Immigration and Jobs

A couple of thoughts about immigration. It seems that there is a widespread belief in the US that immigrants take jobs from Americans. It makes superficial sense if you also assume that the number of jobs to be filled is fixed and that just about anyone can do any kind of work.

Both assumptions are mostly false. Here is an example that illustrates why.

I keep hearing native-born Americans trained in various high-tech fields who claim that they are unemployed because of competition from low-cost H1B visa holders. H1B visas go to foreigners with skills deemed to be needed by the American economy. A large number of H1B visa holders are from India and many are from China; they also come from a wide variety of other countries, including Russia, France, Bulgaria, etc. The implicit affirmation is that were such visas stopped completely, those who complain would step right into the vacant jobs.

Two things. First the claim that foreign H1B visa holders work for less is largely unsubstantiated although it should be easy to investigate such abuse. Second, I think it’s illegal to pay H1B holders less than Americans. Why would many employers risk a distracting lawsuit? Of course, a few might because there are irrational people everywhere.

Next and last: Hundreds of thousands of high-tech jobs are going begging as I write. Are employers so vicious that they would rather have the work not done at all than to give it to a credentialed American? Or is it more likely that the unemployed native-born high-tech workers have skills that do not match demand? If the second supposition is correct, ending the H1B visa program would cause even more high-tech positions to remain empty. Of course, this would have a negative effect on everyone, on every American’s prosperity.

Missing from this narrative: the possibility that high power, accelerated re-training programs would bring unemployed Americans the skills the high-tech sector requires.

I have to begin a confession that’s going to make me even more unpopular locally than I already am. I mean unpopular among my conservative friends. I taught in an MBA program in the middle of Silicon Valley for 24 years, two quarters each year. It was an evening program squarely directed at the ambitious hard-working. During that span of time, I must have had 150 students from India. I remember only one who was a bad student. I was intrigued, so I made inquiries. Sure enough, he had an Indian first name and last name, and the corresponding appearance but he was born in the US.* I cannot report so glowingly about other, non-Indian students that sat in my classroom through the years.

This little narrative proves nothing, of course. Consider it food for thought. Do it especially if you voted for Pres. Trump – as I did.

Reminder: H1B visas are awarded to individuals with an occupational qualification deemed to be in short supply in the US. Right now, it’s likely that most of those who get an H1B are trained in some IT area but that’s not all. For a long time, farriers from everywhere could easily get one. (If you don’t know what a farrier is, shame on you and look it up.)

There are other – presumably non-specialized – categories of immigrants who are widely suspected of taking jobs from Americans. The truth is not always easy to discern, not even conceptually. Five or six miles from where I live in Santa Cruz, there are growers who are tearing off their hair. Their problem is that they can’t figure out who is going to pick the crops they are now putting into the ground. As I have said repeatedly, the Mexicans they counted on in years past have largely stopped coming.

A quarter of a mile from where I live, and in the same direction, there are dozens of perfectly healthy US-born Americans who are working as “sales associates.” The apparent conceptual issue is this: sales associates earn $10/hr while a moderately experienced crop picker earns $15. The question arises of why we don’t see a full exodus from the sales positions to jobs that pay 50% more?

I think it’s lazy to call the US-born sales associates “lazy.” The reality is that the Mexicans who came, and are still coming, to pick vegetables and fruits in California overwhelmingly came from a rural population. They were reared under conditions where almost everyone around them labored in the fields. When they arrive in the US – legally through family reunion – or illegally, they are ready to take picking jobs. They then just do here more or less the same work they would do at home but for five times the pay or more.

In American society that kind of population disappeared several generations ago through mechanization and, of course, through the importation of foreign labor, precisely. Native-born Americans won’t do the work because it’s alien to their background. I think US-born people of Mexican ascendancy whose parents labored in the field won’t do the work either. Their parents do what they can to make their own work experience alien to their children. I am not surprised, that’s another expression of the American dream. It’s  what many would do back in Mexico but then, why emigrate?

I am pretty sure that any immigration reform should include a temporary agricultural program, a sort of H1A ( “A” for “Agriculture”) visa. It would allow foreigners to come to the US legally, just to work in the fields and for a set period only. It would not lead to permanent residency, nor, of course, to citizenship. Such a program existed between the forties and the early sixties, if memory serves. It was called the “Bracero program.” I don’t know why it was terminated. (Perhaps a reader can tell us.)

