mexico) are negatively selected. • Despite the fact that these prediction conform to our stereotypes about immigrants, there is considerable evidence that immigrants from most countries are positively selected. – Maybe because moving costs are much higher for those with low levels of skill. Migration Costs No one should migrate from the US to Sweden, and everyone from Sweden should migrate from Sweden to the US. But this picture assumes that migration costs are zero. The red line depicts wages in the US net of migration costs. Migration from Sweden to the US if Skill>SpPage 4 of 9 Immigrant Performance in the U.S. Labor Market • How do immigrants perform in the U.S.? • Are immigrants more or less skilled than U.S.-born workers? • How do immigrants perform over the course of their working life in the U.S? Cross-Sectional Studies of AgeEarnings Profiles of Immigrants • Suppose you have data from 1990. • How do you calculate the age-earnings profile of immigrants? • One possibility: – Calculate mean earnings in 1990 for:Page 5 of 9 Cross-Sectional Studies of Age-Earnings Profiles of Immigrants 1. Immigrants initially earn less than US born workers. 2. After 14 years, immigrants earn more than US born worker Cohort Effects Recall: This graph was constructed using earnings data from a single year. The individuals who give you the data point for 20 year olds are not the same as the individuals who give you the data point for 65 year olds. This is a problem if there is something fundamentally different about individuals who immigrate at different points in time. In the following graph, assume people arrive in the US at the age of 20:Page 6 of 9 Age-Earnings Profiles, Allowing for Cohort Effects • The basic idea is to control for cohort effects by tracking individuals using data from many years. • For example, suppose again that everyone immigrates at age 30. Use the 1950 Census to get information on the wages of 30 year old immigrants, the 1960 Census to get information on the wages of 40 year old immigrants and the 1970 Census to get information on the wages of 50 year old immigrants. • Then, plot the wages of immigrants who arrive in 1950 at different ages (30, 40 and 50). Suggests that immigrants who arrived in the US in the 1950s ended up with a slight advantage over US born workers, but this is not true for more recent immigrants. The Performance of 2nd Generation Immigrants • It is widely believed that the performance of the children of immigrants far surpasses the earnings of their parents. • This perception originated from looking at the earnings of different generations of immigrants using data from a particular point in time (i.e. the 1970 Census).Page 7 of 9 • As you will see, this leads to the same kind of cohort bias that we had to deal with when examining the performance of immigrants. Relative Wages of Men Across Generations •Looking at single year, you see evidence that second generation immigrants far outperform their parents. • For example, data from 2000 suggest that 2nd generation immigrants earn 26 percent (= 0.063-(-0.197)) more than their parents. Relative Wages of Men Across Generations • PROBLEM: its biologically unlikely that working-age secondgeneration workers in 2000 are the children of working-age first-generation workers in 2000. • For example, if you’re a first-generation immigrant in 2000 and you’re 45 years old, then if you had a child at age 30, your child would be 15 years old in 2000—too young to probably even be in the labor market. • It’s more likely that working-age second-generation immigrants in 2000 are the children of working-age firstgeneration immigrants in 1970. • For example, if you’re a 45 year old second-generation immigrant in 2000, and you were born when your parents were 30, then your parents were 45 in 1970. • Using this logic, compare the earnings of first-generation immigrants in 1970 to that of second-generation immigrants in 2000. • The data now suggest that 2nd generation immigrants earn 4.9 percent (= 0.063-0.0.14) more than their parents (far less than previous estimate).Page 8 of 9 Earning mobility between first and second generation of Americans 1970 - 2000 China workers in 1970 earns less than US born worker, but the wage of their children are higher than the predicted. Sweden is the contrary. Assessing the Impact of Immigration on the US Economy—The Winners • Immigrants. • Consumers of outputs. – Cheap labor causes the MC of production to fall so price will also fall. • Inputs that are gross complements with immigrant labor. – If the price of labor drops, then the demand for gross complements will rise. • Immigration also increases the gross domestic product (at least in the short-run). Cheaper input prices mean increased output.Page 9 of 9 Assessing the Impact of Immigration on the US Economy—The Losers • Inputs that are gross substitutes for immigrant labor. – If the price of labor falls, then the demand for gross substitutes will fall. – Evidence from the Mariel boatlift suggests that immigration does not have a large negative impact on the employment of US-born workers. • Tax Payers: could frustrate antipoverty efforts if immigrants have few labor market opportunities. Assessing the Impact of Immigration on the US Economy • Not all immigration is the same. • High-skilled immigrants and low-skilled immigrants will likely affect the U.S. economy differently – Fiscal impact: High-skilled immigrants will likely earn more and pay more in taxes, while low-skilled immigrants will potentially make greater use of social services. – Impact on economic growth: High-skilled immigrants may be more likely to innovate, leading to greater