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Why the Conventional View of Immigration Is Wrong: Daniel Kuehn
6 paragraphs found.
 
Figure 1. Labor Demand and Labor Supply: A Labor Shortage.
 

More often than not, these advocates seem to be asserting that the high skill labor market is simply characterized by what economists would call an "inelastic" long run supply of highly skilled workers. Such a case is shown in Figure 2. At a wage rate of W0, there is no shortage: the amount of labor demanded equals the amount supplied. But with such an inelastic supply of labor, workers are not very responsive to changes in wages, so that the amount of labor supplied is almost fixed. Notice, in Figure 2, that if the demand for labor increased, the wage rate would increase a lot, but the amount of labor supplied would increase only a little. If inelastic labor supply is all that is meant by "labor shortage" then intervention cannot be justified on so-called "market failure" grounds since a market with inelastic supply is still a properly functioning market. Either some other market failure (perhaps a failure downstream) or some non-economic objective needs to be invoked to justify the special treatment of high-skill immigrants.

 
Figure 2. Labor Demand and Labor Supply: An Inelastic Supply of Labor.
 

Available labor market data on a variety of high-skill occupations suggest that the worst fears of the proponents of high-skill visas generally do not hold true. Recently, my colleagues and I have analyzed earnings and employment data for electrical engineers, petroleum engineers, programmers, and information technology (IT) occupations. We found that these markets have inelastic short run supply, but that in the long run workers do respond to wage fluctuations.6 We reached this conclusion by investigating how educational institutions and labor markets responded to large exogenous swings in demand, like the shock to oil and gas production in the 2000s, or the bust of the dot-com bubble in the year 2000. In each case, wages responded first, increasing substantially in the case of increased demand (as in the market for petroleum engineers), and falling or stagnating when demand was weak (for example, after the dot-com bust). After a short lag, graduation rates for students in these field responded to wage signals, with increasing enrollments and graduations when wages were growing and higher rates of exit when wage growth faltered. Eventually, as a result of changes in graduation rates and the rate at which workers persisted in these professions, employment in high-skill occupations responded to wage rates. This repeated pattern suggests that neither labor shortages nor long-run labor supply inelasticities pose a problem for employers of high-skill workers.

 
Conclusion

A market-based immigration policy is practically by definition a liberal immigration policy, but even within the framework of relatively open borders, many pro-immigrant voices insist on differentiating between potential migrants on the basis of education level or legal status. The conventional wisdom holds that well educated immigrants deserve greater access than less educated immigrants and that undocumented immigrants should be assimilated only after immigrants with valid visas or green cards (if at all). Both views can be challenged using the insights of economics. High-skill labor markets, much like other markets, function according to the laws of supply and demand and, therefore, do not need a differential boost from the government. In the case of undocumented immigrants, self-selection mechanisms suggest that a migrant's undocumented status communicates important information about the high value that they derive from living in the United States. If more people thought about these issues as economists tend to, the conventional wisdom would shift towards support for a more broadly welcoming policy that treats immigrants of all backgrounds equally.

 

A notable exception is Paul Romer (2001), a macroeconomist whose work on economic growth focuses on research and development and technological change. See: Romer, Paul. 2001. "Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?" Innovation Policy and the Economy. Vol. 1, pp. 221-252.