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National Data, By Edwin S. Rubenstein
It’s Official: Immigration Causing Income Inequality

Until recently, economists rarely mentioned the I-word when explaining the income distribution. The consensus among most academics was that the primary cause of increased inequality was skill-biased technical change (SBTC)—i.e., increased economic rewards to educated, technically savvy workers.

In a word, SBTC compensation was based on merit. How quaint!

Northwestern University economists Ian Dew-Becker and Robert J. Gordon broke from the group naiveté in a paper published last year:

“If SBTC had been a major source of the rise in inequality, then we should have observed an increase in relative wages of those most directly skilled in the development and use of computers. Yet in the 1989-97 period….total real compensation of CEOs increased by 100 percent, while those in occupations related to math and computer science increased only 4.8 percent and engineers decreased by 1.4 percent.” [Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income, (PDF) Ian Dew-Becker and Robert J. Gordon, Northwestern University]

In debunking SBTC the authors make a broader historical point regarding immigration:

“To be convincing, a theory must fit the facts, and the basic facts to be explained about income equality are not one but two, that is, not only why inequality rose after the mid-1970s but why it declined from 1929 to the mid-1970s. Three events fit neatly into this U-shaped pattern, all of which influence the effective labor supply curve and the bargaining power of labor: (1) the rise and fall of unionization, (2) the decline and recovery of immigration, and (3) the decline and recovery in the importance of international trade and the share of imports…”

“Partly as a result of restrictive legislation in the 1920s, and also the Great Depression and World War II, the share of immigration per year in the total population declined from 1.3 percent in 1914 to 0.02 percent in 1933, remained very low until a gradual recovery began in the late 1960s, reaching 0.48 percent (legal and illegal) in 2002. Competition for unskilled labor not only arrives in the form of immigration but also in the form of imports, and the decline of the import share from the 1920s to the 1950s and its subsequent recovery is a basic fact of the national accounts.”

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