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Adam Ozimek is Wrong on Immigration

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Adam Ozimek writes,

I am challenging bloggers and economists to answer these questions: are you writing and talking as much about high-skilled immigration as you should be? And if not, why aren’t you doing it more?

Perhaps bloggers aren’t doing more to promote the idea that America needs to import more talent from abroad because they are aware of some fundamental facts that Ozimek has ignored?

Let’s start with this fact: there are 17 million college graduates in the United States who are working menial jobs because they can’t find work that requires a college degree.

What does this single fact tell us? From the standpoint of a simple supply and demand analysis, it tells us that the US economy cannot generate enough jobs to absorb all those college graduates because it is not growing fast enough and creating the surplus that would make it possible for companies to hire most college grads rather than only those with narrowly defined skills.

Two factors are at work behind this shrinking demand for highly educated workers, outsourcing (as well as insourcing or the importation of “skilled” workers) and an increase in the number of college grads (this latter fact thanks to narratives that have turned a college diploma into a fetish against the wiles of the American economy.) These two factors have created a surplus of a certain type of worker, one with little experience but with a lot of education. There are millions of such workers out there, as many as 17 million, in fact.

Because the jobs they could have had are either outsourced or taken by immigrant geniuses, these workers have entered the menial job world, taking jobs that require no education beyond high school or the GED. This has had the effect of crowding out the workers who traditionally occupied those positions, causing a rise in the unemployment rate for those without college education while at the same time distorting the employment rate for college grads. (These distortions have caused many pundits and economic journalists to celebrate the value of the college diploma and advocate for sending more people to college.)

Given this reality of supply exceeding demand for educated workers, one has to wonder how exactly making it easier for highly educated immigrants to come to America will make things better for the people already in America. Won’t such a policy, in an economy which already does not need millions of college grads, serve only to depress the wages of all those with college degrees? Even if we grant the contention that most of these underemployed have no skills, what will happen to doctors and engineers as foreign talent enters the job market and competes for those jobs? Will their wages not decline?

Not, writes Ozimek: “…ceteris paribus, wages in labor markets with a million workers or more are a third higher than wages in markets with 250,000 or less workers.” It has to do with “thick” markets, he explains, or the phenomenon where everyone is made better off when there are a lot of buyers and sellers in a market: thus, by opening the door to immigrant geniuses, we will attract most of the very smart people in the world, creating a dynamic that forces talent to come to the US because this will be the place where you have to be in order to accomplish anything worthwhile. All this activity will then generate a lot of wealth, and the wealth will trickle down to the rest of the economy. We will all be made better off.

Recently, economists have published a number of studies purporting to show that immigration, in general, stimulates investment, a factor that increases economic growth. Giovanni Peri, an economist at the University of California at Davis, found that immigration also causes wages to increase “ about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20 percent to 25 percent of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.”

But look at California, a state with one of the highest numbers of immigrants, including high numbers of immigrant geniuses who work in the IT sector. Despite the suggestion by economists who would have you believe that immigration increases wages and economic growth, California is not an island of economic growth and higher wages in a recession economy. In fact, California has one of the highest unemployment rates in the country. But shouldn’t California be immune, if it is the case that immigration increases wages? Why isn’t the thick market working to save California from economic problems? More importantly, why aren’t the immigrant geniuses already in Silicon Valley enough?

Another fact undercuts Ozimek’s argument. Human capital movements are very much like financial capital—both flow to the areas of the highest perceived return. This fact suggests a more fundamental problem with Ozimek’s proposal: as living standards increase in China and India, the US may no longer be able to attract all those immigrant geniuses. What then? If we make ourselves dependent on importing talent, we won’t have the ability to educate the people in America quickly enough to close the gap. We will be much better off as a nation if we invest in the people already here.

But the idea that we need to invest in the people already in America is not politically acceptable because it sounds too much like a big government program. Consequently, policies that permit political elites to cut spending on education at all levels, yet maintain America’s technological edge by importing talent, will be more likely to gain the upper hand. But this will only be to America’s long-term detriment, because as we reduce our ability to develop the talent already within our borders, we will become more and more vulnerable to the global competition for talent that will be one of the great games of the century, while becoming a more and more unequal and politically unstable country with the kinds of extremes of wealth and poverty only found in the underdeveloped world. 

