The other day Hal and I were talking about some work we're doing on the H1-B visa with a policy shop here in DC. It was the type of group that likes to offer proposals, so one of the things that it suggested as an alternative to the current H1-B system is a counter-cyclical visa (never mind that use of the visa is counter-cyclical anyway). The idea is that they didn't want these guys competing with American workers when labor markets were weak.
You all know my concerns about the H1-B are very different from this. I think the globalization of labor supply is a good thing - I don't like the program because of the preferential treatment for a particular class of workers. But aside from the merits of the program itself, I really hesitated at the very idea of thinking solely in terms of these partial equilibrium effects.
The evidence on the impact of immigration on native wages is mixed - there are literatures that show a positive impact and literatures that show a negative impact and none of it is particularly large. You would expect immigrants to hurt native workers using basic economic reasoning, and indeed when you look at close substitutes that's what the evidence seems to show. But if basic economic reasoning were sufficient they wouldn't put us through PhDs in economics.
There are lots of microeconomic counterarguments to that story - yes, some are substitutes but there are also a lot of complements. Raising productivity only ever risks displacing workers in the short run (same with technological unemployment fears). Or maybe frictional unemployment - close substitutes lose work but they'll find jobs shortly.
But one argument you don't see much that I wish you'd see more is what you might call a general equilibrium argument. Immigrants aren't just supplying labor in a labor market. They are also demanding food, housing, cars, computers, hair cuts, etc. For every immigrant worker we add we also get an immigrant consumer and saver. If those two roles are perfectly in balance, it's a wash from an economic perspective. Of course we don't expect them to be perfectly in balance, but the lack of a strong finding one way or another suggests that it's pretty close (which is what we'd expect).
To me immigration is a lot less about being an immediate boon or burden to society. The real action is in the distributional consequencs of immigration.
As a quick note - the other area where you see this mistake of looking only at partial equilibrium is with discussions of the minimum wage. This is another area where you see a conflicting literature (in this case, slightly less conflicting), but even the negative impact of the minimum wage on employment is modest when it does come up in the data. Why? Because we need to think about general equilibrium: those minimum wage workers are also consumers. This is not to say in specific groups the consequences aren't bad, it's just to say that it's precisely the distributional questions that probably have more interesting answers than the question "are we better off?". The answer to "are we better off?" is often that there isn't that much of an impact.
Specifying a transition matrix
3 hours ago