Monday, April 2, 2007

What Will Immigration Do to Wages


So, I was reading over this piece by Card on the wage effects of immigration and was wondering what a Cobb-Douglas function had to say about it.

For those outside the know, the US factor shares are typically estimated to be around 30% for capital and 70% for labor. Using those numbers I plotted the effect of an increase in the labor force on the equilibrium wages. The results are interesting and I am surprised I haven't heard someone refer to this before.

According to the model, even if the US gets no new capital the reduction in wages is small for any reasonable amount of immigration. Suppose we have 12 million illegals in a labor force of about 200 Million. That's about a 6% increase which translates into about a 1.75% drop in wages.

A more interesting and perhaps provocative simulation would be to look at the predicted effects of an increase in female labor participation. Maybe I'll get to that tomorrow.

18 comments:

Anonymous said...

B Caplan,

Has a nice
>table
that breaks down the expected wages changes by level of education.

Though as some of the comments point out wage rates are only part of the story. Interesting stat though.

YouNotSneaky! said...

Peri and Ottaviano essentially due this but they also allow for capital accumulation and the production function they use allows for different types of labor to be either substitutes or complements (whatever the data say). They get something similar but more nuanced - the mid skill levels of workers, the bulk of population gain quite a bit in their wages.

http://www.econ.ucdavis.edu/faculty/gperi/working.htm

I think your example might be a better argument for folks who do not wish to bother with all the fancy math.

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