America is an outlier. Its GDP per capita is far higher than any other country with at least 10 million people. The US GDP per capita (PPP adjusted) is $85,373, while the next nine range from Taiwan at $77,858 to the UK at $58,880. (All of these are IMF estimates for 2024.) If you prefer nominal GDP measured at current exchange rates, the gap is even larger. The US is again at $85,373, while Australia comes in second at $66,589.
There’s another way in which the US is an outlier. We’ve experienced much more immigration than any other country. How should we think about those two facts?
Opponents of immigration often claim that it makes America poorer by depressing wages. Presumably this means that if we had experienced less immigration, we’d be even richer. Imagine that instead of 330 million people, our population had only risen to 110 million—to somewhere between Germany and Japan. How rich would we be in that case?
I suppose it is possible that even though America is much richer than all other mid-sized and large countries, and even though we’ve had vastly more immigration than other countries, the immigration has depressed incomes in America. Perhaps with lower levels of immigration we’d be even more of an outlier.
But does that seem likely?
David Levey directed me to a recent study of this question, by Alessandro Caiumi and Giovanni Peri. Here’s the abstract:
In this article we revive, extend and improve the approach used in a series of influential papers written in the 2000s to estimate how changes in the supply of immigrant workers affected natives’ wages in the US. We begin by extending the analysis to include the more recent years 2000-2022. Additionally, we introduce three important improvements. First, we introduce an IV that uses a new skill-based shift-share for immigrants and the demographic evolution for natives, which we show passes validity tests and has reasonably strong power. Second, we provide estimates of the impact of immigration on the employment-population ratio of natives to test for crowding out at the national level. Third, we analyze occupational upgrading of natives in response to immigrants. Using these estimates, we calculate that immigration, thanks to native-immigrant complementarity and college skill content of immigrants, had a positive and significant effect between +1.7 to +2.6\% on wages of less educated native workers, over the period 2000-2019 and no significant wage effect on college educated natives. We also calculate a positive employment rate effect for most native workers. Even simulations for the most recent 2019-2022 period suggest small positive effects on wages of non-college natives and no significant crowding out effects on employment. [Emphasis added]
I think this is the key:
native-immigrant complementarity and college skill content of immigrants
Other countries tend to be good at one thing, such as building cars or pumping oil out of the ground. America’s diverse population allows us to adapt to changing global trends. When new industries develop, we are usually in the forefront (smart phones, fracking, pro basketball, e-commerce, electric cars, AI, GMO foods, superhero movies, high speed trading, etc., etc. We have all kinds of people, able to fill all sorts of niches.
Opponents of immigration may have in mind a model where adding labor to a fixed quantity of land reduces per capita output. But that’s not how the real world works. America’s people, not its land, is its greatest resource.
PS. The per capita GDP of very small countries is often distorted by factors such as multinational earnings, oil income, and tax haven status.
READER COMMENTS
Jon Murphy
Apr 30 2024 at 7:06pm
Great post. It’s interesting (though unsurprising) that the immigration wage complimentarities are primarily at the low-end of the wage scale.
steve
Apr 30 2024 at 8:25pm
Sort of sad that the folks at Cowen’s site dismissed this as not possibly being true. It’s almost as though they believe the number and kinds of jobs in the US are fixed.
Steve
Lizard Man
May 1 2024 at 12:04am
Maybe I am misunderstanding the abstract, but it seems that the claim is that college educated immigrants with knowledge, skills and experience that are scarce and in demand raise wages and employment of native born Americans? That seems like an example of research confirming common sense. And would also explain why Canada and Australia have had substantially more immigration than the US in the past couple of decades, and still had much higher support for immigration. The leadership of those countries decided to focus their efforts on building a system in which the immigrants who bring the most benefits to the native born are given a clear path to a work visa, and then actually enforced the immigration laws to keep other potential immigrants out. I don’t understand why people who claim that they want to increase immigration don’t look at Canada and Australia as successful Anglophone models and advocate for copying that (thinking mostly Democrats and some Libertarians. Sure, you can make a moral case for open borders, just like you can make a moral case against social security and Medicare. But the voters hate the idea of cutting SS and Medicare, and they also seem to hate open borders. So if you want open borders, you are going with to have to do away with democracy.)
