Tag: economic inequality

Immigration and Economic Inequality

Discussions of economic inequality are common nowadays thanks to Thomas Piketty’s new book Capital in the Twenty-First Century.  There are several good critiques of Piketty’s book and at least one wonderful podcast.  I’m not convinced that economic inequality in a (mostly) free-market economy matters one way or the other for economic growth, social stability, or political stability (ceteris paribus), so this blog is a response to those concerned that liberalized immigration could exacerbate wealth inequality.   

Papers on how immigrants affect the wages of Americans almost uniformly present the results as relative gains or losses compared to the wages of other workers.  While that work is valuable, below I will only discuss papers that focus exclusively on economic inequality caused by immigration. 

Borjas et. al. found that immigration (along with trade) only modestly affects earnings inequality – a role not substantial enough to account for more than a small percentage of the change.  Instead, he attributes the growth in income inequality to the acceleration of skills-biased technological change (SBTC) and other institutional changes in the labor market. 

David Card failed to find a substantially causal relationship between increased immigration and growth in wage inequality.  He discovered that immigration explains about 5 percent of the rise in overall wage inequality between 1980 and 2000.  An important distinction is between the wage inequality effects of immigration on natives and the effects on wage inequality for immigrants and natives.  While 5 percent of the growth in overall wage inequality can be attributed to immigration, immigration’s effect on native wage inequality is negligible.  Immigrants tend to have either very high or very low wages compared to natives, meaning that immigrants have a naturally higher residual level of income inequality than natives do.  Thus, immigration causes the economy-wide level of wage inequality to increase without changing native wage inequality.  Immigration has little, if any, effect on native wage inequality according to Card.

Economics Bloggers Weigh in on Income Inequality

The economics blogosphere has been buzzing about Will Wilkinson’s new paper on income inequality.

George Mason University economist Tyler Cowen discusses why social inequality has been falling for some time in the United States:

I agree with Will Wilkinson’s point that real social inequality has (mostly) been falling for some time in the United States.  Today many an upper middle class person is plausibly happier than many a billionaire.  Yet most self-made billionaires work very hard to get to that position, which creates a possible tension between cardinal and “observed choice” or “ordinal” metrics of welfare.  Why work so hard for so little?  Presumably many of these billionaires really want to “be there,” even if they are only marginally better off or in some cases worse off.

The Atlantic’s Megan McArdle offers her initial thoughts, and promises more analysis soon:

I broadly agree with Will that consumption inequality, not income inequality, is what matters.  If the rich have access to broad classes of goods that the poor can’t have, I find this worrying.  On the other hand, if the problem is that Bill Gates has a really awesome 80 inch flat panel television, while the poor have to be content with a 32 inch CRT, well, I can’t say my heartstrings are plucked very tight by this injustice.  So it’s important to know what the real differences are.

Ezra Klein parses some of Wilkinson’s arguments at WashingtonPost.com:

One of Will’s first arguments is that income inequality is not a good way to think about the issue. The real key is consumption inequality. It’s not, in other words, how much money people make, but how much stuff they buy. And “the weight of the evidence shows that the run-up in consumption inequality has been considerably less dramatic than the rise in income inequality.”

The Economist Free Exchange blog has mixed reactions to the study:

Inequality, in and of itself, is no bad thing, and inequality in America has co-existed right alongside significant improvements in welfare across the income spectrum—and contributed directly to them, in many cases. Redistribution for its own sake is bad policy, and as Mr Wilkinson notes, it’s often bad policy pursued to cover up for still more bad policy elsewhere. But America’s society is a very unequal one, by developed nation standards, and it’s not always clear that that inequality is justified or advantageous. And any good student of human behaviour can tell you that wealth will seek to protect wealth, and will often succeed.

Matt Yglesias from Think Progress has posted twice on Wilkinson’s study:

I’m not in agreement with the overall thrust of Will Wilkinson’s paper on inequality for the Cato Institute, but one point that I think is in the spirit of what he’s saying was brought to mind by a question at last night’s event. The way I would put the point is that it’s a mistake to think of the world as composed of, on the one hand, “economic issues” in which we worry about wealth or income inequality and then on the other hand, “social issues” in which we worry about racism or sexism. Progressives ought to be concerned with a general issue of justice and social inequality, of which gaps in money income or wealth may be part.