A Natural Experiment, Anyone?

March 16th, 2013 at 5:16 pm

I hope some enterprising Ph.D. candidate takes advantage of what sounds like an opportunity to study the economic impact on jobs, wages, and prices as a natural experiment on the Arizona border.  According to the NYT:

Officers who guard the line say the [AZ] border is more secure in most places than they have ever known it. They say they are in a strong position to hold off an illegal surge, and to show why they point to Arizona, once the busiest and most contentious border battlefront. To the east, in Texas, agents are still struggling to stop persistent migrants in hundreds of miles of varying and penetrable terrain. But in Arizona, every available measure shows steep declines in the number of people making it across, figures that border agents say demonstrate what they can accomplish.

Economist David Card has long studied immigration impact using this kind of geographical variation, and his work finds much smaller impacts on domestic workers from immigrant competition than many would expect (economist George Borjas finds larger effects; Heidi Shierholz provides a useful review and somewhat of a reconciliation here).

I don’t mean to ignore the harsh and even fatal aspects of what’s going on in this part of the country.  This is not the face of functional immigration reform.  But under the very broad and far-fetched assumption that facts matter, it could help inform us of some important things we need to know.

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8 comments in reply to "A Natural Experiment, Anyone?"

  1. Fred Donaldson says:

    One of the arguments by the folks who want to keep wages low is that the minimum wage is designed for high school students. Other countries recognize the difference between breadwinners and Ipod buyers, and have minimums tiered to age, etc. Australia’s Fair Wage is an example and could easily be adopted here and end the insincere complaint about students’ wages:

    http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx


  2. Kevin Rica says:

    Jared,

    The natural experiment is that Texas has a much lower unemployment rate than Arizona (6.2 vs 7.9) and is know to have a less welcoming attitude towards illegal immigrants. In other words — illegals avoid bad economies and good enforcement. But if they have to choose — everyone is leaving California which has a welcoming attitude and sky-high unemployment.

    Illegals suppress wages increases by choosing to go where wages might otherwise rise and they avoid areas where they otherwise would be falling. Because Card can’t account for interregional labor flows (including the destination choices of new immigrants) — his model fails (notice my restrained choices of words?).

    Because of labor market arbitrage, the results of these “natural experiments” are at best, estimates of the LOWER bounds of the labor market impact. In other words, if Card says the impact is a 3% reduction of wages, it is no less than 3% and probably substantially more.

    Card’s “natural experiment” is like testing Archimedes principle by dropping a brick in one end of the bathtub and deciding if the water is no higher on that side of the tub then Archimedes was wrong.

    The jaws of the snake opened (wages and productivity decoupled) when the current wage of immigration began around 1970. That is the great natural experiment: Supply and demand work, Card’s methods don’t.

    If you want to play with Cards, discard the joker before you deal.


  3. Smith says:

    I agree with commenter, Card flawed, noted flawed methodology Feb 16th* Studies and equations on wage effect of immigration are based on wage differentials. Sticky wages http://krugman.blogs.nytimes.com/2013/03/05/why-dont-we-have-deflation render the studies meaningless. Slow internal devaluation even under extreme conditions is killing Europe, 4 1/2 years from start of crisis, still not there http://krugman.blogs.nytimes.com/2012/09/26/euro-update-the-perils-of-pointless-pain/ Card doesn’t capture unobservable forgone wage increases. Moreover, sticky wages demolish the interpretation of observed wages. Even Borjas with larger effects on “Labor Economics” (he wrote the book) underestimates.

    Regarding Shierholz, everything is based on not seeing wages fall, and she doesn’t even study employment.

    http://www.epi.org/publication/bp255/
    “this analysis looks at the effect of immigration on wages, not on employment.”

    “…since it takes time for capital to adjust to increases in the labor force, a large unexpected increase in the labor force will likely depress wages temporarily, something not accounted for here.”

    “time” is undefined, and “temporarily” depressed wages are “something not accounted for”

    * http://jaredbernsteinblog.com/raising-the-minimum-wage-the-debate-begins-again/#comment-522877

    ‘Imperfect substitution within skills ridiculously based on wages. Hire
    A, 3/4 wage of B, not substitute if wage is ¾. But difference result
    of stickiness! B doesn’t get ¼ pay cut!’


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