Scott Sumner
May 1 2024 at 12:09pm
I don’t see many people advocating open borders (other than Bryan Caplan.) Is it actually an politically influential view?
College educated immigrants are important, but so are entrepreneurial immigrants without a college education (which is a sizable group.)
Lizard Man
May 1 2024 at 6:38pm
Democrats are committed to underfunding the government’s capacity to enforce US immigration laws, as evidenced by the talk around the deal that Trump scuttled. The response of Democrats was to say that if Biden wins the 2024 presidential election, they will not vote for legislation to increase funding for immigration enforcement and asylum processing, or if they do, they will use it as a bargaining chip to gain concessions from Republican legislators on something that they actually want. You don’t use something that you actually want as a bargaining chip.
Jon Murphy
May 1 2024 at 8:59pm
To reiterate Scott’s question: are there any Democrats actually calling for Open Borders?
TMC
May 2 2024 at 2:17pm
Actions speak louder than words, as they say.
Scott Sumner
May 2 2024 at 1:01am
“Democrats are committed to underfunding the government’s capacity to enforce US immigration laws, as evidenced by the talk around the deal that Trump scuttled.”
Really? Biden proposed a big increase in funding and the GOP refused to vote for it. Reports indicated that Trump wanted border chaos when he ran for re-election.
vince
May 2 2024 at 1:55pm
Big increase? That doesn’t say anything about effectiveness or even worthiness. “Reports indicated …” Hearsay. For more hearsay, reports indicated Democrats don’t care about the border but are simply trying to coopt the issue with window dressing.
Lizard Man
May 2 2024 at 2:10pm
Biden is the president, not the leader of the party (which is probably the root cause of why he is losing and will lose in November, as he has continually made choices to prioritize party unity and hence pursued an unpopular agenda instead of pursuing an agenda in line with voters’ preferences and priorities). Trump is Trump; his first commitment is to himself. But if he is saying he will mobilize the national guard to deport people, he will probably try to do that. There is nothing stopping Biden from saying that he will do everything that Trump promises to do, but just with an order of magnitude more effectiveness. Well, the thing that stops him from doing that is that it would split the party, he would loose too many votes, and lose the election. The most the Democratic caucus can commit to is to do the bare minimum they think they have to do to not lose to a guy who attempted a coup. Without Trump on the ballot, they probably would have just taken to calling Biden a fascist for even asking for the resources and said that the reason that he is losing is because he is too conservative and cannot sufficiently excite and turn out the base of true believers.
TMC
May 2 2024 at 2:15pm
Really. Biden’s bill had a number of poison pill parts that guaranteed it would not pass. All Theatre. All he has to do is re-enact Trump’s policies without additional spending. Biden’s administration actively fought Texas securing their border.
Remember the DACA kids? When Trump offered to double the number given permanent asylum Schumer wanted? All efforts died as Schumer no longer had a talking point.
vince
May 2 2024 at 7:29pm
Excellent point. What a display of blatant hypocrisy.
Lizard Man
May 1 2024 at 11:17pm
Democrats on immigration are like Obama on gay marriage; it strained credulity to believe that Obama opposed gay marriage, but there were a lot of people who wanted to believe he was earnest in his opposition to gay marriage. But no one was surprised that as soon as he thought the political costs were low enough, he publicly proclaimed his “evolution”, even while his administration had been working to legalize gay marriage from day 1 of his presidency. Right now Democrats appear to believe these things about immigration, and will publicly say them: they believe that illegal immigrants who have been in the country for a long time should be granted citizenship. They also believe that until the laws of the US are changed, very little enforcement action should be taken against illegal immigrants, and that local law enforcement agencies should refuse to cooperate with Federal enforcement of immigration laws (sanctuary cities). So they believe in granting citizenship to illegal immigrants, and in places where Democrats face no electoral competition from conservatives and moderates (ie the voting majority of the US) hence are free to represent the actual views of the party, they believe that it is immoral for the government to enforce immigration laws. If you look at polling, a supermajority of US voters do not trust Democrats on immigration. Hence to call Democrats a party of open borders seems accurate to me, even if they do not officially endorse it as a national party plank. It is clearly what they want, and it is what they pursue when the electoral competition they face is from within the Democratic coalition, as opposed to outside of it. This kind of analysis I think is also illuminating for the Republican Party and abortion.