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About A. Jurek

A. Jurek is one of the editors at Blogcritics. Contact me at: a.jurek@blogcritics.org
  • Random Guy

    Well. This rebuttal article is rather weak.

    First, does it make sense to lump 15 M unemployed American U.S. college graduates together regardless their major and specialties to compare with less than 50 K skilled immigrants who almost work exclusively in the STEM field with average unemployment rate less than 4% ? In addition, many U.S. STEM graduates are really mediocre at best. They would not work in their field even though there are zero immigrants. Do you believe that top-notch U.S. tech companies would be able to fill their positions with any other collage graduates?

    Secondly, California’s example is simply bizarre. High unemployment in California in general has little to do with skilled immigrants. The benefit of skilled immigrants to all levels of U.S. workers is evident in Silicon Valley, but nobody is arguing that skilled immigrants can save the world. Economy depends on many different factors, so why single out the immigration factor?

  • A

    Mediocre? As compared to what? Graduates of schools in the developing world where professors do no research and publish no papers in cutting edge journals? It may come as a surprise to you, but the US has most of the top STEM programs in the world and overall leads in the production of basic and applied science, at least according to rankings of OECD. Programs which attract the best students from around the world.

    The real issue is not the mediocrity of US talent but the unreasonable expectations of employers who want to hire highly educated workers at menial job wages. The H-1B program lets them come close to that.

  • Random Guy

    Well. You are partially right. ” It may come as a surprise to you, but the US has most of the top STEM programs in the world and overall leads in the production of basic and applied science, at least according to rankings of OECD”. It does not surprise me at all.

    If you ever attended a top STEM program in U.S, you will notice what is the percentage of immigrant graduates. The foreign students in CS Ph.D. program is over 70% now. A vast majority of them will have to obtain H1B before they can work for U.S. employers. Yes, there are many outstanding American graduates, but the number does not come close to meet the productivity of U.S. tech industry, which is racking up money from all over the world too. Just take a look at how much a CMU computer science graduate make, and you will understand the labor market condition for talent is not what 1.5M unemployed people would feel, so the argument in this article is baseless.

    Not every graduates in the developing world would come close to the U.S. shore either. Sure, H1B abuses exist, but a vast majority of the H1B workers I personally know make much more than their average colleagues. I do not think H1B is perfect, but I don’t think the issue can be covered with a simple “cheap labor” argument.

  • BostonBob

    Random Guy – wages in IT and other STEM fields have been in decline since the push to fill those jobs with cheaper offshore labor that is brought onshore through various visa programs like the H-1B, L-1 and others.

    You are a shortage shouting shill who either doesn’t live in the real world or purposefully ignores reality for your own means.

    There is a huge glut in STEM fields caused by the massive numbers of foreign workers on visas.

    Company after company fires American workers and makes them train their foreign replacement…

    But to you that doesn’t exist and US workers are mediocre? Seriously – examine that for a moment.

    We force our ‘mediocre’ workers to train their ‘smarter’ foreign replacements who on average earn less than the Americans.

    That depresses wages throughout the industry as laid off Americans are fighting for the few remaining positions.

    There are millions of displaced US workers who no longer show up on the unemployment charts because they were dropped or gave up and took a menial job while the foreign workers who they trained ship much of their money back to India or China.

    Unless you are a 1%-er and reaping the benefits of this lower labor cost – it comes at a huge cost to Americans.

    By your postings I sense that you are either a 1%’er, a shill for the same or someone who is really ignorant.

  • wigglwagon

    This article is much too rational for the open borders lobby.

  • Random Guy

    To BostonBob:

    Ye. Ye. You can call me whatever you want. The “rationality” in this article and your name calling is just refreshing. I wish fewer people would inject their personal feelings into this subject, and stop pretending they aren’t arguing for their own selfish interest. Labor market in some STEM field (biology particularly) is depressed, but certainly not in other fields (see NSF reports: http://nsf.gov/statistics/ and other recent labor reports in STEM fields).

    BTW, U.S. is not the only destination for skilled immigrants. Australia and Canada have higher percentage of skilled immigration regarding to their population. EU has their own immigration program. You can throw those baseless dirty claims at these immigrants, but these folks jump over all the hurtles and still kick asses in countries and environments they barely knew.

