Tag: cotton

Stephen Miller Doesn’t Understand the Economics of Immigration

Senior Trump administration aide Stephen Miller gave a press briefing yesterday defending the RAISE Act - a bill introduced by Sens. Cotton (R-AR) and Perdue (R-GA) that would slash the number of legal immigrants without increasing skilled or merit-based immigration.  The purpose of the RAISE Act is to restrict low-skilled immigration in order to raise the wages of American workers.      

When asked by a reporter for evidence that restricting low-skilled immigration would raise wages, Miller cited research by Harvard economist George Borjas on the Mariel Boatlift.  The Mariel Boatlift produced an unexpected surge of 125,000 Cubans (henceforth Marielitos) to Miami in 1980.  Because at least 60 percent of the Marielitos were high school dropouts, Borjas tested whether they lowered the wages of American dropouts. Since Borjas published his Mariel paper, there have been many rebuttals, criticisms, and additional research on it that should substantially diminish confidence in his findings.  Below I will briefly summarize these results.

The first such criticism is by economists Michael Clemens and Jennifer Hunt.  They conclude that the entirety of the wage decline observed by Borjas can be explained in how the wage survey in Miami increased the proportion of black workers surveyed, far in excess of their proportion of the population, when the Boatlift occurred (the CPS change was unrelated to the Boatlift).  Black American workers with less than a high school degree have lower wages than similarly skilled non-black Americans for myriad reasons that have nothing to do with immigration.  By including more of them in the survey at the same time the Marielitos were arriving made it look like there was a drastic wage decline when the observed effect was entirely due to shifting the demographics of the surveyed population.  That survey shift entirely explains the negative wage effect observed by Borjas.  Borjas’ response to Clemens and Hunt is weak.

The second criticism of Borjas’ Mariel Boatlift research is by economists Giovanni Peri and Vasil Yasenov.  They note that wages in Miami must be compared to wages in similar cities at the same time to measure how wages changed.  By selecting a set of comparison cities using the Synthetic Control Method, a different method than Borjas used, they found no statistically significant deviation in Miami’s wages compared to similar cities that did not absorb the Marielitos.  Furthermore, Borjas relied on smaller surveys with few relevant observations for Miami and other cities.  Peri and Yasenov used the larger to get even more data on wages.  Including the additional data also showed that the Marielitos did not lower wages.

Sens. Cotton and Perdue’s Bill to Cut Legal Immigration Won’t Work and Isn’t an Effective Bargaining Chip

Republican Senators Tom Cotton (AR) and David Perdue (GA) are unveiling a bill today at the White House that would slash the number of legal immigrants by about 50 percent over the next decade.  This bill will be very similar to the RAISE Act that both Senators introduced in February, which I criticized here.  Their new bill, if it is similar to RAISE, would cut legal immigration by about 50 percent by reducing family reunification, eliminating the diversity visa, and statutorily limiting refugees without increasing skilled-worker immigration.  So much for the talking point that immigration hawks are “only against illegal immigration.”

Cotton-Perdue Does NOT Create a Skills-Based Immigration System

Supporters are saying that this bill would create a “skills-based immigration” policy but nothing could be further from the truth.  Cotton-Perdue does not increase skilled immigration at all – it only cuts non-employment categories like families and the diversity visa while creating a points-based system for employment-based green cards that does not increase the numerical cap.  The new Cotton-Perdue bill would do nothing to boost skilled immigration and it will only increase the proportion of employment-based green cards by cutting other green cards.  Saying otherwise is grossly deceptive marketing.

President Trump stated that he wanted to create a merit or skills-based immigration system like in Canada or Australia, but the Cotton-Perdue bill would not come close to achieving that goal.  The immigration systems in Canada and Australia do emphasize skilled immigrants over family members but their immigration systems allow in far more immigrants, as a percentage of the population in both countries, than the United States.  It is important to control for the population of the destination country when comparing the relative openness of different immigration systems. 

New immigrants to Canada who arrived in 2013 were equal to 0.74 percent of that country’s population.  New immigrants to Australia in 2013 were equal to a whopping 1.1 percent of their population.  By contrast, immigrants to the United States in the same year equaled just 0.31 percent of our population.  The only OECD countries that allow in fewer immigrants relative to their populations than the United States are Portugal, Korea, Mexico, and Japan.  Seventeen other OECD countries allow in more immigrants than the United States as a percentage of their populations.

In 2013, the number of skilled-worker immigrants to Canada was equal to 0.18 percent of that country’s population.  If the Cotton-Perdue bill intended to copy Canada’s skills-based immigration system, then it would increase the number of annual employment-based green cards from the current level of about 75,000 to about 592,000 annually – a 7.9-fold increase in the number (Figure 1).  If the Cotton-Perdue bill wanted to copy Australia’s skills-based immigration system then it would have to increase employment-based immigration to about 852,000 annually – an 11.4-fold increase.

Cutting Legal Immigration Won’t Help Low-Skilled American Workers

Senators Tom Cotton (R-AR) and David Perdue (R-GA) recently introduced the Reforming American Immigration for Strong Employment (RAISE) Act.  If it were to become law, RAISE would cut legal immigration by 50 percent over the next ten years by reducing green cards for family members of U.S. citizens and lawful permanent residents, slashing refugees, and eliminating the diversity visa lottery.  These goals are in line with President Trump’s stated objective to cut legal immigration in most categories. 

The RAISE Act’s goal is to increase wages for lower-skilled Americans by reducing the supply of lower-skilled immigrants.  Their press release argues that the “generation-long influx of low-skilled labor has been a major factor in the downward pressure on the wages of working Americans, with the wages of recent immigrants hardest hit.”  Under such a worldview, only a drastic reduction in green cards and the supply or workers can raise American wages - and it’s not crazy.

The National Academy of Sciences’ (NAS) exhaustive literature summary on the economic effects of immigration concluded that: “When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small.  To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.”  Although the effect is small, RAISE seeks to take advantage of the finding in the academic literature by inferring that if an increase in the supply of workers slightly lowers some wages then a decrease in that same supply will do the opposite.

It might seem odd then that RAISE doesn’t target employment-based green cards but that category is for highly skilled workers while the categories this bill would cut are more likely to allow in lower-skilled workers who have fairly high labor force participation rates.  I’ve rebutted Senator Cotton’s poor economic arguments for immigration restrictions before but recent research is even more compelling. 

A recent paper by economists Michael Clemens, Ethan Lewis, and Hannah Postel seems tailor-made to test what would happen if a bill like the RAISE Act were to become law.  The paper studies the effectiveness of an immigration policy “designed to raise domestic wages and employment by reducing the total size of the workforce.”  The U.S. government’s 1964 termination of the Bracero program for Mexican farm workers provides a natural experiment for their paper which is comparable to what would happen if RAISE becomes law.  Senators Cotton and Perdue will be disappointed to discover that this new research found that ending lower-skilled migration for farm workers had little measurable effect on the labor market for Americans who worked in those occupations.

Unsettling Cotton Settlement at the WTO

Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.

Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one’s own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.

The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer’s opinion:

Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.

While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it’s pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level.  But when aggregated across programs, the costs to individuals become more significant. It’s death by 10,000 cuts.

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