Have globalisation and immigration depressed wages or made us richer?

Is there a thornier, more divisive issue than immigration and the labour market? Whether it depresses wages or adds to productivity or has no adverse effect on either seems to be a core question.

Yet voters in many countries tend to come down on one side or the other often without recourse to the research and for deep-seated cultural reasons.

In the United States, studies show two-thirds of Republican-supporting voters believe increased immigration has hurt American workers, compared with 30 per cent of Democrats.

Globalisation and the increased immigration that has gone with it have been blamed for increasing levels of inequality in western countries. Donald Trump in the US, Boris Johnson in the UK skilfully manipulated grievances, perceived or otherwise, related to these trends.

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If immigration doesn’t depress wages, if globalisation doesn’t result in the offshoring of jobs at the expense of indigenous workers, then these points are being lost in an increasingly fractious political discourse.

Essentially cheap Chinese labour and a cheap Chinese currency prompted many US-based firms to transfer operations abroad.

In the 1990s and 2000s, some on the left demonised those calling for checks on immigration as racist, polarising electorates in advance of any reasoned debate.

And what about the billion or so people that have been lifted out of poverty on the back of globalisation, which many on the left see merely as a vehicle for big business. The wealth generated in this country is also inextricably linked to globalisation and the free movement of capital.

A landmark US study, still cited by economists, showed that the influx of Cuban migrants into Miami in 1980, when former Cuban leader Fidel Castro briefly lifted the country’s ban on emigration – known as the Mariel boatlift – had little impact on wages and unemployment on the US side.

The episode saw 125,000 Cuban workers unexpectedly added to the labour market. Immigrants are typically attracted to expanding labour markets, meaning immigration and rising wages often go hand in hand but to infer causation would be a stretch.

What’s interesting about the real-life Cuba-Miami experiment is that it happened all of a sudden and without a conspicuous expansion in Florida’s labour market, meaning the effect of immigration on employment and wages could, in theory, be better isolated.

The study concluded the influx of migrants “had virtually no effect on the wages or unemployment rates of less-skilled workers, even among Cubans who had immigrated earlier”.

Other economists push back on that analysis, insisting a simple supply-demand analysis suggests immigration would, all other things being equal, depress wages.

US economist George Borjas has penned several studies, indicating that immigration lowers the wage of competing workers. His calculations suggest a 10 per cent increase in supply reduces wages by 3 to 4 per cent.

Post office quarrels / Drug dealing impacts city centre businesses

Listen | 42:52

CEO of An Post David McRedmond joins Ciaran Hancock to discuss the ongoing row between An Post and the UK’s Post Office over the implementation of post-Brexit customs rules, which is resulting in thousands of online purchases being returned to British retailers. Later on, we hear from two Dublin city centre business owners, Stephen Kennedy of Copper+Straw cafe and Sean Crescenzi of Happy Endings restaurant. They speak about the impact that anti-social behaviour and drug dealing, in and around Aston Quay, is having on their businesses and the immediate and long-term solutions they would like to see implemented to address the issue.

Alan Barrett, director of the Economic and Social Research Institute (ESRI) here, believes the simple, static demand-supply model might overlook or underplay some of the more dynamic features of the labour market.

“It seems that labour markets are better at absorbing immigrants than the simple theory suggests and for a variety of reasons. At very low-skilled levels, immigrants do work that natives won’t – farm labour, certain care roles, cleaning,” he says.

“Also at the low-skill level, there is an argument that an increase in low-skill labour frees up medium-skill labour to focus on medium-skill tasks, thereby generating productivity gains,” Barrett says.

“And more broadly, there’s an argument that immigrants increase the size of both labour and consumer markets, which is generally positive; that immigrants are typically young, healthy and work-oriented; and that a diverse population has greater creativity, energy, etc,” he says.

Either way, it seems research doesn’t answer the question definitively.

Over the past three decades, the US has haemorrhaged manufacturing jobs, losing close to five million since 2000. The decline has been unprecedented by US standards and has created, or at least compounded, what’s often referred to as a Rust Belt, from the midwest to the Great Lakes.

The traditional explanation has been automation. Firms adopted new technologies to boost production, putting workers out of jobs in the process, an inevitable consequence of the computer age and robotisation.

Trump, who never misses a chance to scapegoat, argues that the introduction of China into the global trading system has been the root cause of this phenomenon and that hard-working citizens have been sold out by corporate America, an argument which until recently had been dismissed by liberals.

According to traditional inequality measures, Ireland has seemingly bucked the trend internationally, recording a fall in income inequality, one of the chief components of overall economic inequality.

However, it turns out that Trump’s story of manufacturing decline might be closer to the truth than the traditional technological progress explanation.

A study by economist Susan Houseman of the WE Upjohn Institute in Michigan argues that much of the productivity growth associated with automation and robotisation has been a mirage and that real output growth has been more sluggish than previously thought and more consistent with previous eras.

Her research concludes that most of the manufacturing jobs lost after 2000 were more likely to relate to China than to automation.

Essentially cheap Chinese labour and a cheap Chinese currency prompted many US-based firms to transfer operations abroad. Whatever you think of Trump, he seemed to tap into something that was self-evident to voters but which eluded academics.

According to traditional inequality measures, Ireland has seemingly bucked the trend internationally, recording a fall in income inequality, one of the chief components of overall economic inequality.

This finding might ring hollow to many, particularly in the context of housing and the generational wealth that underpins the equation for many. Nonetheless, the research, for now at least, says we’re less financially divided than we have been in the past.