Adam Ozimek is Wrong on Immigration

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.