Would More Immigration of Workers Reduce Inflation?
Immigration critic Steven Camarota, director of research at the Center for Immigration Studies, recently seemed to challenge the idea that more immigration would reduce inflation.
One would think that more immigration would reduce inflation, based on the simple fact that more immigration would lead to more output. With more output, a given amount of money chases a higher amount of goods and services. Or, if you want to think, more accurately, about rates of growth, with increased immigration you get a higher growth rate of real output while immigration is increasing, and for a given rate of growth of the money supply, inflation falls. Inflation still may be positive but it falls.
So how does Camarota rebut this straightforward argument? He doesn’t.
You might think he argues that few of the immigrants work, but he takes pains to point out that many of them work. Indeed, that appears to be one of his main upsets.
He enters more promising territory for his case when he mentions other factors that cause inflation, writing:
Congressional overspending, the Federal Reserve’s low interest rates, international supply-chain disruptions and pent-up demand during COVID are all almost certainly bigger inflation drivers than wage growth. Workers, particularly less-educated ones, account for far too small a share of economic output to play much role in inflation.
He could be right that these are bigger factors, although my money is on money or, more exactly, the growth of the money supply. But so what if he is right? More workers means more output and now all we’re talking about is relative magnitudes, not whether increasing immigration would reduce inflation, as his sentence above seems to admit.
What’s left? He could blame the headline writer. Authors rarely get to choose their own titles for articles and nowhere in his article does Camarota say that more immigration won’t reduce inflation.
So we have two choices: (1) Camarota believes that more immigration won’t reduce inflation and he’s wrong or (2) Camarota believes that more immigration will reduce inflation but only by a little and he might be right.
HT2 Don Boudreaux.
Feb 4 2023 at 2:42pm
On this particular topic, I’ve taught this working paper before and found it interesting:
If I recall correctly, one of the points they raise is that that the *measured* price index in an area will rise, but that’s not the *experienced* price index, because (a) variety is valuable to consumers and (b) variety increases with immigration.
Anyway, this is at best tangentially related to the effect nationally, but I thought you’d find it of interest!
Feb 4 2023 at 3:41pm
Thanks. It is interesting.
Feb 4 2023 at 4:08pm
David: Thanks for your post. I disagree only with the spirit of your claim that “nowhere in his article does Camarota say that more immigration won’t reduce inflation.” Camarota doesn’t use those exact words, but what else to make of his opening paragraph:
Although deeply confused in its economics, surely Camarota meant with this paragraph to ridicule the idea that more immigration would reduce inflation.
And then there’s this line a bit later in his op-ed:
Although Camarota doesn’t understand the reason why more immigration would put downward pressure on inflation – Camarota here seems to work with a cost-push theory of inflation (specifically, a wages-push theory) – he here clearly denies that greater immigration will help to stem inflation.
Feb 4 2023 at 6:27pm
You make a good case. I have a habit of being very literal. It’s both a strength and a failing on my part.
Whichever is true, that’s why I gave the final two choices. Camarota can choose which of those he agrees with.;
Feb 4 2023 at 4:48pm
Is this assuming increased productivity for workers when they move to the U.S? Or just focusing on U.S. output and ignoring the lower output from wherever the immigrant moves from? If I work at an auto parts plant in Windsor that manufacturers for Ford, and then I move to Detroit and take the same job, has output gone up?
Feb 4 2023 at 5:10pm
Yes. The auto plant has more inputs (labor) and output increases.
Feb 5 2023 at 8:38am
Ford owns both plants though, so the output increase in one is matched by the decrease in output from the other. Total output for Ford shouldn’t change.
Feb 5 2023 at 9:17am
Sorry, I misread your question. I thought we were discussing US output.
That said: the worker, even if it is the same job, may still become more productive. It’ll depend on the plant. All else held equal, there is a declining marginal return to labor (as you add more workers, each additional worker produces less output, all else held equal).
If, for example, the worker is the 100th worker at the Windsor plant and the plant is crowded such that workers spend a lot of time bumping into each other, versus being the 50th worker at the Detroit plant where all the workers have the necessary space to work, then the worker would be more productive.
Feb 6 2023 at 10:19am
1: An exchange between Dylan and Murphy suggests that we are discussing the effects of inflation solely within the country to which people are immigrating–and not, for example, the effects on inflation in the country from which people are emigrating. Should we expect symmetrical results–that is, people moving to a country help to decrease inflation, and people moving away from a country tend to increase inflation?
1A: What about immigration/emigration within countries that have the same currency–say, in the Euro zone? Do these countries experience different levels of inflation? Or when we speak of immigration/emigration, is a change in currency zone–rather than national boundary–the relevant point of distinction?
1B: What about free trade? If the guy making Ford parts moves from Mexico to the US, but the Ford parts freely cross borders either way, should we expect that to affect inflation in either country? Presumably the answer depends on the worker’s relative productivity in each environment, and we are using nationality as a proxy for productivity.
2: Yes, more workers would tend to increase output, and more output (all else being equal) should reduce inflation. But is all else equal? For example, do those new workers also consume? And would this increased demand also have an effect on inflation?
3: How often do people move from high-productivity areas to low-productivity areas? Well, aren’t we observing that today, as people tend to move out of cities and work remotely from less densely populated areas. If some are moving from NYC to costal Maine, I expect others are moving to Costa Rica. In short, today the physical location of a worker may have less consequence than in the past. So, looking back to paragraph 2 above, what happens to inflation when a remote worker’s productivity is attributed to one country/currency zone (say, the US), but the worker’s consumption occurs in another (say, Costa Rica)?
Feb 6 2023 at 11:15am
Thank you, Nobody. You articulated all of the questions I had much more clearly than I did, and anticipated a couple of new ones.
