Immigration Will Make America More Unequal, And That’s A Good Thing

Monday, October 26, 2015
American Flags
Image credit: 
Christian Carollo, Shutterstock

In recent years Asia has overtaken Latin America as the largest source of immigration to the US. Here's a recent example of that trend:

“Mexicans still dominate the overall composition of immigrants in the U.S., accounting for more than a quarter of the foreign-born people. But of the 1.2 million newly arrived immigrants here legally and illegally counted in 2013 numbers, China led with 147,000, followed by India with 129,000 and Mexico with 125,000. It's a sharp contrast to the year 2000, when there were 402,000 from Mexico and no more than 84,000 each from India and China. Experts say part of the reason for the decrease in Mexican immigrants is a dramatic plunge in illegal immigration.”

There is substantial evidence that the immigrants from Asia tend to include a disproportionate number of highly skilled scientists, doctors and engineers.   According to the Census Bureau, Indian Americans now have the highest average incomes among any ethnic group, with an average family income of $86,135 compared to the national average of $51,914.  If we look at Asians as a whole, their average income is $68,088, well above the $54,857 for white Americans.  Thus it’s worth thinking about how America might be changed by a few decades of rapid immigration from Asia.  I’ll argue that this will make America both a better place and a more unequal society.

One of the reasons why the US is more unequal than a place like Germany, especially at the very top, is that the US is host to high-skilled agglomerations such as Wall Street, Silicon Valley and Hollywood. In recent years you could add fracking to the list of distinctively American success stories. There's no particular reason why continental Europe couldn't have its own Wall Street, Silicon Valley, Hollywood or fracking industry, but they don't. Britain has "the City" which is a sort of Wall Street of Europe, and that adds to inequality in Britain. But Europe failed to attract the other engines of wealth creation and inequality to anywhere near the same extent as the US examples cited above. Europe's industries tend to be less of the boom/bust variety that often lead to great wealth, although they certainly have their share of billionaires.

The fracking industry is unlikely to ever take root in Western Europe due to that region’s environmental lobbying. Europe is more left wing and more densely populated, similar to areas of the US (New York, California) that are inhospitable to new extractive industries. The other failures may have had more to do with other factors, such as regulation and taxes. And I would add ethnic diversity to that mix of other factors. The US hosts a larger proportion of high achieving immigrants than most European nations, immigrants who have come from all over the world. One early example is the Jewish scientists who fled Europe in the 1930s. More than 70% of the world’s Jews who live outside of Israel now reside in the US, where they are disproportionately represented in high skilled professions.  And this migration of high skilled individuals to the US is still happening today. Elon Musk is from South Africa. Peter Theil is from Germany. Of course, many highly skilled people have recently been arriving from Asia (and more than you might assume from Africa, Latin America and the Middle East).

Even if these high skilled immigrant groups form a relatively low overall share of the US population, they can have a disproportionate impact on the sectors that create great fortunes, such as finance, technology, and the media. Fracking might be the one exception, and presumably Germany with all its engineering talent would now have a thriving fracking industry if not for environmental restrictions. But in the other cases, immigration very likely played an important role in the success of the US economy.

The downside of this trend of high-skill migration is that it increases income inequality in the US. That doesn't hurt lower income Americans, just the opposite. Many California public programs that benefit Hispanic immigrants (higher education, medical programs, etc.) are made possible by taxing the enormous incomes earned by the top 1% in California. If Silicon Valley and Hollywood moved to Germany, then tax revenues would plunge, and California state spending would look more like Mississippi. The money that Hispanics spend on movies and software would also go to Europe, not the US, where it can be taxed. The same is true for Wall Street and New York State. Even liberal New York politicians understand the importance of Wall Street to the broader New York economy. And if the City of London financial firms moved to Paris, Britain would be more equal, but the working class in Leeds or Liverpool would be worse off.

In New York, Mayor Bill de Blasio is trying to implement affirmative action programs for non-Asians. That's because 70% of students at elite public high schools like Stuyvesant are now Asian. Many are from families poor enough to qualify for free lunches. But even that de Blasio won't stop the progress of Asians, as education is mostly about signaling. Make it tougher for Asian students via quotas and discrimination, and whatever success they do have will look all the more impressive to potential employers.

Of course all of these generalizations have exceptions. Chinese immigrants include scientists (like my wife) as well as illegals from Fujian who wash dishes in Chinatown and sleep eight to a room. But the number of high achievers among the Chinese immigrants (and even more so among Indian immigrants) is greatly disproportionate to their overall numbers in the US population, just as with earlier groups such as Jewish immigrants. Even black African immigrants do considerably better than native-born blacks.

Some might view these trends with alarm, noting that ethnically homogeneous states like Utah, New Hampshire and Iowa tend to have much more equal income distributions than ethnically diverse states like New York, Massachusetts and California.  I think that’s a mistake.  Instead of focusing on the relative incomes of groups like blacks and Hispanics, it makes more sense to focus on their absolute income with and without these high achieving immigrant groups.  The centers of wealth creation that high achieving minorities help to create partly explains why per capita GDP in the US is higher than in Europe, indeed much higher than in even wealthy European countries such as Germany. 

Yes, immigration of several million high achieving Asians will make America a more unequal place, but we’ll also become a richer, more diverse, and more interesting place to live.  The phrase “more unequal” can go hand in hand with “higher living standards for America’s poor.”