Why, What and Who? Mexican Immigrants Along the U.S.-Mexico Border Alberto Dávila Neuhaus Center for Economic Education University of Texas- Pan American

Why do Mexican Immigrants come to the U.S.? Economic theory makes predictions that when marginal benefit > marginal cost, economic agents (producers, consumers, workers) take action to produce more, consume more, change jobs, etc. in order to maximize some stated objective (profits, utility). Consider minimum wage differentials between Mexico and the U.S. (for an 8-hour workday): Mexican workers would make about $ 4.80 and the U.S. workers $ 58.00! The wage gap is large, so incentive to migrate and work in the U.S. is strong.

With these observations in mind, there are some insights (among many) from the social-science literatures regarding this migration process that I would like to discuss in this section of my presentation. The impact of maquiladoras on Mexican immigration to the U.S. (Saenz and Dávila, 1990). When the Bracero Program of the 1950s ended, policymakers sought to build the industrial infrastructure of northern Mexico to create employment opportunities for the displaced Mexican braceros returning to Mexico from the U.S. If successful, the idea was that this Border Industrialization Program would serve as a deterrent to Mexican immigration to the U.S. In our work, we show that this program, and the subsequent development of the maquiladora industry in northern Mexico, might have also attracted Mexican workers from the interior of Mexico and that some of these workers might have eventually migrated to the U.S. insights (among many) from the social-science literatures regarding this migration process that I would like in this section of my presentation. The impact of maquiladoras on Mexican immigration to the U.S. (Saenz and Dávila, 1990). When the Bracero Program of the 1950s ended, policymakers sought to build the industrial infrastructure of northern Mexico to create employment opportunities for the displaced Mexican braceros returning to Mexico from the U.S. If successful, the idea was that this Border Industrialization Program would serve as a deterrent to Mexican immigration to the U.S. In our work, we show that this program, and the subsequent development of the maquiladora industry in northern Mexico, might have also attracted Mexican workers from the interior of Mexico and that some of these workers might have eventually migrated to the U.S.

But do Mexican immigrant workers settle along the U.S.- Mexico Border? (Mora, 2004)? Most of the recent Mexican immigration has been for Mexican immigrants to migrate to the so-called “non- traditional” regions of the U.S., such as the Midwest and the Eastern U.S. (Anthony Bourdain, No Reservations, U.S.- Mexico Border Episode, 2006).

Are Mexican immigrants Pushed or Pulled to the U.S.? The question is whether poor economic conditions (high unemployment, low wages) are a stronger determinant in the migration decision than good economic conditions (low unemployment (?) and high wages). According to some research (Dávila, 1983, and work appearing in the American Economic Review, by Hanson and Spilimbergo,1999), the push forces appear to be stronger than the pull forces in the in the Mexican immigration decision to the U.S.

So which of these two economic forces does our immigration reform target? Pull forces. Starting with the Immigration Reform and Control Act of 1986, employers where held accountable for hiring undocumented workers. This IRCA has been called a “toothless tiger” in that the interior enforcement resources deployed to enforce this Act were minimal and employers where subjected to very weak requirements to show culpability. A recent paper presented in Denver at the ASSA meetings this year (Bohn, Lofstrom and Raphael, 2111) suggests that Arizona laws (The Legal Arizona Workers Act) that implement stricter employer sanctions have proved successful, but this research does not address whether strategies to combat undocumented Mexican immigration via improved labor market conditions in Mexico would be more successful.

What impact do Mexican immigrants have on the U.S. side of the U.S.-Mexico border? A simple supply and demand analysis can help illustrate the wage impact of an increase in labor supply resulting from an increase in Mexican migration to a region (such as the border). Consider Figure 1.

