By Bryan Caplan
David Card has a new study arguing that immigration has basically no effect on the wages of domestic low-skilled workers. This confirms his earlier results on the famed Mariel boatlift, when Castro freed 125,000 Cubans to flee to Miami.
Is this result theoretically possible? How can the supply of labor increase, but leave wages unchanged? Card has little patience for these questions:
As the evidence has accumulated over the past two decades that local labor market outcomes are only weakly correlated with immigrant densities, some analysts have argued that the cross-city research design is inherently compromised by intercity mobility of people, goods, and services. Underlying this argument is the belief that labor market competition posed by immigration has to affect native opportunities, so if we don’t find an impact, the research design must be flawed.
A better answer, though, would have been to go to the blackboard. Card’s results are theoretically possible. All that is necessary, as Figure 1 shows, is that labor demand be infinitely elastic, i.e., horizontal.
Figure 1: Infinitely Elastic Labor Demand
Notice: When the Supply curve shifts out, the quantity of labor sold increases, and wages stay the same.
But this gets me thinking. Card is of course the co-author, with Alan Krueger, of the legendary study of the fast food industry in Pennsylvania and New Jersey showing that the minimum wage does not reduce employment. Their book goes further, debunking earlier studies that found the opposite.
Is this result theoretically possible? How can the minimum price of labor increase, but leave employment unchanged? Let’s go back to the blackboard.
In turns out that Card and Krueger’s results are theoretically possible too. All that is necessary, as Figure 2 shows, is that labor demand be infinitely inelastic, i.e., vertical. (The thick horizontal line between S and D at the controlled price is a labor surplus, but note that the quantity of labor purchased remains unchanged).