How More Immigration Can Save California
By Bryan Caplan
I highly recommend Kerr and Kerr’s NBER Working Paper, “Economic Impacts of Immigration: A Survey.” Most of the paper just compiles a lot of evidence with which I was already familiar:
1. Immigrants have very little effect on native wages.
The documented wage elasticities are small and clustered near zero. Dustmann et al. (2008) likewise found very little evidence for wage effects in their review of the UK experience. This parallels an earlier conclusion by Friedberg and Hunt (1995) that immigration had little impact on native wages; overall, their survey of the earlier literature found that a 10% increase in the immigrant share of the labor force reduced native wages by about 1%.
2. Immigrants are a moderate fiscal burden in the EU thanks to the welfare state and labor market regulation, but have little net fiscal effect in the U.S. Even Borjas agrees:
The earliest studies on fiscal effects of immigration for the US yielded conflicting results. Passel and Clark (1994) calculated that immigrants paid $27b more in taxes than the benefi ts they derived from the US social and education systems. By contrast, Huddle (1993) argued that immigrants represented an annual net cost of $40b in 1992. Borjas (1995a) criticized the earlier studies for making unreasonable assumptions. He estimated the net impact of immigration to range from a $16b cost to a $60b bene fit depending on the assumptions made… In a later study, Borjas (2001) argued that the positive effects of immigration are created by improved labor market efficiency, with gains accruing to natives between $5b and $10b. More recent US studies have calculated that the average net cost or bene fit of a single immigrant is very small.
There’s also a great diagram estimating the fiscal effect of immigration as a function of an immigrant’s age:
And notice that these are estimates using status quo policy. With more restrictions on eligibility for services, we can easily turn the young and old into positives, too.
3. The biggest news to me was the evidence on immigration and real estate markets. I’ve often argued that immigrants help natives by boosting housing prices, but I had no idea that the estimated elasticities would be this large:
Saiz (2003, 2007) showed that US housing prices rise with immigration at the city level. Moreover, the elasticity is about one, or ten times larger than that found in comparable labor market studies. Evaluations of immigration and housing prices within Europe would help collaborate and extend these US fi ndings. The estimated elasticities may even be stronger, for example, due to limited building space in small countries vis-a-vis the US. Gonzalez and Ortega (2009) fi nd a similar effect in Spain, calculating that immigration could account for a third of Spain’s recent housing boom. This would suggest enormous effects of immigration on the economy through a very understudied channel.
Opponents of immigration will no doubt treat this result as a negative. But notice: In virtually every other context, Americans regard rising housing prices as good. Psychological craving for scapegoats aside, why should this case be any different? In fact, if you primarily care about Americans’ well-being, you should be especially happy about immigration-induced appreciation. After all, the nationality of the owners of virtually all residential real estate in America is… American.
The upshot is that immigration is a big net wealth transfer from foreigners to natives. Californians should keep this in mind the next time they tell themselves that mass deportation would turn their whole state around. If Californians really wanted to bring back the prices of 2007, they’d welcome Latin America with open arms. Dear Mexico: Palmdale needs you!