I’ll admit, macro makes my head spin quite a bit, I feel like I’m always at least a couple of steps behind. I’d love to hear the answers to these questions.
Feb 4 2023 at 6:28pm
Good question. The answer is yes. The data show that workers who move here from substantially poorer countries typically increase their productivity by a multiple.
Feb 5 2023 at 3:59pm
Actually, I shouldn’t have given you the answer I did. No, it just assumes that the immigrant will produce something. More output means lower prices.
I got that mixed up with the empirical question: do workers who move become more productive? Yes, they do.
What matters for the price level is the output of that particular economy. So, to take a totally hypothetical example, if someone moved here from England and produced the same output here that he would have produced in England, output here rises the price level falls.
Feb 6 2023 at 11:09am
Thank you Professor. That’s the question I was trying to understand. Nobody above does a better job at articulating many of the questions around that point that I was trying to understand.
Feb 6 2023 at 11:46am
You’re welcome, Dylan.
Feb 5 2023 at 8:41am
I agree, and I should say I’m in favor of greatly increasing immigration. I just thought there were some hidden assumptions in that statement about immigration increasing output. I think it does if you have immigrants from low productivity areas moving to areas of higher productivity, but not so much if you do the reverse.
Feb 5 2023 at 9:19am
True, but how often to folks move from wealthier places to poorer places?
Feb 5 2023 at 12:53pm
I mean, fairly regularly. I’ve know lots of people that have emigrated from the U.S., none of whom have moved to Luxembourg. I’ll grant you that, on net, the direction is going to be poorer to richer, but it doesn’t have to be.
The point of my question wasn’t just to nitpick though. I’m genuinely curious if the deflationary impact of immigration is primarily due to the increased productivity, or if it is more of a zero sum transaction, where any deflation we see here, would be mirrored by inflation in the origin country?
Like, say there were only two countries in the world and there are no restrictions on trade between the two. Now we move one worker from one country to the other, holding his productivity constant (as well as everything else). What’s the impact on inflation in both places?
Feb 5 2023 at 12:41pm
if you have immigrants from low productivity areas moving to areas of higher productivity, but not so much if you do the reverse.
I don’t see how the “productivity of the area” (meaning, I guess, the average productivity) can be relevant in this argument.
What is relevant is the productivity of the new job of the individual immigrant compare to the previous job he/she was holding.
There are all kind of jobs (productivity wise) in “low productivity areas” and all kind of jobs (productivity wise) in “higher productivity areas” (never be fooled by “averages”)
Individual workers usually move to higher productivity jobs. The “average” productivity in the areas of origin and destiny is totally irrelevant.
Feb 5 2023 at 3:22pm
I’m leaning heavily on Caplan, who has talked on this site and in his book about how simply bringing a low skilled worker to the U.S., even if they are doing essentially the same job, drastically increases their productivity. That’s the trillion dollar bill on the sidewalk.
I was just trying to understand the macro aspect of Prof. Henderson’s claim on immigration and inflation. Does that disinflationary effect come primarily from the productivity gains or is there something else going on?
Feb 6 2023 at 12:19pm
It does not increase their productivity in the US, because they weren’t in the US before. It does increase total production in the US, because now there are more workers producing in the US.
“Inflation is always and everywhere a monetary phenomenon”. As Prof. Henderson said…
“with increased immigration you get a higher growth rate of real output while immigration is increasing, and for a given rate of growth of the money supply, inflation falls.”
For a clear picture of this process in action look at the USA 1870-1910. Population grows from 39 million to 92 million, GDP grows by 4x, money supply growth is limited by the gold standard = average deflation throughout the era.
Feb 6 2023 at 1:53pm
even if they are doing essentially the same job, drastically increases their productivity
My point was that the relevant comparison is the productivity increase for that particular worker. This “individual” increase can be very different from the difference between the average productivity in state A (where the worker is coming from) and state B (where the worker is heading to).
ie: a worker can move from New York (productivity $117.86 per hour) to Pennsylvania ($79.26) and still increase total production if he/she “in particular” moves from a low productivity job in New York to a higher productivity job in Pennsylvania.
Any increase in production without increasing the “nominal demand” (M x V) should be deflationary.
To argue otherwise you should show how this immigrant coming to the US increases nominal demand more than he/she increases “production”. Maybe if:
‘* the immigrant replaces a more productive American that is left “idle” (so, produces nothing)
‘* the immigrant brings with him a huge stack of dollars he was holding in his country of origin
In any case these should be second order effects compare with the monetary policy (inflation is, after all, always and everywhere a monetary phenomenon)
Feb 6 2023 at 1:43pm
Immigration increases output because increasing the size of the work force increases the amount it produces. No hidden assumption in that.
Feb 5 2023 at 11:21am
The Tanton Network & ZPG linked CIS Center for Immigration Studies may present as demographic &/or economic experts round immigration, but they are not yet, are platformed by media.
In fact, they are headed by a former head of Koch Heritage Foundation who departed under a cloud over allegations of supporting and promoting eugenics; both Koch & Tanton Networks share the same Donor Networks, ‘wheels within wheels’.
Feb 5 2023 at 11:34am
Immigration increases population. The IMF says….
Knut P. Heen
Feb 7 2023 at 7:53am
As always in these discussions, the idea is that the velocity of money is a constant rather than a variable which changes with time, place, and policy. It has never been a problem to spend all your money before you get it without using someone else’s money. I can owe the baker $10, the baker can owe the carpenter $10, and the carpenter can owe me $10. We settle the debts as soon as someone gets hold of $10, or we may settle the debts without any money at all simply by trading debts.
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