Gains and losses from high-and low-skilled immigration.

Appropriate for Principles courses. Prior knowledge of labor supply and demand is needed. Knowledge of income and substitution effects is helpful but not necessary. No class size limitation.

Overview

Students apply their knowledge of the labor market in a scenario where they are asked to consider the benefits and costs to different stakeholders in the economy of changes in immigration. Students are asked to consider labor as two types: low-skilled and highly-skilled, and then given a brief description of substitute and complement goods and income and substitution effects. They then decide how to decide on the best immigration policy by reasoning through the competing gains and losses felt by different groups. Ultimately the answers depend in part on how students weigh the interests of domestic vs. foreign workers and this can serve as a springboard for further discussion. However, students still must practice sound economic logic to arrive at any of the answers.

Expected Student Learning Outcomes

In this exercise students will be able to recognize the gains and losses from immigration changes.

Information Given to Students

Imagine that you are an economic advisor to the President of the U.S. You are asked for your expert opinion about what the best immigration policy strategy is. You are encouraged to think about the strategy that creates the most net benefit to the U.S. You are considering the economic benefits and costs primarily (and ignoring any moral justification for policy decisions- likewise you are not considering the case of refugees or asylum-seekers, rather mainstream immigration policy).
You also know that crime rates for immigrants tend to be lower than for their native-born cohorts so you'll be ignoring occasional arguments that paint immigrants as uniquely violent and costly.
You remember from your training the idea of substitute goods (goods that can be consumed in place of each other) and complement goods (goods that are consumed jointly) and know that you can apply these ideas to immigration (an immigrant worker can be either a substitute OR a complement to a U.S. worker). You are aware that a change in the number of substitutes or complements can affect the price of other goods. You are also aware that the U.S. population is aging rapidly. Immigrants contribute billions of dollars a year to Social Security, but rarely reap retirement benefits from it.
To simplify things, assume there are only two types of labor: high-skilled labor and low-skilled labor. You are being asked for your expert opinion about how much immigrant low-skilled labor should be encouraged entry into the U.S. You are to consider only the benefits and costs to U.S. and its workers. What is the advice an economic adviser would give?
A. There should be a decrease in low-skilled immigrants but an increase in high-skilled immigrants. It is unfair to the U.S.'s low-skilled workers to compete with foreigners and receive lower wages. We should prioritize U.S. jobs. There is only downward pressure on wages as these workers are substitutes for U.S. workers. However, highly-skilled immigrants offer more economic gains than losses since they are not competing with domestic low-skilled workers.
B. There should be a decrease in low-skilled immigrants and a decrease in high-skilled immigrants because, although immigrant labor helps to push down the price of the goods they produce, this inevitably hurts the U.S. trading position. The U.S. should produce more goods for itself especially as our population ages and becomes more vulnerable. We should prioritize the interests of domestic workers more than economic growth.
C. There should be an increase in low-skilled immigrants and high-skilled immigrants. Even though there will be downward pressure on wages as substitute workers are brought in, production will be more efficient as costs fall plus consumers will likely face lower prices which increases living standards and frees up spending (and job creation) in other areas. Plus, low-skilled workers are often a complement to high-skilled workers (example: a hired landscaper frees up time for an engineer to work at her paid job more) and this may help improve the productivity and wages for highly-skilled workers.
D. There should be an increase in low-skilled immigrants but a decrease in high-skilled immigrants since U.S. businesses and consumers benefit from the lower-cost goods provided by low-skilled immigrants, but the high-skilled immigrants are not as clearly beneficial to U.S. production and may cost more in social security than they contribute.

Students should be encouraged to answer however they prefer, but if there is widespread confusion, suggest that they draw labor supply and demand graphs for domestic low-skilled workers and also for high-skilled domestic workers to consider wages. You can also remind them of the benefits to consumers of immigration in the form of lower priced goods and more variety.
Students may not see the immediate connection to specialization and comparative advantage, you can help them realize this issue is in many ways the same as free trade.

Instructor should talk through each wrong answer (A, B and D) nd point out the truth and fallacy in each before alighting on the right answer (C)

Immigrant crime statistics at https://www.economist.com/blogs/democracyinamerica/2015/07/immigration-and-crime
Social Security info at https://www.theatlantic.com/business/archive/2016/09/undocumented-immigrants-and-taxes/499604/
See the Starting Point: Teaching and Learning Economics Team-Based Learning site here https://serc.carleton.edu/econ/tbl-econ/index.html
Additionally, see the Team-Based Learning Collaborative at http://www.teambasedlearning.org/ for more research and support about the merits of TBL.