National Data | WSJ Edit Page Contradicts Self on Immigration, Minimum Wage

By Edwin S. Rubenstein

04/27/2006

When supply goes up, price goes down. Few economic principles are less controversial. Unless, that is, we're discussing the economics of immigration.

Thus, in a recent study of local labor markets, U.C. economist David Card claimed to find that low-skilled foreigners have had little or no impact on native wages.

As usual, this result was immediately seized upon and amplified by the immigration enthusiasts' MSM echo chamber, for example the Wall Street Journal Editorial Page. [ The Impact of Immigration, By Pia Orrenius, April 25, 2006]. And, as usual, it’s wrong.

Card focused on local labor market trends. He highlighted the dramatic rise in immigrant labor force shares between 1980 and 2000 for selected cities, as follows: (Table 1)

Card then goes on to measure the relationship between a locality’s immigrant worker share and the relative wages of native dropouts in that locality. His conclusion:

"Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts. Nevertheless, data from the 2000 Census shows that relative wages of native dropouts are uncorrelated with the relative supply of less educated workers, as they were in earlier years….Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant." [David Card, "Is the New Immigration Really So Bad?" Department of Economics, UC Berkeley, January 2005.]

(Number nerd note: the correlation coefficient — r-squared — between immigration and the relative wages of native dropouts was a positive but miniscule 0.001)

In fact, the "no correlation" result probably says more about Card’s research methodology than economic reality.

We are a mobile society. Flows of capital and labor among U.S. cities distribute the impact of immigration throughout the country.

But if immigrants gravitate to cities with above-average wage growth, there would be appear to be a positive correlation between immigration and wages even though the influx of foreign workers may keep wages lower than they would otherwise be. Similarly, low-skilled natives are apt to shun high immigration cities, or leave them in search of better opportunities elsewhere.

As economist George Borjas has demonstrated, a comprehensive accounting of immigration’s impact on the U.S. labor market requires a national rather than a local perspective — and does indeed show that immigration drives down wages. [The Evolution Of The Mexican-Born Workforce In The United States, National Bureau of Economic Research Working Paper, April 2005 ( PDF)]

While Card acknowledges potential problems with his city-by-city approach (i.e., native dropouts may move out when immigrants move in) he claims to control for this, and is quick to attack the national framework of Borjas and others. His complaint: they focus only on total population rather than the immigrant share of dropouts and other skill groups. In fact, Borjas does disaggregate by educational level, finding the drag on native wages greatest at the top and bottom of the education spectrum.

Indeed, in his current paper, Card inadvertently presents some evidence suggesting that this out-migration has occurred. Here are his figures showing that, between in 1980 and 2000, native dropouts fell as a share of the native workforce in — perhaps because they moved away: (Table 2.)

This is not the first time Card has cut corners to make a point. During the Clinton years, he shook up the economics profession with a series of studies that apparently showed that a higher minimum wage would have no impact on employment.

In one such study, used by the Clinton Administration to justify a minimum wage increase, Card and his co-author, Princeton economist Alan Krueger, used data obtained in a telephone survey of fast food restaurants to claim that increasing the minimum wage did not depress and might even expand the demand for labor. ["Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, September 1994]

Back then, the Wall Street Journal Editorial Page was quick to attack this counter-intuitive result. (See, if you care to pay for it, Dog bites man: Minimum wage hikes still hurt, By Richard Berman Wall Street Journal, March 29, 1995 or Higher Minimum Wage, Higher Dropout Rate, by Robert J. Barro, Wall Street Journal, January 11, 1996[not online for free])

But where is the Wall Street Journal now that the same trick is being played to justify immigration? [Ask the WSJ]

At least Card is consistent in his liberal bias.

Edwin S. Rubenstein is President of ESR Research Economic Consultants in Indianapolis.

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