Mexicans would be the first to take advantage of such a program. As Mexico’s economy develops, they may be replaced by Central Americans and, eventually, by Africans. Such a program would sidestep the kind of assimilation problem France, for example, is facing right now with its North African population.

PS Personally, I think Mexicans make good immigrants to the US. I would bet than in ten years we will be begging them to come.

* Disclosure: I am married to an Indian woman. She is not in high-tech unfortunately.

On Sugary Drinks, Taxes and Demand Curves

A few days ago, I discovered a blog post on the website of Jayson Lusk (a very good agricultural economist whose work has often guided some of my own economic history research given that most economic history is also agricultural history). The post relates to a study of the implementation of a sugary drink tax in Berkeley to fight obesity.

Obviously, a tax will reduce the consumption of any good. That is pretty axiomatic and all that we need to know is how much. In other words, how elastic is demand. If all things are held constant, the quantity consumed relative to the price change will give you that measure.* However, the study that Lusk pointed too basically shows that we often do not hold everything constant.

The authors of the study point out that when tax is passed, there is generally a debate that occurs beforehand. This generates publicity about the issue. This alters the behavior of consumers because they face more information. This is an effect that must be isolated from that of the tax itself.  That is what the authors do in their papers and they find that a reduction of soft drinks consumption did occur during the campaign and after the tax was adopted but before it was implemented (they rely on on-campus sales of soft drinks at a “major university” which we can assume is UC-Berkeley). Thus, the reduction in consumption preceded the price change. Lusk himself found something similar in a case related to animal welfare. Using a Californian electoral proposition regarding animal welfare in the production of eggs, he found that the publicity surrounding the proposition changed consumer behavior.

Lusk, rightly in my opinion, points out this suggests that information-based policies are probably more efficient than heavy-handed measures like taxes.

But I think there is a deeper point to make. When you inform consumers, you don’t only change the location of the demand, you also change the slope of the curve. If a consumer is made aware of the costs (and benefits) of his consumption that he had not previously considered, he may become more sensitive to the price. Informing people about the ill-effects of sweet drinks might make them more sensitive to the price they pay. Imagine that the information campaign during the Berkeley vote on the tax caused consumption to become more elastic. That means that the tax’s effects is being amplified by the information effect from the publicity. Had the tax been imposed as a surprise, the effect would have been smaller. Basically, Lusk’s presentation of the argument is understating the effects of information-based policies.

* On a tangential point, I would like to remind that people can reduce their consumption of soft drinks without changing their total calorific intake. Indeed, if I am taxed when I consume a soft drink, I can switch to coffee with cream. Thus, pundits often confuse a reduction in soft drinks consumption after a tax as a step in favor of reducing obesity.

Fight for your economic right to party


Two months ago, London’s iconic Fabric nightclub was shut-down by Islington Council on the dubious grounds that it had failed to adequately search club-goers for drugs. Fabric, a sprawling multi-level concrete venue, is dear to the heart of many Londoners. Its dramatic closure came as a shock. David Nutt blamed our hypocritical drug laws, while others spied conspiracies to turn the venue over to housing developers. In response to the public outcry, this month, London Mayor Sadiq Khan has appointed Amy Lamé as ‘night tzar’ (some use the even grander title Night Mayor) with the task of reviving London’s nightlife and especially trying to save venues like Fabric.

Tzars sound great in theory but tend to fail in practice. They are meant to break-up bureaucratic silos and join-up policymaking so that it conforms to a grand plan in a particular policy area. Rather than following rules regardless of outcomes, they have an outcome that the executive asks them to pursue remorselessly. However, I argue that this is precisely the opposite of what you want if your goal is a sustainable, thriving night-life culture. London night-life has suffered because of its politicization, not from a lack of it. The answer is strong rights for entrepreneurs to provide entertainment to willing consumers. This means reforming of government powers to license venues and prohibit development on arbitrary grounds. While ending drug prohibition is of deep importance, here the drug-use excuse was the face of a more pernicious power that local governments have to shut down successful businesses on arbitrary grounds.

