Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

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. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, October 13, 2005

More Evidence that an Increase in Supply
Leads to a Lower Equilbrium Price

If there is an increase in the supply of PhD graduates, the equilibrium price (wage/salary) will drop as the supply curve shifts to the right, ceteris paribus. That is what we teach our students, isn't it?

And it turns out to be right. From the SmartEconomist:

Between 1976 and 2000, the fraction of doctoral degrees awarded to foreign students by US universities rose from 11% to 24%. This fraction was especially high in the physical sciences (36% in 2000) and engineering (51%) Furthermore, 71% of all foreign-born doctoral recipients intended to remain in the United States after graduating. Given this influx of high-skilled foreign workers, how was the labor market for domestic doctorates affected? Specifically, did immigration have a negative impact on wage and employment opportunities of competing native workers?

... The author ... finds that the wages paid to foreign-born and native doctorates are affected in a nearly identical way. This is supported by the observation that foreigners and natives who received their degrees in the same field at the same time are paid nearly identical wages.

Since all wages are affected in the same way by immigration, the driving force behind the immigration-induced wage decline seems likely to be an increase in labor supply (regardless of nationality) and not lower wage demands by foreign doctorates. In other words, if the increase in labor supply had been driven entirely by native-born doctorates, the results would have been the same.

The SmartEconomist summary and review refer to an NBER working paper by George Borjas.
For more on immigration and wages, here is a recent piece by Tyler Cowen.
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