Tim Pawlenty Can Get 5% Growth (but He Needs Immigrants to Help)

[Adam Ozimek]

On April 20, 1980, Fidel Castro made an important contribution to the social sciences. His unexpected declaration that the port of Mariel would be temporarily open to any Cubans seeking to flee the island served as a natural experiment that has helped labor economists understand the impact of immigration. In his now classic paper, economist David Card convincingly showed that the massive influx of 120,000 Cubans increased the labor force of Miami by 7% yet had almost no impact on the employment or wages of natives.

This result is probably shocking to many, and certainly runs contrary to the popular but unfortunate myth that immigrants "steal our jobs". But while this study is an important result in the literature, it is not an isolated one. Most research on immigration shows small or zero impacts on unemployment and wages. This, however, does present something of a puzzle: if immigration increases labor supply, then why didn't wages fall and unemployment rise? How was it that the labor market in Miami was able to absord so many new workers?

One important reason is that immigrants aren't just workers, but also consumers. Economists Bodvarsson, Lewer, and Van den Berg studied the Mariel boatlift and found that migrants increased labor demand enough to offset the increase in labor supply so that there was no negative impact on natives that one might otherwise expect when labor supply increases drastically. This result shouldn't be surprising. Immigrants buy stuff, that means businesses sell more, and they need to expand and hire new workers.

What does this have to do with Tim Pawlenty? He recently came under criticism for suggesting that he could make GDP grow 5% per year. But if immigration, even large influxes of unskilled immigration, has zero or a very small effect on wages and employment of natives, then it's actual pretty easy to make GDP grow 5% a year: just increase immigration until that happens. If we're expecting 2.5% real GDP growth a year, then increase immigration by 2.5%. If we're expecting 1.5%, then increase it by 3.5%. This shouldn't be too hard considering there are 145 million adults worldwide who would like to come here.

The bonus here is that aside from the affect on overall consumer demand, immigration has a particularly large impact on the demand for housing. Research by Albert Saiz has shown that a 10% increase in immigration drives up house prices by 1%. Whatever immigration research you're looking at, this is an order of magnitude larger than the labor market effects. This is important because immigrants tend to migrate to areas where there are already large numbers of immigrants. This means some of the worst housing markets will benefit the most from more immigration. will benefit the most. For instance, California, Nevada, Florida, and Arizona, are ranked 1st, 4th, 5th, and 9th by percent of population foreign-born. Since falling house prices are hurting the wider economy, the economic benefits of immigration would have secondary positive effects on GDP.

Is an increase in immigration what Tim Pawlenty had in mind when he promised 5% GDP growth? I doubt it. But if he was serious about his promise, he'd take a lesson from the Cuban immigrants of the Mariel boatlift and embrace one of the few ways that he could actually achieve that kind of growth.