In the United Kingdom, land development and property-use decisions have essentially been nationalized since 1947. While building still takes place, it only happens following detailed, expensive consultation with local planning authorities with significant input from local residents. As a result, the supply of building amenities has become unmoored from demand. The most noticeable impact has been rising house prices and rents in areas where the economy is growing. This is a boon to landlords lucky enough to own property in areas of high demand. But it causes those without property to suffer significantly higher living costs. It has led to bizarre developments such as it being easier to open a new golf course in the South-East than to start a new housing development.

While the majority of people feel the strain primarily through higher rents, less visible is the impact on businesses who are equally constrained by planning laws. They struggle to find suitable buildings for their commercial activities. Competitors and local residents can use the planning process to block new construction or changes to lawful uses for particular venues. Businesses lack legitimate expectations about where they will be allowed to expand. Those that do succeed need to invest heavily in lobbying and legal support. The result is that people end up travelling further to get to shops and to their places of work.

Club venues face a number of additional biases in this process. Local officials are more likely to be blamed for noise and crime associated with clubs but not praised for their fun and economic benefits. This fosters risk-aversion amongst local policymakers. At the same time, club-goers may outnumber local residents but most are not able to vote in local council elections. Residents might well have originally moved into a central London location precisely to experience fun, exciting nightlife. But once there, perhaps especially as they get a little older, their priorities change. They realize that they may want to live in an exciting city, but just so long as their particular neighborhood is a little less exciting. Rather than move to a quieter area, they express their preferences through the political process and demand that venues that have been around a lot longer than they have be closed.

Unfortunately, if too many residents in the city come to the same conclusion, you end up shutting down historic clubs on the slightest pretext. When it comes to hosting unlawful activities, businesses can be presumed guilty, with no secure way of ever proving their innocence.

In this context, having a tzar is an understandable response as a counter-balance to the call of the NIMBYs. But it doesn’t solve the core problem which is a system that cannot adequately represent revelers but augments complaints. The tzar can champion venues but will be silenced once these entrenched interests turn up the noise. Instead, we need a system that recognizes the presumptive right of businesses to market entertainment to willing consumers. Only provable nuisance should be cause to fine or eventually close venues. Once established, entertainment venues should not have to regularly prove their social worth to a licensing committee (the fact that they have willing customers is sufficient warrant for that).

Most importantly, complaints from recent arrivals against historic venues that have always hosted loud parties should be discounted. This works in a fashion in Tokyo, where mixed development is widely permitted (no one stops people from taking up residence in an otherwise commercial district) but without any assumption that those residents can then alter the make-up of their community through the political process.

A vision for environmentalists

The sun is setting and people start settling in for bed instead of staying up late and watching TV. As fast as battery technology advances, it’s imperfect so we deal with it by using less electricity at night. Similarly, on windy days, people stay inside, but leave once the wind calms down and it’s nicer to be outside. This is a world where people are in tune with the weather and adjust their behavior accordingly.

How can we get such a world? Education won’t be enough (though it will be necessary) because, let’s face it, people are creatures of habit, and lazy people (i.e. 80%+ of the population) would rather leave any given habit alone. We could try to mandate behavior, but that will be costly and the Law of Unintended Consequences promises ironic blow-back.*

Luckily there’s a fairly simple way to effectively nudge people in the direction we (environmentalist-types) would like to see: flexible prices! In a world where a lot of electricity is generated by solar and wind** market determined prices would automatically encourage people to conserve resources and set the pace of their lives to match natural rhythms. Will it be enough? Probably not, but it will certainly be an essential step in the right direction.

* I recently came across the following in The Complete Walker:

I’m tempted to suggest they [trowels] be made obligatory equipment for everyone who backpacks into a national park or forest. I resist the temptation, though–not only because (human nature being what it is, thank God) any such ordinance would drive many worthy people in precisely the undesired direction but also because blanket decrees are foreign to whatever it is a man goes out into wilderness to seek, and bureaucratic decrees are worst of all because they tend to accumulate and perpetuate and harden when they’re administered, as they so often are, by people who revel in enforcing petty ukases. Anyways, a rule that’s impossible to enforce is a bad rule. (p. 698)

** Obviously the likelihood of such a world is a whole ‘nuther can of worms. Let’s leave that for another post.

Garbage could be beautiful

And I don’t mean in the artistic sense, though that’s an option and one that sheds light on the larger question of what to do with garbage. I recently heard a podcast on garbage incineration; how it’s widespread in Europe as a way to generate electricity and reduce the need for landfills. The discussants were wondering why America doesn’t do more of that and concluded that progress was barred by a combination of NIMBYism and the fervor of recycling enthusiasts. Whether you agree with the producer of that segment or not, they are certainly correct that this industry is stagnant, and this rigidity results in plenty of unnecessary inefficiencies. But I think the real low hanging fruit is in waste collection.