  • B

    Random,

    So how many immigrant geniuses do we need? Is there a limit or do we take in everyone, the entire planet’s population?

    More importantly, how do we decide who is a potential or real immigrant genius? If the government, then we’re left with a built in inefficiency, right?

  • Igor

    @7-B: most geniuses are public employees at universities, government labs, etc. The great wealth of the USA was created by the geniuses from our public schools who went into University ag schools and created a wealth of nutritious inexpensive foods, scientists who went into University and NSA, NASA, NIH, etc labs and created advances in medicine, drugs, space and of course weapons.

    We don’t really need to import geniuses because we produce plenty of them right here in our own land-grant and other publicly financed universities. But we need to improve the economic climate that they live in, which means we have to increase aggregate demand, which means we have to increase the wealth that’s in the hands of our most efficient job-creators, namely the least among us, the lowest paid people in the country.

    We MUST reverse the trend of the past 30 years and start putting more national wealth in the hands of the lower half of the economy. Why?

    -the greatest and most numerous geniuses come from the lower classes.

    -education opportunity and availability has the greatest leverage.

    -the population group with the greatest Economic Multiplier is the lowest paid. Each dollar they spend has the greatest leverage of any dollar spent by anyone.

    This countrys current wealth was created by the post-WW2 GI Bill Of Rights which extended top educational opportunities to the loyal soldiers who fought for their country. At that time we thought it was a moral obligation, but investing in ordinary US citizens is the best investment this country ever made.

  • Glenn Contrarian

    This countrys current wealth was created by the post-WW2 GI Bill Of Rights which extended top educational opportunities to the loyal soldiers who fought for their country. At that time we thought it was a moral obligation, but investing in ordinary US citizens is the best investment this country ever made.

    QUOTED FOR TRUTH!!!!

  • R

    I graduated from Berkeley in 2010 and currently makes roughly $220k/year (pre-tax) as a software engineer. I recently had to change my job because of the f*cked up immigration system here (my compensation increased by ~20% btw).

    Now, do you suppose I’m still depressing the wages here? You think someone of my skill should be earning something like $300k/year, or that you can replace me with some American, or perhaps that your country is better off if I’m not here?

  • Igor

    R: you didn’t tell us what you actually do, and why it is valuable. And why you are special. Are you irreplaceable? With only 2 years experience it seems unlikely.

  • Igor

    US educational institutions (and US industries, as well) have always pursued aggressive policies of recruitment from foreign countries both to get new points-of-view and to propagate US technologies and methods abroad.

  • R

    Igor: Yes. As a matter of fact, I know my previous employer (a multi-billion corporation) would hire me right back if I applied because they had valued my knowledge and skill. My making $220k/year with just two years of experience should have told you that :)

  • Igor

    It told me nothing. I can’t imagine a new grad with only 2 years experience being worth that money.

  • Glenn Contrarian

    R –

    I’m reading your claims, and judging by your spelling and use of grammar, I’m rather doubtful of your claim. Someone who makes that much per year should have perfect spelling and grammar. Maybe you just had a bad day, but it’s as Igor said – you still haven’t said exactly what you did. Try telling us what you did. I have a little bit of a clue when it comes to IT (but not that much, but Igor knows very well whereof he speaks. So tell us what you do, and we’ll probably know whether you’re on the up-and-up.

    If that kind of lie-detector test sounds strange, then perhaps you could benefit from something I learned from my wife – the more someone tells the truth, the more someone can tell when the other person’s being truthful. Conversely, the more someone lies, the less able they are to tell when someone else is lying…and the more they think they can get away with their own lies. Yes, that sounds strange – but that’s my experience.

    So tell us what you do and don’t be afraid to get technical – some of us speak geek.

  • R

    I know about this one component of a very high profile open source project better than anyone else in the world maybe except a handful (2-5) of people. In addition, I’m one of the most active and influential contributors of the project (among hundreds of other contributors) and built a mission critical infrastructure for the project.

  • R

    Let me also give you the breakdown of my income: $150k base, 15% bonus, $200k/4year RSUs (evaluated at the lowest stock price in the past 12 months).