Economics of Immigration #3

Supporting the author’s view that immigration has very specific causes and effects, on pages 162-7 of We Wanted Workers he relates a story about Russian mathematicians.

For decades prior to the collapse of the USSR there was little contact between mathematicians in Russia and those in Western countries. The most popular Soviet research field was differential equations, accounting for 18% of all publications. The most popular American fields were statistics and operations research, accounting for 16% of all publications. After the USSR collapsed many Russian mathematician migrated to the USA in the 1990's. Data collected by the American Mathematical Society showed a sharp increase in the unemployment rate of newly minted mathematicians and identified recent immigrants as a leading cause. The author and another person looked further. They looked at the effect the “supply shock” the Russian mathematicians had on two different groups of American mathematicians – those who specialized in differential equations and those who specialized in statistics. The number of papers published by American mathematicians in differential equations dropped sharply, while those published in statistics dropped only slightly. They concluded that the entry of the exceptional Russian mathematicians crowded out newly minted mathematicians and non-tenured faculty, especially in differential equations. The latter group moved to lower-ranked institutions (with higher teaching loads) or even outside academia, which reduced their opportunities to do research. 

While the author mentions “quants” on Wall Street, he did not speculate that the effects may have been different if the collapse of the Soviet Union had instead occurred about 10 years earlier. In the 1980’s there was a large wave of mathematicians and physicists who moved into finance jobs, especially for investment firms and big banks. They were hired to a great extent because they could solve differential equations that were needed to theoretically price financial options. The solving was far more by a numerical method (finite difference, lattice, Monte Carlo) using a computer – software needed developed – in contrast to closed form solutions (which the Black-Scholes formula is) with pencil and paper. I can only speculate about a lesser “supply shock” on American mathematicians specializing in differential equations if the Russian influx had occurred about 1980. The unemployment spike probably would have been much smaller. The effect on the number of research papers may have been less.