The other day I saw a garbage truck and it struck me that the institution of “garbage day” is just a hold-over from the days before apps and algorithms were available to efficiently route garbage trucks to where they’re needed. For that matter, the trucks could be different; the service level could be different, and surely resources could be saved.

There are plenty of ways garbage could be picked up, and they could all coexist next to one another. Different towns and different neighborhoods

This sort of competition would be beautiful. The results would be better service, less room for corruption, clean trucks taking away your garbage when it’s necessary and saving resources* in the process. Rich neighborhoods would have sleek electric wagons grabbing their trash cans from the side of the garage in the middle of the night. In poor and rural neighborhoods something more like Uber would give the out-of-work construction worker a  way to pay for his truck.

The problems are surely due to regulations that limit innovation and competition. So, how could we open up this market? Debate and committees is the correct response, but it’s not the only one. “If I were a Silicon Valley millionaire,” I thought while driving past that truck, “I could change this, and probably make a buck doing it.”

So here’s the exciting part: A wealthy libertarian-type benefactor (or even a non-profit funded through a Kickstarter campaign (don’t forget to comment on this article!) could make a bet with the mayor of some city (which would need certain features to be a viable first candidate) that privatization would work. The bet goes like this:

  1. Pass legislation that opens up genuine competition in trash collection in one year.
  2. Private garbage companies spring into existence and do a better job at a better price (as determined by a study we will pay for by a consultant you will pick).
  3. If (2) does not happen, we will pick up the tab at your current provider for one year.

Obviously, our first hurdle is structuring the bet property to avoid problems like Waste Management from abusing their position. And that’s probably a big problem. But here’s the thing: if someone can figure this out, and motivate the right people to contribute, it will:

  1. Make it easier for an electorate/politicians to face the risk that something will go horribly wrong, and
  2. Create a profit opportunity for the (probably) tech billionaire backing this.

Opening up waste collection to competition allows for the possibility of the next Uber or AirBnB being in the garbage business. And for that matter, this betting approach might be used for other industries. For Uber to use this approach would be even easier. They would have to pay for a study on transportation in some city, and could offer to bet some lump sum to the city if competition doesn’t work.

*”Saving resources” has practically become a verbal tic with me. I use it as a synonym for the much less evocative “reducing costs.”

A proposal to help curb grade inflation.

I have a stack of midterms I’m procrastinating grading, but I’m not simply going to babble on about some minor nuisance in my own life, I’m going to expound on a modest, but promising intervention into the problem of grade inflation which, I believe, costs us millions of dollars every year.

Here’s the basic problem: schools serve a mix of roles, including signaling, human capital formation, and pure consumption. Unfortunately, universities face a problem of grade inflation. I have encountered many students who were very angry that I should even dare to suggest that a C is an acceptable grade. This, despite the fact that C has never been sold as anything but “average- simple, common, adequate but ordinary”.

And why is grade inflation a problem? It makes the signal of a college degree less meaningful. And the result is that students have to pile on ever more credentials at ever more selective institutions to prove themselves. It also leads to students turning school into a GPA maximization game rather than an intellectual pursuit. For top students this isn’t a real problem, but for the rest it may be costly. So here’s my proposal…

Maybe we should be describing the grade distribution as being like the Fahrenheit scale… 73 is just about right; sure it’s a few degrees off, but it’s close enough for government work. 93 Is about as hot as you’d ever really want it to be. Any hotter is superfluous, and besides, this school doesn’t give A+’s. The 90’s are hot; exceptionally so, but the 80’s are pretty warm. Once in a while an 85 degree day can be quite nice, But you don’t really even want too many 80+ grades on your transcript. This is related to a fact that always amazes my students: in econ grad school an A means you over-invested in a class and wasted energy that could have been spent on advancing your dissertation. Too many B’s for a typical undergrad means that they aren’t doing enough intellectual, spiritual, social, and personal exploration outside of class. So what about F’s and D’s? Well, the analogy might fall apart here, but I don’t think we need to sell students on going for F’s, although I think one or two would probably build character.

