When I first started reading the White House report on the projected economic impact of President Obama’s executive action on immigration, I was pleased to see it cite my UC Davis colleague, economics professor Giovanni Peri. While I tend to disagree with Professor Peri, it was nice to see someone from UCD involved in White House policymaking. However, that institutional pride quickly faded when I saw that Giovanni and his coauthors were basically the ONLY ones cited. The report does make one token reference to Harvard’s George Borjas, who is generally on the other side of the immigration issue, but the report quickly dismisses that work. The few remaining non-Peri citations are all of the pro-immigration genre, such as Berkeley professor David Card’s famous work on the Mariel boatlift. (Card found that the 1980 influx of Cuban refugees to Miami had no adverse impact on, for instance, jobs for low-skilled blacks.)
It turns out that Cardiff Garcia at the prestigious British business newspaper Financial Times had a similar reaction:
…the CEA report does cherry pick from within the existing literature on immigration economics. For instance there are thirty-three mentions of Giovanni Peri, all of them favourable. Peri is the pro-immigration economist’s pro-immigration economist. (Disclosure: FT Alphaville very much likes Peri’s work and we have been happy to feature it.) The report only mentions George Borjas, who is well known for his scepticism about the employment and wage effects of immigration, three times — and does so to contradict his findings.
Whether you like Obama’s executive action or not, such obvious bias in selling the policy to the American people is unconscionable. This is especially true in light of the fact that the report says it is based partly on the earlier CBO report — which acknowledged feedback from both Giovanni and George. (Harvard’s Lawrence Katz and pro-H-1B professor Gordon Hansen of UCSD were thanked as well.)
Most researchers on immigration issues are known to be either pro or con on the topic. Giovanni is pro, George is con, and so on. In the H-1B issue, I’m of course known to be critical of the program. Some are more impartial than others, but in the end, almost everyone has a clear point of view.
Giovanni absolutely has a lot to contribute, and Obama’s Council of Economic Advisers (CEA) did well to make use of his work. But it’s outrageous that CEA basically looked ONLY at his work. This is particular true in light of the fact that some of his work has been sponsored by business interests. Consider for instance his report for the lobbying group PNAE, which by the way shows the same lack of balance — it has essentially no citations to research critical of H-1B, and the companion working paper uses overly strong language such as claiming to have found “causal” effects.
In discussing the substance of the CEA report, I will of course focus my comments here on what the report has to say about high-skilled immigration, i.e. H-1B and related issues. In that area, CEA relies on a single Peri paper, ignoring a mountain of negative research. Two items of particular significance that CEA ignored were congressionally-commissioned reports, one by the NRC and the other from the GAO. Both found that underpayment of H-1Bs is commonplace, and the NRC report warned that the sheer size of the H-1B IT workforce forces wages down. And given all the research showing lack of a STEM labor shortage, that latter finding is especially significant.
An aspect of H-1B that especially concerns me is quality. I’ve mentioned occasionally that I’ve always driven Japanese cars, as I believe they are made better, and I’ve always strongly supported bringing in “the best and the brightest” engineers from around the world. However, the overall average quality of the H-1Bs is lower than that of their American peers. My EPI report, for instance shows this in the case of workers who first came to the U.S. as foreign students studying computer science. Among other things, my work confirmed an NBER report that found that foreign students in the sciences tend to study at less-selective universities; and work by Jennifer Hunt of Rutgers that found that the foreign students have a lower patenting rate than comparable Americans. (See a qualifier in my EPI article. Also, CEA cited earlier work by Hunt, but that research did not make this comparison; in essence, it found that immigrant STEM workers file more patents than American non-STEM people, not surprising.) When combined with the displacement issue (to be discussed below), this means a net loss for the U.S. economy, something that should alarm the CEA.
The paper by Giovanni that CEA relied upon for its projections regarding high-skilled immigration takes a city-by-city comparison approach. As I explained recently, regional-comparison analyses are notorious for producing conflicting results, often due to lack of data on key covariates, and there are numerous other problems with this paper, in my opinion. One issue in particular is that the paper does not take into account displacement of U.S. citizen/permanent resident workers.
Ironically, Giovanni concedes that U.S. STEM workers are displaced by immigration:
…we assess whether native-born workers with graduate degrees
respond to an increased presence of highly-educated foreign-born
workers by choosing new occupations with different skill content.
…we add to evidence from past studies by showing that [U.S.]
native occupational adjustment in response to immigration occurs
among highly-educated workers and occurs for those already employed.
As the foreign-born share of highly-educated employment rises,
native-born employees respond by moving to jobs with less
quantitative and more interactive content.
The wage consequences of immigration were not estimated in this
paper…If the evidence from the labor market for less-educated
workers is an indication, the occupational skill response among
highly-educated natives is likely to mitigate their potential wage
loss from highly-educated immigration.
Giovanni also agrees that immigrant (from context, he seems to mean legal) labor is cheap, and indeeds lauds it as a boon to employers:
One common empirical finding in the literature is that immigrants
are paid less than natives with similar characteristics and skills.
This is in part due to the fact that many immigrants, because of
less attractive outside options (such as having to go back to
their home country), have lower bargaining power with the firm. In
this case firms pay immigrants less than their marginal productivity,
increasing the firms’ profits.
Interesting that a Democratic CEA would rely on such a Republican-sounding researcher, celebrating cheap labor. Of course, the “lower bargaining power with the firm” is something I’ve emphasized repeatedly in my writings.
Once again, I have no problem with CEA using Giovanni’s work. He’s a major figure in the field, and also a great guy, who by the way graciously agreed to give a guest lecture in the freshman seminar I taught on immigration a few years ago. And as seen above, he and I do agree on the issues of displacement and cheap labor. 🙂 But the CEA one-sided report to the American people is an outrage.