Cardiff de Alejo Garcia

Links -- 20 May 2010

Are night owls more intelligent than morning larks?  Psychology Today

50 author vs author put-downs  Book Examiner

The costs of the patent backlog  Harvard Business Review

Wall Street analysts are not good at their jobs  Planet Money

What is manliness?  The Art of Manliness

Strangers on a train  NYR Blog

Teaching may be hazardous to your marriage  Discoblog

A chart from BBC News:

 

Some thoughts about private equity in emerging markets

This one's for the finance geeks, so it goes below the fold.

How we spent our money

One last post on The Great Reset, which I recommend.  I've had this in the queue for a while and forgot to publish.  Richard Florida writes:

Over the past half century or so, the amount of money the average American family spends on housing and cars has skyrocketed.  From 1950 to the mid-1980s, the amount allotted for housing and cars doubled from 22 percent to 44 percent of its budget.  (At the same time, the amount of the average American family had to devote to health care rose threefold, from 5.2 percent in the late 1950s to 14.8 percent by the year 2000.)  A generation ago, all of life's basic necessities—housing, transportation, health insurance, education, and taxes—accounted for 54 percent of the average family's income; today, they account for 75 percent of it. ...

Still, with the basics sucking up so much of the family budget, the amount of money Americans spend on electronics, a reasonable proxy for high technology, increased from 1 percent in 1959 to just 1.6 percent by 2000, while the amount they spend on entertainment, a proxy for experiences, actually declined from 5.8 percent in 1950 to 3.9 percent in the year 2000.

It's ridiculous to label that second SUV in the garage a "basic necessity" just because it falls into the category of transportation.  Same thing with that summer home by the lake.  But the point is that although trade and technology made the basic necessities increasingly cheaper, Americans chose to spend a big chunk of their surplus savings on bigger and more expensive versions of those same basic necessities.  That's money that could have been spent more wisely on creative endeavors, entertainment, or even cool gadgets.

This isn't entirely regrettable---there's nothing wrong with having a nicer home, with nicer things inside it.  But we took it too far.  Florida thinks the tech boom of the 90s might have represented a chance for us to move away from this trend.  But the boom went bust, and in the aftermath we went right back to putting our money in housing.  (And actually, a lot of it was borrowed money, so not really ours at all.)

*****

My earlier post on The Great Reset and New York City is here.  An interview with Florida in this week's Newsweek is here.  Florida's blog is here.

Links -- 05 May 2010

Nassim Taleb chats with Russ Roberts about a new edition of the Black Swan  EconTalk

50 Inspiring, Awesome & Stylish Mac Setups  AppStorm

Stephen Hawking teaches us how to build a time machine  MailOnline

Albert Einstein was an agnostic  Letters of Note

"If I were able to live my life anew"  Ben Casnocha

The next time you're tempted to be a jerk online, remember that there' s a real person on the other side of the computer  Derek Sivers

An interview with Woody Allen: "Human existence is a brutal experience to me…it’s a brutal, meaningless experience—an agonizing, meaningless experience with some oases, delight, some charm and peace, but these are just small oases."  Commonweal

The Star Wars trilogy in 2 minutes:

Do immigrants compete with Americans for the same jobs?

One of the more intriguing concepts I've come across in the research about immigration and the US economy goes by the unappealing name of "imperfect substitutabity", which was studied by economists Gianmarco IP Ottaviano and Giovanni Peri in this paper. 

Previous studies had assumed that you could "substitute" a US-born worker with a foreign-born worker in the same job if they had similar levels of schooling and work experience.  So a foreigner with, say, a college degree and two years work experience is assumed to be competing for the same jobs as a US-born worker with the same background (as defined by those two metrics).

Ottaviano and Peri claim this isn't true: their research shows that these two workers are likely to choose different fields of work despite their ostensibly similar background. 

In other words, they're not competing—and not only are they not competing, but the ways in which their different jobs complement each other bring real benefits to the economy:

Conceivably native and foreign-born workers should not be much easier to substitute in production than two U.S. born workers with 5 years of experience difference. One reason for this imperfect substitutability is that, for given skills, U.S. and foreign born workers often choose different occupations (see Card 2001 for more detail). This is particularly true for workers with high and low levels of education (rather than with intermediate levels). For instance among the lowly-skilled (HSD), foreign born workers are highly represented in occupations like tailoring (where 54% were foreign born in 2000) and plaster-stucco masoning (where 44% were foreign-born in 2000), while U.S.-born workers are highly represented among, say, crane operators (where less than 1% was foreign-born in 2000) and sewer-pipe cleaners (where less than 1% foreign-born). Since one would be hard pressed to call these services perfectly substitutable, there is no reason to believe that payments for such services should be equalized. A similar argument applies for the highly-skilled (COG). For instance foreign-born workers are highly represented in scientific and technological fields (45% of medical scientists and 33% of computer engineers are foreign-born) while U.S.-born workers are highly represented among lawyers (less than 4% are foreign-born) or museum curators and archivists (less than 3% are foreign-born). Moreover, even within the same profession, often the U.S. and foreign-born provide different services, and hence benefit from complementing each other, regardless of education level. For instance, Chinese and American cooks do not produce similar meals, nor do Italian and American tailors provide identical types of clothes. Similarly, a European-trained physicist (more inclined towards a theoretical approach) is not perfectly substitutable with a U.S.-trained one (more inclined towards an experimental approach), and a French architect will likely create a starkly different building than an American one."

This goes straight to the idea of whether or not immigrants take away jobs that would otherwise belong to Americans.  Ottaviano and Peri clearly think not, and their reasoning makes sense to me. 