Trina Halppe
May 1 2024 at 3:02am
And I would note that the NBA is not an urban agglomeration so population size times per capita GDP is a better explanation for the innovation that is the pro basketball industry. Just one more reason (in addition to the obvious) why Nike is more successful than Reebok which started in England and “immigrated” (too late) to Massachusetts. Using a British flag as your earlier logo doesn’t look so smart now does it. There is a reason TD Bank doesn’t have signs proclaiming the presence of the Toronto Bank.
And the reason for silicon valley’s subsequently apparent first mover status is the population size of the United States. Shockley, the first silicon valley electronics company, got its first employees from the laboratory of world’s biggest phone company at the time (Bell) which would naturally be home to the world’s foremost electronics laboratory. Almost needless to say, on the demand side, population size times per capita GDP are drivers of success. A decade after Shockley Semiconductor got started, a contract to supply electronics or the computers that contain electronics to the U.S. government in LBJ’s time was worth more money than a contract to supply Mao’s government.
The bigger agglomeration “silicon valley” will outperform the smaller agglomeration “silicon fen” and make it difficult for “silicon tundra” to even exist as a small number independent companies as long as there is a not huge obstacle for immigration. Immigration matters and smaller companies get bought. For example, AMD got into the GPU business with the acquisition of ATI Technologies of Markham, Ontario.
English is the most widely spoken as a first language or as a second language so people like Andy Grove and Jensen Huang and Ryan Gosling (first language of course) were more likely to move to California than to Spain or India or China. First and second language totals are 1.5B English, 1.1B Mandarin, 0.6B each Hindi and Spanish. 1.5B people times their average per capita income is an important explainer of supply and demand.
The biggest successes in cryptocurrencies are CZ and Vitalik Buterin, both immigrants to an English-speaking country. The reason they’re not in always physically in the U.S. is because that industry has a online mentality and maybe other reasons but their success underscores the supply side importance of the Anglosphere.
Trina Halppe
May 1 2024 at 3:07am
I believe I formatted in paragraphs but somehow the paragraph formatting looks less obvious after I submit the post. Sorry.
Lizard Man
May 1 2024 at 7:54am
Switzerland and Singapore are both much smaller than the US, but also at least as rich, if not richer. So having a larger population than the US has is not necessary for having a highly productive economy with high wages.
Craig
May 1 2024 at 11:09am
Indeed, I’d go so far as to question the ‘legitimacy’ of the stats for purposes of comparing wealth with any degree of specificity. I think they put you into a ballpark, but there’s large swaths of the US that don’t look good compared to other developing nations AT ALL. On paper Japan and Germany are poorer, but then you visit and spend some time there (Japan only as a tourist, but Germany I spent TIME there) and NO, no its not. Germany is mint compared to the US. Even East Germany. Anecdotally I remember going to Stuttgart and Germans telling me not to bother because its just a Industriegebiet. Nicer than ANY American city I’ve ever seen. Bar none. I speak German so I can fit in there, I don’t speak Japanese and I’m a tall gringo, so I feel like a fish out of water in Japan, so honestly I couldn’t live there, but Japan is impressive of course I only visited as a tourist. Tokyo makes NYC look like Sao Paolo.
Scott Sumner
May 1 2024 at 12:13pm
Tokyo looks far cleaner than New York, but Japan looks far poorer than the US. I’ve been in middle class Japanese homes, and they would be viewed as poverty level in Orange County.
(BTW, I’m a huge fan of Japan–love the country. But in material terms we are far richer.)
KevinT
May 1 2024 at 2:03pm
I have a friend who works in the financial services industry in Luxembourg. He explained that Lux per capita GDP is extremely high because of how the GDP data are constructed. Many of the staff at his firm and others in Lux actually live in Germany/Belgium/France and commute into Luxembourg daily. So their “output” is measured as Lux production/income, which is then divided by the number of Luxembourg residents. Voila!
