Self-Selection of Mexican Migrants in the Presence of Random Shocks:Evidence from the Panic of 1907
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Self-selection of Mexican migrants in the presence of random shocks:Evidence from the Panic of 1907 David Escamilla-Guerrero* [email protected] and Moramay Lopez-Alonso† [email protected] November 29, 2018 Abstract Using a unique data set consisting of individual border crossings, military recruitment records and passport applications, this paper estimates the selection pattern of Mexican migrants in the beginnings of the US-Mexico migration flow (1884-1910); and exploits the presence of two idiosyncratic shocks to evaluate their impact on short-run shifts in selection patterns. To estimate the initial selection pattern of Mexican migrants, we use height as a proxy for human capital. The results suggest that the first Mexican migrants belonged to the upper tail of the height distribution of the Mexican working class: migrants were positively self-selected. Additionally, the financial crisis of 1907 in the US and the presence of regional droughts in Mexico during 1908 modified significantly the selection patterns. Before the crisis, immigrants were 1.5 centimeters taller than the average soldier. During the panic, immigrants became less positively self-selected (0.9 centimeters taller), but return to a strong positive self-selection (2.1 centimeters taller) after the crisis. We argue that the stronger positive selection in the post-crisis period was influenced by droughts in Mexico. Keywords: labor migration, migrant self-selection, Panic of 1907, Mexico JEL Classification Numbers: F22, J61, N36, O15 Acknowledgments of DEG: I am especially grateful to my PhD supervisors Eric Schneider and Joan Rosés for their guidance and invaluable comments. I also want to thank Daniela Gutiérrez and Marco Villeda for their assistance on the data transcription. This research was developed with the financial support of: the Mexican National Council for Science and Technology (2015-2018) - Scholarship No. 409165; the Mexican Ministry of Education Scholarship (2015-2016); the Radwan Travel and Discovery Fund (2016) - London School of Economics; the Pre-Dissertation Exploratory Grant (2017) - Economic History Association; the Research Fund for Graduate Students (2017) - Economic History Society; and my fellowship at the World Institute of Development Economics Research - United Nations. This research was benefited from the academic visit at El Colegio de México in 2016. I am specially grateful to Professor Graciela Márquez and Professor Gerardo Esquivel for their support during this period. I am grateful to Dr. Fernando Pérez and Dr. León Fernández for his comments during my academic visit at The Bank of Mexico in 2018. I am grateful for the mentorship of Dr. Miguel Niño-Zarazúa during my fellowship at the World Institute of Development Economics Research. All errors are mine. *London School of Economics - Department of Economic History †Rice University - Department of History. 1 1. Introduction Since Borjas(1987) formalized the basic Roy model (Roy, 1951), migrant selection has become a prolific topic in labor economics. Precisely, it provides a framework to understand the economic gains or loses from migration, which has been a core topic in the public sphere since the Age of Mass Migration (1850-1913) (Spitzer & Zimran, 2018). While the literature on migrant selection acknowledges that the decision to migrate depends on systemic and idiosyncratic reasons, the factors that may explain shifts in selection patterns over time remain empirically unexplored (Abramitzky & Boustan, 2017, p.1325). Therefore, for more than one century, we have implemented immigration policies without understanding completely the mechanics behind migrant selection. This paper estimates the selection pattern of Mexican migrants in the beginnings of the US-Mexico migration flow (1906-1908) and exploits the presence of two idiosyncratic shocks to evaluate their impact on short-run shifts in selection patterns. To estimate the initial selection pattern of Mexican migrants, we use heights (as a proxy for human capital) of migrants, soldiers and passport holders. The migrant sample comes from individual border crossings from 1906 to 1908. The soldiers sample comes from military records of common soldiers and elite forces that proxy for two extreme points of the height distribution of the Mexican working class. The passport holders sample consists of passport applications representing the Mexican upper social class. Together, the military and passport records are used as comparison samples to determine whether the first Mexican migrants were drawn from the upper or lower tail of the height distribution in Mexico. The results suggest that the first Mexican migrants were positively self-selected: