UC Davis Econ in the News

Borjas strikes back!

[T]he finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies.

The Economist weighs in here.

Its not clear to me, and a subsequent discussion with Prof. Peri has validated my hunch, that High School students should be given zero weight as Borjas et al suggest. Perhaps they should be given a lower weight than Ottaviano and Peri gave them, but a zero weight? Also, while Peri’s result may be counter-intuitive, on closer inspection doesn’t it seem obvious that low-skill immigrants (who have sub-par English skills, aren’t expert at negotiating our culture, etc) aren’t perfect substitutes for natives? It seems the proper null hypothesis (the one that should be harder to reject) would be complementarity.

The real news here, actually, is the extreme transparency with which this debate has been played out. Both authors have their papers (and data) available on their websites and this has been so BEFORE the results were published. Anyone can download the data and reproduce either author’s result. The authors have corresponded heavily; everyone has shown each other their cards.

Even from the inside, this looks like a fairy tale academic debate! (I just hope it pays off for everyone… and I’m not thinking of the Harvard tenured professor.)

In other news, Economic Principles talks about economics in the University of California

4 thoughts on “UC Davis Econ in the News”

  1. “It seems the proper null hypothesis (the one that should be harder to reject) would be complementarity.”

    I was thinking that too. Why is the post titled “Fishing for Complementarity” where it seems like “Fishing for Substitution” (by dropping unconformable data) is more appropriate?

  2. I suppose the retort is something like “well, no one’s a perfect substitute for anybody.” The point being if chop the data up enough, we’d never reject that null.

  3. Well yes. BUT. The OP finding does not rely on complementarity either. In fact, unless I’m messing something up, all it needs is that workers are simply less than perfectly substitutable. Even less comp. than Cobb Douglas. When you think about it that way than, yes, the null of “perfect substitutes” doesn’t seem to be very realistic (I’m flipping the nulls here btw, to be consistent with the ‘fishing for substitution’ thing). And if that null doesn’t pass the common sense test then why should we be so adamant about wanting to reject it?

  4. There doesn’t seem to be rhyme or reason as to how the profession chooses nulls (except maybe conservativism).

    In any case, I pulled up OP and see that sigma (substitution between ferners and merikns) is between 6 and 10. Those numbers are, last time I checked, less than infinity and greater than one so it seems you’re right.

    I notice, looking at the “preferred” regressions in the borjas paper (table 4), that if you do a one-tailed test, the p-value is 6%. They’re rejecting the “proper” null but not by much. (And does anyone think they’re doing IV because they’re worried about endogeneity? “Oops, we can’t find a good instrument… and look at those standard errors! I guess we can’t reject the null now!”)

    BTW, if Borjas ever complains about teenage wages being compressed by immigrants, well, I just don’t what I’ll do.

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