What happens to the wages of a Bolivian or Nigerian worker who arrives in the U.S.? They go up. Way up.
Michael Clemens, Claudio Montenegro and Lant Pritchett use micro data from 43 countries and come up with the following wage ratios:
The white and grey bars reflect wage rations drawn from other studies: the black-white wage ratio in the in 1995 (1.1) and in 1939 (1.6).
The black bars compare the wages of workers inside the United States to the wages of observably identical workers outside the United States—controlling for country of birth, country of education, years of education, work experience, sex, and rural/urban residence.
A similar worker going from Bolivia to the U.S. gets a 270% wage increase. Moving from Nigeria? Get a 840% raise.
(A mischievous footnote points out that not even the U.S. black-white wage gap during times of slavery was as large as the inside-outside U.S. wage gap today.)
Obviously there is selection into who moves where, and the authors try to bound this bias on their results. Their conclusion: no matter what you assume, these wage gaps are the largest known form of wage discrimination, ever. And they represent the largest remaining price distortions in global markets.
What’s more, they argue that opening U.S. immigration is a better way to fight global poverty than any other tool we have. A micro-credit program is worth just four weeks of moving to the U.S.:
The paper is here.
8 Responses
I’m in no way anti-immigration, but the problem as I see it with “them” coming “here” is that there are too many of “them,” and our system “here” wouldn’t scale to that number. Some sort of rationing has to take place. There’s no theoretical limit on the number of “them” since they can replicate, and they do, in some places (Africa, South Asia) quite quickly. If we didn’t ration, they’d come “here” until wages/living conditions were equalized, or at least close enough that the trouble of moving wouldn’t be worth it.
The better solution I’m afraid is not to have them come for jobs here, but to have jobs from here go THERE. That way they don’t have to leave their families, we don’t have to make room or assimilate other cultures more quickly than we’re prepared to. The protectionist hates this plan since it costs American jobs (manufacturing keeps coming up, but services too), but immigration poses the same problem.
As for me, I see no reason why “they” deserve the manufacturing jobs less than “we” do.
Sorry for the “scare” quotes, but I was trying for some happy medium between shorthand and being offensively dismissive… =)
@Anonymous#1: It is wage discrimination because it is a state-mandated reduction in real people’s productivity. A law denying black people access to computers in the US would be considered discrimination because they would earn less than they would without such a law. Denying Bolivians access to the US labor market and its associated capital, institutions, etc. decreases their productivity and makes them earn less than they would without such a law. There are large numbers of real people in the world who would like to have US wages but cannot because of our immigration barriers.
The above paragraph is just factual; it contains no normative policy implication. Pointing out that borders cause wage discrimination is not the same as claiming that there should be no migration restrictions whatsoever. Instead what it does is to point out one of several effects of our current restrictions on people’s movement, all of which need to be weighed in setting policy.
Scratch that – that pdf you posted is exactly what I was thinking would be worth having (many different places). I wrote before I read, which is worse than leaping before you look.
Very interesting. It’d be really interesting, too, to see these wage ratios for many other continents and countries, including South America and Europe. I wish the CPS would include some questions related to wages in the sending country in its surveys.
BTW, you wrote “rations” not “ratios” at one point. It’s good to know I’m not the only one who, despite using the word “ratio” constantly in papers, cannot break the habit of writing “rations”.
Hi Chris,
I see you are interested in the ‘gains from immigration’ lately. It needs to be said, though I doubt much will come of it.
I also think the EU is a case study (though perhaps watered down). But I think it shows that the ‘veritable flood’ is overestimated.
But to determine implications for reducing poverty, don’t we have to look at cost of living ratios as well as wages??? A Nigerian may make 840 percent more, but how much more do they have to spend on health care and housing in the US than in Nigeria?
From a business perspective, this wage discrimination confirms the advantages of going abroad for your labor.
I also wonder about the prevalence of this discrimination depending on education/class.
I am all for free movement of people, goods and money, but I can see why unimpeded immigration is problematic: it is a social cultural issue, not just economics.
Moreover, if the US were to open its borders tomorrow, you would see a veritable flood of immigrants.
Another option is to EXPORT US institutions, much like the EU does. This, after all, is what the immigrants are after (as well as agglomeration economies from first mover advantage).
Call it neo-colonialism, but Bolivia could first get a special associated status to the US (like Puerto Rico?) and eventually – 25 years or so – become a full member state. And so on with the others.
I wonder what would happen if Bolivian sovereignty was put to a referendum? Would its citizens vote to become part of the US tout court? Would the institutions travel (the example of the Philippines suggests not…)?
We need better more imaginative ways to export institutions, a kind of colonialism mark III, that is transparent, accountable and mutually agreed.
In what way is it wage discrimination? Who exactly is discriminating? The US? Or the Bolivian authorities that fail to establish a regulatory/governance framework that empowers its people?