they belonged to the upper tail of the height distribution of the Mexican working class. Indeed, migrants were 1.7 centimeters taller than the average soldier; almost as tall (0.5 centimeters shorter) as the military elite forces; and 2.3 centimeters shorter than the passport holders. We also document that Mexican migrants might have ended up in the upper tail of the height distribution of a pool of migrant workers from different source countries that competed for low-skill jobs. Therefore, following the 2 basic Roy model, the beginnings of the Mexico-US migration flow were characterized by a positive selection of Mexican migrants on the basis of height. To evaluate if a random shock could influence short-run shifts in selection patterns, we focus on two events. First, we use the Panic of 1907 as a exogenous labor demand shock in the US side. The Panic of 1907 was one of the most severe financial crises in the US before the Great Depression (Frydman et al., 2015, p.928; Moen & Tallman, 1992, p.611; Odell & Weidenmier, 2004, p.1003), and it severely affected the credit system in the US. During this crisis, banks and financial institutions of many cities limited or suspended their cash payments (Andrew, 1908, p.497), and around 2 thousand firms and over one hundred state banks failed (Markham, 2002, p.32). The Panic of 1907 was a phenomena confined to the US (Johnson, 1908, p.455), which severely affected industries such as railways and mining where Mexican immigrants were mostly employed. In addition, the crisis occurred during a period when Mexicans could migrate to the US without restrictions. These facts provide a unique opportunity to understand how idiosyncratic demand shocks might modify migrant selection patterns in a free mobility setting. The results reveal that, before the panic, migrants were 1.5 centimeters taller than the average soldier. During the panic, migrants became less positively self-selected (0.9 centimeters taller), but returned to a strong positive self-selection (2.1 centimeters taller) after the crisis. This “U” pattern holds with all comparison samples (common soldiers, elite forces and passport holders) and when controlling for unobserved factors within migration regions and over time that might have influenced the individuals’ heights. Using the basic Roy model as theoretical framework, we show that the change in the selection pattern during the panic period might have occurred because the Mexican government implemented a repatriation program. This policy aimed to assist immi- grants that suddenly experienced economic hardship in the US due to the Panic of 1907. The program covered the transportation of immigrants back to Mexico eliminating the costs of returning home. As a consequence, the “best” individuals that initially emigrated to the US might have returned to Mexico, displacing relatively shorter 3 laborers. This excess of labor might have pushed displaced-individuals (relatively shorter) to emigrate. The fact that we observe migration flows (less positively selected) during the panic period implies that the shock devalued the observed and unobserved characteristics of Mexican migrants in the US, but not enough to discourage emigration completely. This suggests that Mexican immigrants might have not returned, unless mobility costs were sufficiently low. By eliminating the mobility costs, the repatriation program implemented during the Panic of 1907 influenced the immigrant’s decision to return, and therefore the migrant selection patterns during this period. In other words, government interventions can shift selection patterns over time (at least in the short-run), just as Abramitzky & Boustan(2017, p.1325) intuited. On the other hand, to explain the stronger positive selection observed in the post-panic period (relative to the pre-panic period), we exploit the presence of climate shocks in Mexico. Contreras(2005, p.123), Clark(1908, p.473) and Mayet et al.(1980, p.757) document the presence of regional droughts in Mexico from 1907 to 1908. As a consequence, there were important crop losses in some areas (Cardoso, 1980, p.12). We confirm the presence of such droughts using the Mexican Drought Atlas (Stahle et al., 2016) that provides reconstructions of the self-calibrating Palmer Drought Severity Index (PDSI). According to the index scale, these climate shocks can be considered as mild or moderate droughts, but their persistence for two consecutive years might have pushed taller individuals to migrate during the post-panic period. Precisely, the results suggest that, in the post-panic period, the average migrant was as tall as the military elite, however those whose last permanent residence was in a state experiencing droughts were 0.5 centimeters taller than the military elite. This also holds for other groups. We believe that this stronger positive selection