I think that if this description spread through high schools and colleges then we might just calm the students and parents down a bit. Doing that might just allow us all to slow down enough that the students might actually learn something and retain it.

Could there be a college bubble?

The essence of a bubble is that you can flip an asset one more time before the bubble bursts. Most people know it will burst, but as long as prices are still rising, we might be able to fleece one more sucker. But we have to get the timing right or we might be that sucker.

But what about college? I can’t sell my degree (and there are other things that Jon Lajoie can’t do with it, but that’s neither here nor there), so I can’t flip it. But I can get rents on it. I give up $100,000 to get a degree with a present value of $300,000, and I feel peachy-keen. That’s a recipe for increased demand leading to higher tuition, sure, but could there be a bubble?

Let’s start with equilibrium so we have a counterfactual. Basic supply and demand here: higher incomes for college grads increase demand, and increased demand increases prices. In equilibrium the marginal student’s value of the degree will be equal to or greater than the opportunity cost of getting the degree.The student’s value is the benefit of cool college parties, mind/horizon expansion, reduced expected unemployment in the future, and higher expected income. Their opportunity cost is tuition, loan interest, stress from doing homework, and time not spent working. The question of going to school is different for different students; some will enjoy college more, will get more out of it, will have an easier time of it, etc. And the financial return isn’t the only relevant variable. At this point I’m thinking that maybe the current market is actually pretty sensible… we can ask questions about the sustainability of subsidies, but given everything, it’s likely that the students going to school are making the right choice, as are the ones who don’t go. Mistakes will be made, but it isn’t necessarily the case that there are systemic, wide-spread mistakes.

Now let’s think about what it might mean for the bubble to burst. First off, there would have to be a bubble: too many people paying too much to be in school; too little incentive for any individual to change their behavior. Then all at once, there is a flood away from the market, and recent grads are left holding the bag. During the bubble, I can get financing for my degree and I can reasonably expect (even if I see that there’s a bubble) that I will come out ahead, as long as I jump ship soon enough. Let’s say that during the bubble, I pay $10k to get a degree and I earn an extra $1k per year (and lets also assume, for simplicity’s sake, that we don’t have to worry about discounted values… a bird in the hand is worth one in the bush). My behavior is rational as long as I expect to keep getting that extra grand for the next 10+ years. So our bubble has a weirder time dimension than, for example, a beanie baby bubble where I can buy and sell rapidly.

Also, our bubble requires that my income is inflated compared to it’s post-bubble level. That would certainly be the case for me as an academic; if that bubble bursts, my income will drop. Will that be true of someone getting a business degree? American employers are keen to hire people with degrees, and so there’s a de facto licensure system. The assumption is that if you don’t have a degree there must be something wrong with you. As long as everyone holds this assumption then all would/could-be students will have to get a degree. But if no degree means ‘idiot’, that doesn’t mean that degree means ‘genius.’ Employers could well figure out a better vetting procedure, and students could get sick of undergoing the opportunity cost of attending school. But if this is a gradual change, then ‘bubble’ doesn’t seem like the right word. Even if the change in hiring practices is instant, the change in the labor market won’t be. If every 30 year old has a degree and suddenly degrees become unimportant, companies won’t rush out to replace them with 20 year-olds. The supply of lightly-experienced, qualified workers won’t change in the short run unless there’s a reserve army of qualified but un-credentialed labor currently in limbo as baristas.

So is there a bubble? It certainly seems like enrollments don’t reflect underlying realities. It also seems like there are profit opportunities for entrepreneurs able to improve hiring procedures; placement services could vouch for a candidate’s abilities, employers could accept non-college interns and hire from that pool, would-be students could become self-employed. I think the market is far away from equilibrium. But I’m doubtful that re-equilibration will happen rapidly. There isn’t room to “burst” a bubble, so much as there is room to avoid wasting a lot of 18-24 year-olds’ time.