Wednesday, June 20, 2012

Is immigration the answer for St. Louis?

There is an article on the front page of today's Post-Dispatch describing a study by SLU economist Jack Strauss. According to an earlier post on stltoday, the thrust of the study is that "(i)f St. Louis hopes to thrive economically, it needs to attract more immigrants."  Further,
Strauss found that foreign-born residents of metro St. Louis, on average, earn 25 percent more, are 44 percent more likely to have a college degree and are 60 percent more likely to start a business than their native-born counterparts. They tend to cluster in growing industries like technology, healthcare and biotech, and if the region hopes to remain competitive in those areas, Strauss writes, we need to draw more of them into the local workforce.
I've taken a look at the study myself, and I think that it makes a classic error of logic. The basics of the study are: successful cities have lots of immigrants, so St. Louis needs lots of immigrants to be successful. This logic really mixes up cause and effect because immigrants, especially highly skilled ones, go to thriving cities. Thriving cities are not created from non-thriving ones after immigrants start moving there because a welcoming committee was set up.   

A city can't just decide that it wants more immigrants. Immigration is not one of the levers that policymakers have. Urban economists like myself have spent years studying why cities grow, and most of our intellectual effort goes into sorting out exogenous variables from endogenous variables. Endogenous variables, like immigration, are determined alongside economic growth, but do not cause it.  Exogenous variables like tax rates and education policy can cause growth. It is true that immigration reinforces the existing strengths of the local economy, but it does not create those existing strengths.

To understand the difference between endogenous and exogenous variables, think of local taxes. Tax rates are determined by policymakers (tax rates are not exactly exogenous, but lets take them to be so) and, depending on the strength of the economy, there is some amount of tax revenue generated.  Low tax rates might also mean faster growth. Now, I could look at tax revenue across cities and notice that tax revenue is highest in cities with strong economies. I could then conclude that what St. Louis needs is higher tax revenue to generate economic growth. But tax revenue is an endogenous variable and doesn't cause anything. It's simply determined alongside economic growth and are both caused by low tax rates.

Strauss's argument is similar to the tax revenue one. There are policies and natural disadvantages that result in St. Louis having slower growth than other cities. If I look at other cities, I might notice that fast-growing ones have a lot of immigrants and conclude that St. Louis needs immigrants to grow. But immigration is an endogenous variable that is determined alongside growth. It does not cause it. Immigration and growth are both determined by the fundamental exogenous factors of the economy, including policies.

As an immigrant to the United States and St. Louis, I can tell you what causes immigration: an offer of a high-paying job or the opportunity to get such a job. These opportunities are more prevalent in fast-growing cities, so it is these cities that see more immigrants. It's not the other way around.