Cafe Hayek

The impact of immigration

The New York Times had a full-page story on immigration in the Week in Review section yesterday. It was a negative piece. A lot of data were presented (see the "Multimedia" link in the Times article) were presented, all negative. A caption under the photograph read:

JOBS LOST AND FOUND At California construction sites like this one, well-paid work that used to go to native-born Americans is going to lower-paid immigrants.

That description implies that immigrants take jobs away from native-born Americans. I don't know of any serious study that shows that. The usual claim is that competition from immigrants lowers the wages of Americans. And sure enough, the Times article has a chart that shows that. Here it is:

There's nothing in the graphic that questions whether these numbers are accurate. They're presented as facts ("Reduced Wages") with no disclaimers about the statistical techniques or assumptions that went into them. Borjas is quoted in the article but no skeptic is quoted about whether these estimates are reliable.  The numbers are about the impact of legal and illegal immigrants even though the article is about illegals, a smaller group. And there's nothing about the impact on the immigrants themselves from coming to America relative to the country they've left behind.

But what's really misleading and bizarre about the chart is that there's no visual benchmark for these decreases. Your eye can see that 5.0 is almost twice 3.1. But is 5% a big decrease or a small one?  The way you'd show the size would be to have a bar chart of what average wages are for Asians, Whites, Blacks and Hispanics and then show the average wages that would allegedly exist if there were no immigration. If the data were presented in this way, you'd see how small or large the impact is.

Ironically, just below this chart in the Times article is another chart that does exactly what could have been done with the wages chart. This second chart shows how little the impact on food prices would be if didn't allow immigration and we had to pick farm products with native-born labor. Farm wages would go up and so would prices. But the impact on food prices would be small, the Times graphic points out, only about two or three cents on the dollar:

So the impact on wages of all immigration, legal and illegal, is about four cents on the dollar. The overall impact on food prices is about two to three cents on the dollar. There's no differential impact illustrated for blacks or hispanics who are relatively poor. Just a summary "two or three cents" with a nice picture to let your eye see how little two or three percent is. But no corresponding measure for wages.

What a dishonest article. The Times should be ashamed.

Snow Job

Treasury Secretary John Snow tries to make the case for the Bush tax cuts that lowered the tax on capital:

While officially the recession had ended in late 2001, the pace of the recovery was too slow. Growth was anemic, business confidence low and -- of critical importance -- capital investment was way down. As a result job growth was nonexistent.

President Bush recognized that something needed to be done to overcome those headwinds and, in particular, to create a more favorable climate for capital investment that would result in job creation. To do so he sent Congress far-reaching proposals to encourage capital formation by lowering taxes on investment returns. Congress responded with the Jobs and Growth Act, which was signed into law in May 2003.

Since then we have seen a remarkable turn-around in the economy. After nine consecutive declining quarters of real annual business investment, we have had 10 straight quarters of rising business investment. This business expansion led to a substantial increase in employment. In the intervening period, some 4.7 million new jobs have been created and the unemployment rate -- 6.3% in 2003 -- today stands at 4.7%, lower than the average of the 1970s, '80s and '90s.

I happen to agree with Snow on the virtues of low (or better yet, zero) taxes on capital.  And he may be right that the Bush tax cuts were good for the economy.  But his evidence is a bit misleading.  At first glance, the case looks pretty strong:

After nine consecutive declining quarters of real annual business investment, we have had 10 straight quarters of rising business investment.

Who could argue with that? Then you look at the chart that accompanies the article:

Look at that!  Nine negative quarters followed by ten positive guarters!  Pretty impressive.

Well, actually, it's eight negative quarters.  But who's counting?

But that's not the real problem with the chart.

The problem is that if you took away the dotted line showing the date when Bush signed the tax cuts, the resumption of positive business investment looks perfectly consistent with the trend beginning in mid-2001—the negative rates of investment shrink until they turn positive in 2003.  There doesn't appear to be any impact at all from the signing of the Act. 

And besides you'd really want to know when the Act took force.  And you'd also expect the behavioral changes the Act induced to begin before the Act took effect and maybe even before the signing.  Now if the signing or the implementation coincided with what looks like the 3rd quarter of 2001, then at least the picture would complement the claim that the tax cuts had driven the improvement in the business climate.  But the picture contradicts the claim of the article.  It makes it look like the return to positive business investment was in the cards even without the tax cuts.

Flat or Rising or Both

We're adding a new category to Cafe Hayek, "Less Than Meets the Eye."  These posts will look at inaccurate or misleading charts, graphs or pictures.

Here's a story from the front page of today's Washington Post lauding Japan's relentless efforts to conserve energy in contrast with the gluttonous United States:

Japanese Putting All Their Energy Into Saving Fuel

By Anthony Faiola

Washington Post Foreign Service
Thursday, February 16, 2006;  Page A01

 

KAMIITA, Japan -- When the Japanese government issued a national battle cry against soaring global energy prices this winter, no one heeded the call to arms more than this farming town in the misty mountains of western Japan.

To save on energy, local officials shut off the heating system in the town hall, leaving themselves and 100 workers no respite from near-freezing temperatures. On a recent frosty morning, rows of desks were brimming with employees bundled in coats and wool blankets while nursing thermoses of hot tea. To cut back on gasoline use, officials say, most of the town's 13,000 citizens are strictly obeying a nationwide call to turn off car engines while idling, particularly when stopped at traffic lights.

I'm not so sure about the technique of turning off car engines at traffic lights as an energy saver, but there's more:

Takao Iwase, Kamiita's husky administrative director, joined other locals in switching off the heat at home, too -- leaving his family to quickly hustle from steaming nighttime baths to the warm comforters on their traditional futons. "We're saving [$100] a day at city hall by shutting off the heat," Iwase, wearing four layers of clothing and a winter coat inside his office, said proudly. "But we no longer see this as just an economic issue. Japan has no natural resources of its own, so saving energy has become our national duty."

As President Bush calls on Americans to break their addiction to oil and increase energy efficiency in the face of soaring prices, perhaps no people serve as better role models than the energy-miser Japanese.

The article continues with all kinds of examples of how the Japanese conserve on energy and how they've been doing it since the '70s.  Here's the chart accompanying the article:

According to the text at the top of the chart,  Japan's consumption has "remained steady since 1975, while U.S. consumption has risen steadily."

And when you look at the graph, it appears to be the case.  The red line representing the U.S. seems to rise steadily and the yellow line representing Japan does look pretty flat.  Alas, the designer of the chart included the data.  When we actually do the math, matters are not quite as they appear.

It turns out that U.S. consumption between 1975 and 2004 has increased by 26% while the Japanese consumption has actually increased 21%.  Not exactly "rising steadily" vs. "steady."  I'd say both have risen pretty steadily.  In fact, the U.S. may have done a better job conserving if you correct for the relative size and growth rates of the two economies.  Either way, the chart misleads the eye.  A small increase by the Japanese is actually a large percentage increase.  That's hard to notice and the thickness of the line makes it even harder to see.

On the economics of the issue, conservation in and of itself is not of value.  We are not addicted to oil.  We use a lot because it's cheap.  When it gets more expensive, we try and find ways to use less.  The best policy for the United States is to get rid of any artificial subsidies to oil use or any other energy source and let prices encourage or discourage energy use.