Vietnamese Manicurists: Displacing Natives or Finding New Nails to Polish? by Maya N. Federman, David E. Harrington and Kathy J. Krynski.

Do immigrants displace natives? “Almost all economists think that there’s not a real displacement effect. Jeffrey Passel Urban Institute Denver Post, 2002 “I don't care what the economists say, our wage structure is based on how little immigrants are willing to work for. Richard Shaw AFL-CIO Washington Post, 1999

Why?

The California Market for Manicurists: Large numbers of Vietnamese entered in the 1990s. Manicurists are licensed. California gave us information on (121,763) active and inactive manicurists. Starting in 1996, California offered the occupational licensing exam for manicurists in Vietnamese.

Figure 1. California Manicurists,

Economic Theory: Textbook model of demand and supply Assume that the (inverse) demand for manicurists is in the periods before and after the influx of Vietnamese manicurists. The wage is measured in dollars per hour and M is the number of manicurists in the market. The supply of native manicurists is in both periods and the supply of Vietnamese manicurists in the second period is. (Assume that there were no Vietnamese manicurists in the first period). Calculate the displacement rate ( ).

Manicurists (#) Wage ($ per hour)

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists,

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists, Horizontal ∑ of supply curves

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists, Horizontal ∑ of supply curves

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists,

Suppose we have two identical cities—one with a large Vietnamese enclave and the other with a small one. Suppose the supply of Vietnamese manicurists in the two enclaves are: Small enclave Large enclave

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists, 12.5 small enclave large enclave

Econometric Specification: year= 1987,..., 2002 (16 years) cities = 34 standard metropolitan areas in CA 16 years * 34 MSAs  544 data points Two identical cities

˄

Let’s return to our original example involving an increase in the supply of manicurists in the city with a small Vietnamese enclave. Originally, we assumed that the demand for manicurists was the same before and after the Vietnamese entered in the market. Now, let’s suppose that the demand for manicurists increased in a way that was unobserved by the econometrician. In this case, demand is Unobserved Demand Shocks Before entry of Vietnamese After entry of Vietnamese

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists,

Manicurists (#) Wage ($ per hour) Figure 1: The California Market for Manicurists, Unobserved demand shocks cause you to underestimate displacement effects

True Model Demand shock is unobserved by the econometrician Empirical Specification Error term contains unobserved demand shock Upward biased—you get too small of a displacement effect Omitted Variable bias due to Unobserved Demand Shocks

Potential sources of bias in |δ| Unobserved demand shocks “Lured by a Vietnamese Even more |δ WLS | is robust economy  & native  natives  downward immigrants now manicurists would have biased call CO home” head to CO, gone had (Denver Post, 2002) leading to lots fewer Viet. of both being gone. found there. Unobserved native supply shocks better decrease in Vietnamese |δ WLS | is opportunities  the supply  are replacing  upward for native of native not displacing biased women manicurists natives

Searching for an Instrument Need something that changes the supply of Vietnamese manicurists. is unrelated to “new opportunities” for women and the “lures” of robust economies. Licensing exam in Vietnamese first offered in Should produce larger supply shocks in cities with larger Viet. enclaves, which have a disproportionate share of people with poor English skills. Really exogenous? Was the surge in supply after 1996 a phantom supply shock, created by manicurists who were working illegally getting their licenses?

Figure 1. California Manicurists,

Conclusions: Borjas is right that – Labor demand curve is downward sloping – “Native workers’ apprehensions are not completely misguided, since many of them— particularly those at the bottom of the skill distribution—have much to fear from the entry of large numbers of less skilled immigrants.” Card is right that the popular view that there “are a fixed number of jobs,” leading to situations where “workers come in and displace each other, is the wrong way to think” about the effects of immigration. – Interpretation: One native manicurist is displaced for every three Vietnamese that enter the market.

Conclusions: First Stage Results—licensing regulations matter, slowing the entry of Vietnamese manicurists. David Henderson argues that “the government could make it easier for [welfare recipients] to find work by getting out of the way. It could end… government imposed rules that prohibit them from owning taxicabs, dressing hair, cutting down trees, selling food out of kiosks and doing other productive work.” implies that some Vietnamese manicurists are replacing not displacing native manicurists suggests that unobserved native supply shocks may be more important than unobserved demand shocks.