But this analysis overlooks the types of U.S. labor impacted: Mexican immigrant workers are substitutes for American workers in the graphical analysis. If American and Mexican immigrant workers are complements to each other, the wages of American workers would rise as a result of the increase in Mexican immigrant labor to the U.S. In general, while some workers would be adversely impacted by the increase in Mexican immigrant labor to the U.S. (American workers competing for the same jobs as Mexican immigrant workers), others would benefit (American workers who are complements to Mexican immigrant labor). And, as long as Mexican immigrant labor is paid according to its contributing value to production, the wealth of the nation (as in Adam Smith’s Wealth of Nations, 1776) would grow.

Many issues can be raised with this analysis, but let me focus on two as these relate to the U.S.-Mexico border. The issue of “Public Goods”. What if Mexican immigrants use public goods (education, health, public parks) in excess of what they contribute to tax revenues to fund these goods? An interesting paper by Amuedo-Dorantes and Bansak (2009) looks into this issue and finds little evidence for this concern in California. In Texas, we do not have an income tax, so that all consumers are subject to taxation (e.g., sales taxes), regardless of immigration status. Along the Texas-Mexico border, Mexican national consumers contribute greatly to tax revenues (restaurants, hotels, etc.), yet they receive relatively few American public goods.

The issue of wage impact along the Texas-Mexico border. The Texas-Mexico border resident is relatively young and has relatively low-levels of education. So labor along this region is more likely to be a substitute for Mexican immigrant labor and thus more likely adversely impacted by Mexican immigrant labor. The research evidence does not support this idea (Dávila and Mattila, 1985, Dávila, Mora and Molina 2008). As noted before in this presentation, many Mexican immigrants move to areas outside of the border region and geographic wage convergence (labor mobility, capital mobility, and “consumer” mobility) serves to mitigate wage differentials across regions.

Who among Mexican immigrants come to the U.S., the “best” or the “worst”? According to an early seminal paper by Barry Chiswick (1976), immigrants are the “best” from their native countries because the migration decision is costly in both pecuniary and non- pecuniary terms and is therefore taken by the most motivated and able. He provided evidence of the higher innate skills of immigrants versus natives using the U.S. Census which suggested that the earnings of immigrants overtook those of natives after about 15 years of working in the U.S. Chiswick’s work thus suggests the U.S. receives the “best” Mexican immigrants.

This view was challenged by George Borjas (1994). He used a theory developed by Roy (1950) to theoretically show that the answer to question of “immigrant quality” depends on which country the immigrant comes from. The “Roy Model” application to immigration predicts that the U.S. receives the “best” immigrants from developed countries with welfare states: high-ability immigrants from these countries stand to earn more in the U.S. than in their home countries, while the “worst” in these countries are better off there as they are subsidized by the welfare state. In low developed countries with weak welfare states, on the other hand, the “worst” of the natives will find more migration benefits in coming to the U.S., a country with a relatively stronger welfare state. By the same token, immigrants with weak welfare states stay at home as their high incomes are not used to subsidize welfare.

Given that Mexico has a weaker welfare state than the U.S.(and is a less developed country), Borjas’ work would predict that the U.S. receives the “worst” Mexican immigrants. Borjas tracks “synthetic cohorts” using Census data and finds that immigrants who came to the U.S. (mostly European) in the early to mid-1900s fared better than more recent immigrants (many from Mexico).

But what does the most recent literature suggest? Chiquiar and Hanson (2005) argue, using the case of Mexican immigrants, that the Roy Model’s predictions change if it is assumed that migration costs fall as the innate ability of immigrants rises. Thus, theoretical argument presented by Borjas is mitigated by this possibility and Mexican immigrants are also drawn from the “best” of their native population. They provide empirical support for their proposition. Recently, Marie Mora and I (2008) published a paper that takes some of these ideas to explore the relative quality of Mexican immigrant entrepreneurs along the U.S.-Mexico border.

What impact does restrictive immigration policy have on the future of the economic development along the U.S.-Mexico border? Our findings suggest that these types of immigration policies might be problematic in this regard. Any questions?