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By John W. Schoen Senior Producer
msnbc.com
updated 6/10/2007 4:46:06 PM ET 2007-06-10T20:46:06
COMMENTARY

The intense debate about immigration reform on Capitol Hill and across the nation stopped a compromise bill dead in its tracks last week and sparked a lot of questions from readers. Francelia in California posed one of the most succinct:

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Do unskilled immigrants hurt the American economy?
—Francelia, Santa Ana, Calif.

The short answer is — not really.

It’s true that higher-skilled workers generally make more money and, therefore, spend more and pay more taxes than unskilled workers — all of which benefit the economy. But a policy that allowed only highly-skilled workers to come to the U.S. — by itself — wouldn’t create more highly-skilled jobs.

Congress is wrestling with the issue, although a comprehensive bill that made it to the Senate floor was mortally wounded last week when supporters failed to win enough votes to cut off debate on a blizzard of amendments.

Debate over the bill has featured plenty of behind-the-scenes maneuvering over which groups of workers, if any, should be given preferential treatment. But with the U.S. unemployment rate at historically low levels, there seem to be plenty of unskilled jobs to go around. Or at least that’s what many lobbyists representing agriculture, hotel owners and other service industries were telling Congress.

Many companies also have been urging Congress to ease immigrations restrictions so they can hire more highly-skilled workers, like software engineers. (The list of those lobbying to ease restrictions includes Microsoft, which jointly owns MSNBC.com with NBC Universal.)

Any compromise that eventually is struck will have an impact on specific industries. But overall, the arrival of new immigrants is neither good nor bad for the U.S. economy, according to Boston University economics professor Laurence Kotlikoff.

“Immigrants are basically a wash, fiscally speaking,” he said. “They don’t cost us anything on balance, and they don’t make us anything on balance. The taxes they pay are offset by the benefits they get and the cost of public services.”

Not everyone involved in the reform debate buys that argument. Some opponents of easing restrictions on immigration argue that unskilled immigrants are forcing U.S. wages lower. According to this line of thinking, immigrants from developing countries are willing to work for less money than American citizens, so they displace them from unskilled jobs.

There's no question that many unskilled American workers have been coping with meager wages and grim job prospects for the past 30 years. But there are much bigger reasons than the arrival of foreign workers. Technology and automation began eroding the growth of manufacturing jobs in the 1980s. The decline of organized labor has also been a factor in slowing the growth of wages. Closing the borders won’t reverse those trends.

More recently, expanded trade with developing countries has forced American companies to compete more aggressively on the prices they charge for goods and services. That price pressure from globalization would continue even if the United States was surrounded by an impenetrable border fence. U.S. companies in need of unskilled workers will have an even harder time growing and competing in a global market if they can’t find enough labor.

Though employers have been among the loudest participants, the debate over immigration reform is about more than dollars and cents. The American Dream has long been a global phenomenon; cultural diversity has kept it strong. But even it was only about money, as long as the U.S. economy represents a source of opportunity for people from around the world, they’ll continue to try to find a way to work here — even if it means risking their lives to do so.

That powerful economic attraction is a big reason that efforts to close U.S. borders to new arrivals haven’t worked; developing a controlled system of granting legal status seems like a rational alternative. But the devil is in the details. Based on the feverish lobbying over the provisions of the bill, it will be hard to gauge the specific impact of any new law until we get a chance to read the final version.

I'm only a novice but decided to try and face my financial fears and learn more about financial stewardship. I now sometimes buy stocks with extra money I may get from time to time. My plan is to buy and hold stocks long term (10 years-plus) and not get caught up in daily market madness. However, as I learn more about stocks I'm wondering if I'm losing large amounts of money by not planning to sell stocks when they fall in that long period of time. What do you think? My only caution is that I absolutely do not want to be following stock pricing and volatility on a daily or even monthly basis.
—John B., Cape Coral, Fla.

There was a time when you could truly “buy and hold” certain stocks over long periods of time. Utility stocks were pretty safe bets back in the days when they faced no competition and got a guaranteed rate of return. So-called "blue chips" — big, market-dominating companies that churned out reliable dividends, quarter after quarter — also fit the bill.

Alas, those days are gone. Even the most stable big-cap stocks face potential surprises (global shocks, new technologies, etc.) than can knock them off course fairly rapidly. So you’ve got a few choices.

Modern portfolio theory suggests that one of the most important considerations isn’t so much the volatility of the individual stocks your own but the collective volatility of those stocks —and other investments — in your account. Stocks that are “negatively correlated” to specific market forces reduce the overall volatility of your portfolio because they tend to move to different drummers.

So, for example, a big interest rate move might hurt one but help another. If you own both, you’re hedged against interest rate moves. (This is what hedge funds originally were all about; now the term is used to describe pretty much any unregulated investment fund.)

You don’t need that many stocks to diversify away from the volatility you’ll see with an individual stock: As few as a dozen will significantly reduce your overall volatility. But picking the stocks with the right negative correlation can be tricky. You could try to read in on the subject and then research a list of candidates, but it’s not going to be quick or easy.

You could also get an investment manager to do this for you. But of course, you’ll pay a fee. Ditto with a mutual fund. The other problem you face with managed accounts (which may be why you want to own stocks directly in the first place) is that you’ll introduce “management risk” — the risk that the manager picks the wrong stocks. Over the long term, different investment styles perform better or worse than others.

So even if the manager you start out with consistently beats the market averages, there's a risk that manager's style will fall out of favor — especially over a 10-year horizon. (Investment managers, like generals, tend to fight the last war.) So now you’re stuck with making sure you’ve got the right investment manager and can figure out when to make the change. This can be harder than picking stocks.

If you don’t want to pay fees, and you don’t want to bear management risk, you might consider index funds. You’re buying the entire market — at very low cost. That’s because you don’t have to pay the manager to pick stocks: A computer just loads up a fund with the stocks in the index and you buy shares in the fund.

Index funds also allow you to diversify among different asset classes — which can be as important to long-term return as the choice of individual stocks. You can own the best big-cap stock fund in the world, but if that asset class is out of favor, and you’re not in small caps or international, you’re losing return. Picking asset classes — and knowing when and how to shift the mix — can be just as tough as picking stocks. But, here again, by negatively correlating asset classes, you can reduce the overall volatility of your portfolio.

If you truly want to put your portfolio on “autopilot” (again, we don’t recommend this) your best bet might be to come up with a blended collection of index funds from different asset classes with fixed allocations. Then, every few months or whenever the portfolio gets unbalanced, take the money from the class that has outgrown its fixed allocation and move it to classes that have underperformed. This will tend to force you to take profits on winners and buy stocks in the asset class that’s out of favor. So you'll buy low and sell high.

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