Trina Halppe
May 1 2024 at 8:59pm
Lizard Man, I note that Switzerland, Singapore, Israel, and the square mile around Warren Buffett’s house also have a high GDP per capita. Conveniently the original post posits an examination of countries above ten million people.
TMC
May 1 2024 at 11:42am
Australia and Canada are good countries to compare ourselves to. Australia’s famously skill based immigration has proved to work well, earning it a second spot on the list. Canada also had skill based immigration, but then opened it up a bit. Per capita GDP fell and there have been significant inflationary pressures. Not all immigration is good and there seems to be a maximum rate in which an economy can handle immigrants.
Kenneth Duda
May 1 2024 at 1:10pm
Scott, it’s certainly possible, maybe even likely, that more immigration leads to higher per-capita productivity, for the reasons you’ve identified.
It’s also possible, maybe even likely, that higher per-capita productivity leads to more immigration. Wouldn’t you want to come to the place where it looks like you’re most likely to succeed?
Of course it could easily be both. Better productivity leads to an influx of the most capable people which leads to better productivity which leads to attracting more people etc.
Why we are so fixated on slaughtering this particular golden goose is just one of many of life’s mysteries.
-Ken
Scott Sumner
May 2 2024 at 1:03am
Yes, the strong US labor market is the primary reason for the surge in immigration. The same thing happened in 2019 (albeit not to the same extent.)
vince
May 1 2024 at 4:52pm
Who are these opponents? The only opponents I typically hear about are those who oppose ILLEGAL immigration.
Jon Murphy
May 1 2024 at 4:59pm
Most opponents of immigration. Donnie Trump, for one, has repeatedly moved to restrict legal immigration on many grounds, including wages.
As an aside, I find the claim that people oppose illegal immigration, not immigration, as disingenious. It’s an easy test: if the problem is illegal immigration, then one should not oppose open borders. After all, that simply transforms illegal immigration into legal immigration. But, as soon as that argument is put forth, the “I only oppose illegal immigration” crowd suddenly come up with all sorts of objections to legal immigration.
john hare
May 1 2024 at 7:47pm
Perhaps more important, virtually none have a clue as to the difficulty of immigrating legally for the less educated. I know several* that were illegal and spent thousands going through the process to become legal. That process has an unbelievable number of pitfalls. So far, I have met none that had a clue as to a method of coming here legally.
*Starting with my wife. We are about $12k and three years in trying to get her permanent residency. I’m told that we are in better shape than many.
vince
May 2 2024 at 2:27pm
That highlights the need for immigration law reform. But if you don’t agree with the laws and claim they’re too complicated, the solution is not to simply break them. If that were a solution, it surely could be used against the income tax.
J Mann
May 3 2024 at 10:30am
I think it’s fair to say that the “I only oppose illegal immigration” crowd has an implied premise that there should be some limits on legal immigration – for example, that we should exclude some criminals or revolutionaries, or that we should prefer high-skilled immigrants or immigrants with a clear ability to support themselves, etc.
A friend challenged me to look up the numbers, and I was surprised to learn both that (a) while current illegal immigration flows are high, the total number of illegal immigrants has been pretty steady over time and actually hit its numerical high under W, which implies a per capita drop and (b) that the total number of legal immigrants has increased substantially over the past few decades. Both of those are pretty much the opposite of what I had previously thought — that the US was exceptionally unwelcoming to legal immigrants and beset by illegal immigrants.
vince
May 1 2024 at 9:36pm
That’s an absurd and ridiculous false dilemma.
Jon Murphy
May 1 2024 at 11:28pm
It’s not a false dilemma situation.
Jon Murphy
May 2 2024 at 8:43am
My comment is not a false dilemma because of how you framed the issue, vince. Rather, my comment is showing your comment is the false dilemma. I elicit a response that reveals hidden (or dissimulated) information.
A false dilemma is when one misconstrues an issue as between two mutually exclusive options, rather than accepting a range of choices.
However, you limited the discussion on immigration to just one issue: illegal immigration. Indeed, you expelicitly rejected the range of choices the discussion.