That being said, in the interest of fairness I'll also point to this research paper from Harvard's George Borjas, who challenges their claims about imperfect substitutability.  Ottaviano and Peri have been having an ongoing debate over the last half-decade with Borjas about the impact of immigration on the wages of US-born workers.

The economic costs of stopping illegal immigration

James Fallows:

The American economy is geared to having a large quasi-legal or illegal immigrant presence; many Americans like the economic results but don't like the economic, social, legal, etc consequences. Since the US is not going to deport millions upon millions of immigrants, any conceivable deal requires BOTH a promise to restrict future illegal flow and something short of mass roundups and eviction for those already here.

This is worth digging into a little deeper.  According to The Economic Logic of Illegal Immigration (pdf), a report from economist Gordon Hanson written in 2007, policies focused on halting and reversing the flow of illegal immigration would be actively harmful to the economy and would cause serious disruptions to the labor market in the regions where illegal immigrants are more concentrated.

To understand why, it's first important to know that illegal immigrants are highly responsive to market forces—much more so than legal immigrants, who have to contend with legal hassles that make it challenging to move from one job to another.  Writes Hanson:

Illegal migrants tend to arrive in larger numbers when the U.S. economy is booming (relative to Mexico and the Central American countries that are the source of most illegal immigration to the United States) and move to regions where job growth is strong. Legal immigration, in contrast, is subject to arbitrary selection criteria and bureaucratic delays, which tend to disassociate legal inflows from U.S. labor-market conditions.

Not only can illegal immigrants move quickly to where the jobs are, but the types of jobs they tend to fill are those that Americans gradually have become, over the last few decades, either over-qualified for or less willing to do.  It's true that we're just now coming out of a recession and unemployment is high, but at some point that will change and the previous trend is likely to continue.  Hanson writes:

Due to steady increases in high school completion rates, native-born U.S. workers with low schooling levels are increasingly hard to find. Yet these workers are an important part of the U.S. economy—they build homes, prepare food, clean offices, harvest crops, and take unfilled factory jobs. Between 1960 and 2000, the share of working-age native-born U.S. residents with less than twelve years of schooling fell from 50 percent to 12 percent. Abroad, low-skilled workers are more abundant. In Mexico, as of 2000, 74 percent of working-age residents had less than twelve years of education. Migration from Mexico to the United States moves individuals from a country where their relative abundance leaves them with low productivity and low wages to a country where their relative scarcity allows them to command much higher earnings.

You can draw a couple of conclusions from this beyond the repudiation of the normal complaint that immigrants "steal" American jobs.  The first is that even if you believe that immigration's impact on the economy is negligible at best (more on this in a minute), the beneficial impact on the immigrants themselves is huge.  Maybe that shouldn't be a primary consideration in formulating national policy, but it should count for more than nothing.

Second, any policies that address immigration shouldn't just carve an easier path to legitimacy for illegal immigrants; they should also reduce the bureaucratic hassles experienced by legal immigrants and give them more flexibility to change jobs.  At least from the narrow perspective of economics, this kind of solution would be vastly preferable to one that spends more of the country's resources on tightening up the borders, deporting illegals, and cracking down on employers.

I should point out that Hanson is no squishy pro-immigration idealist.  This paper cites work by George Borjas in claiming that immigration does lower the wages of low-skilled Americans.  That decline is at least partially offset by the disinflation impact of low-skilled immigrants on goods and services—and even the conclusion about wages has been challenged by other economists, but I'll leave that for another day. 

Hanson also writes that the "net economic impact of immigration on the US economy appears to be modest," and accepts that lower-skilled immigrants are probably a (very small) drain on the country's public finances. Again, there are economists who disagree, but Hanson's point is that policies focusing on enforcing the border and reversing illegal immigration would have specific effects, and those effects are, on balance, damaging to national well-being.  This is especially the case when you take into account the costs associated with beefing up the border. 

Anyway, there are some things in the paper that can be quibbled with, as I just mentioned.  But it's an excellent read, and I'll close by quoting from parts of his conclusion at length:

Sending all illegal immigrants home would reduce the U.S. labor force by 5 percent and the low-skilled U.S. labor force (workers with less than a high school education) by 10 percent or more. In 2005, illegal immigrants accounted for 24 percent of workers employed in farming, 17 percent in cleaning, 14 percent in construction, and 12 percent in food preparation. Losing this labor would likely increase prices for many types of non-traded goods and services, increase wages for low-skilled resident labor, decrease incomes of employers that hire these workers, and increase the incomes of taxpayers that pay for the public services these individuals use. The net impact of these changes would be small, although in some regions and industries the dislocation caused by the labor outflow would be considerable. ...

Because the aggregate gains or losses are small, any new policy that requires a major outlay of funds would be likely to lower U.S. economic well-being. In a rush to secure U.S. borders, some policymakers insist that major efforts are needed to prevent continued illegal inflows from abroad. While the goals of reducing illegality and establishing greater border control are laudable, it would be difficult to justify massive new spending in terms of its economic return. ...

Illegal immigration is a persistent phenomenon in part because it has a strong economic rationale. Low-skilled workers are increasingly scarce in the United States, while still abundant in Mexico, Central America, and elsewhere. Impeding illegal immigration, without creating other avenues for legal entry, would conflict with market forces that push for moving labor from low-productivity, low-wage countries to the high-productivity, high-wage U.S. labor market.

*****

I'm in the process of aggregating some of the recent academic literature on immigration and the US economy for a series of blog posts.  It's taking me longer than I expected, so in the meantime I'll sporadically share some of the more interesting bits I come across. 

I highly recommend this post by Matthew Yglesias.  Also this one.