Thus, my hypothetical: if the only issue (as you framed it) is with illegal immigration, then eliminating illegal immigration (by making virtually all immigration legal) solves that issue.
The fact that even if illegal immigration were eliminated many restrictionists would still prefer restrictions show’s the dilemma you propose is indeed false.
QED.
vince
May 2 2024 at 1:58pm
Heh, so you double down on the ridiculous false dilemma.
Jon Murphy
May 2 2024 at 2:41pm
You’re the one doubling down on the false dilemma:
And subsequently proving my point. It’s nothing to do with illegal versus legal immigration at all.
David Q
May 9 2024 at 9:43am
Consider this scenario where a Tybalt is arguing with a Mercutio:
Tybalt says, “I’m not against all human killing! I’m against illegal human killing!” It’s likely that Tybalt is thinking of self defense, police activities, military activities, suicides, and government conducted executions.
But then a logician named Mercutio (whom Tybalt suspects is in favor of a willy-nilly death-free-for-all) comes along and says, “OK, let’s legalize all human killing. If you object, then your protests that you are just against illegal human killing are false protests.”
I would expect Tybalt to feel unfairly tricked by Mercutio. Perhaps Vince feels the same.
This is similar to what J Mann says in his first paragraph.
By way of clarification of my position, I’m mostly persuaded that Bryan Caplan’s book “Open Borders” is correct. I, too, suspect that at least some of those claiming they are merely opposed to illegal immigration, are in fact in favor of much less immigration than the USA has ever had.
But I am also thinking of what I learned in “The Three Languages of Politics”: that some people are deeply committed to Civilization vs Barbarians as the basis for their morality. That’s why I picked the murder example above, because I figured everybody agrees that murder is bad, and everybody agrees that legalizing murder is unthinkable.
Scott Sumner
May 2 2024 at 1:05am
“The only opponents I typically hear about are those who oppose ILLEGAL immigration.”
Trump opposes most legal immigration, and tried all sorts of methods to reduce it during his term in office.
Mark Barbieri
May 2 2024 at 9:05am
I often hear people say that they aren’t anti-immigration, just anti-illegal immigration. When I suggest that an easy way to reduce illegal immigration would be to substantially increase the number of legal immigrants we allow, they are never persuaded.
vince
May 2 2024 at 3:32pm
Propaganda. Trump also said this:
“We really need people, but it has to be through a legal process and a process really of merit,” he said just last week at a meeting on human trafficking on the southern border. “But we do want people coming into our country. They have to come in legally.”
Jon Murphy
May 2 2024 at 3:44pm
As policy, Trump increased the difficulty to immigrate to the US. In his 4 years in office, he issued 400 executive orders targeting legal immigration. His INS reduced the number of allowed refugees, increased requirements for anylum seekers, increased deportations, increase ICE raids. He supported to most strict bills on legal immigration seen in Congress in decades, such as the RAISE Act.
Thomas L Hutcheson
May 2 2024 at 7:25am
I can imagine a situation in which there was enough immigration that the substitution effect would overcome the output effect for some groups. But we are hugely distant from that situation.
Simon
May 4 2024 at 1:06pm
The mean GDP per capita paints a fairly skewed picture of the average citizen’s income.
For example, the US and France median incomes are about $24k and $18k, a difference of 1/3, whereas the PPP adjusted GDP per capita for the two countries are $70k and $40k, 75% more in the US.
https://worldpopulationreview.com/country-rankings/median-income-by-country
The US is much more unequal than most other developed countries and skews the median and mean income numbers to a much larger degree.
This also applies to an even greater degree to median and mean household wealth in the US, and without looking up the numbers, if I remember correctly, median US household wealth is pretty similar to that of the EU.
Mark Brophy
May 7 2024 at 12:13pm
The per capita GDP of Switzerland isn’t “distorted by factors such as multinational earnings, oil income, and tax haven status.” Instead, Switzerland is richer than Germany, France, Italy, and the United States because it has a better government. The canton of Bern split in 1978 to create Jura because that’s what the citizens wanted. When was the last time a city or county or state split in the United States, Canada, or Britain? The Swiss get the government that they want while other countries impose their government upon the citizens.
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