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The impact of global competition on wages |
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There is increasing competition between global markets and, as is well known, this impacts the US labor market. The issues are very complex, but a few basic points should be understood from the beginning.
Point 1. When a national labor market with relatively high wages competes with one with low wages, this raise wages in the low-wage market and lowers them in the high-wage market.
Point 2. When the wages of low wage workers are reduced by competition from very-low-wage workers, it is not just low wages that will suffer. Those higher up the wage ladder will also suffer, but the higher up the less the impact.
Point 3. Lowering labor costs, hurts workers and helps consumers. To some extent, since these are the same people, the effects cancel, but if low-wage workers are providing most of the savings, they will not come close to recouping their losses by paying less for cheaper consumer goods.
Point 1 raises complex moral issues. For example, if the US allows in more Mexican workers, that will help those workers and even workers who remain behind in Mexico, because there will be less surplus labor in Mexico. It will also hurt US workers and help US consumers. Mexican workers are on average worse off than American workers, so it can be argued that there is justice in helping those in the most desperate situation, even at some cost to their better off cousins.
I believe another point overrides this one. It is not right to ask the poorest section of the US labor force to foot the bill for helping Mexico, even thought the cause is. Consequently, immigration for the sake of acquiring low-wage workers should not be basis of US policy, even though it's good for consumers. For those who are here illegally, the problem is still more complicated, but it is clearly wrong to treat them as criminals. They had no desire to harm the US in order to enrich themselves, rather there motivation is exactly the motivation most prized in a good worker.
But don’t we need workers to do jobs Americans will not do? This question presumes Americans will not do certain jobs. There is no evidence for this. Instead, there is evidence that Americans will not do certain jobs at the wages currently offered. But what would happen to the US if there were no cheap labor from outside the US? Would we stop eating grapes and peaches, and would rich people live in filthy houses? Instead the farmers would pay enough to get the job done. This would raise the price of grapes and peaches and fewer would be sold. In fact food used to take much more of our incomes. We would move just a little in that direction.
The net result of not having workers to do jobs "Americans won’t do" would be beneficial to low wage American workers who would only take such jobs when the pay was high enough. The would only take them if it made them better of than now. Taking these jobs would lower unemployment, if they were unemployed, or open up the jobs the currently have. Those jobs would then need to pay a bit more to fill the vacancies.
Bottom line. With fewer immigrants, the shortage of workers will only last until wages adjust to bring demand in line with supply. Economics and human nature assure us of this. Some rich person may say, I can no longer find anyone to clean my house. But what they will really mean is “at the rate I want to pay which is now well below the market rate for such work.” If you’re rich and like markets, you must accept the market price for house cleaners.
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What about out-sourcing It has easies for some jobs to leave as for workers to come to the jobs. The effects are the same. It does not matter much whether the job goes to India, or the Indian comes to the job.
Obviously, there are many reasons to allow immigration, but given the problems at the poor end of the US labor force, cheaper labor should not be one of them. Let the US labor market work to improve conditions of American workers.
Is Immigration Just a Tiny Part of the Problem?
Some claim that statistics and common sense prove that low wages and unemployment are not much affected by immigration, that the unemployed and low-wage workers have much deeper problems than competition form immigrants. Two considerations undercut these arguments.
1) First, there are much deeper problems, but we know unemployment is extremely debilitating. Even very-low wage work compared with your social reference group can be problematic. Moreover, negative impacts on individuals will reinforce each other through social contact resulting in a culture that is problematic and has a strong tendency to reproduce itself. This is not to say too much immigrant labor is anything like the whole problem, but it is potentially very powerful negative influence.
2) Second, statistical measurement are difficult and prone to under-estimate affects because of labor-market dynamics. Just as there is competition between Mexican and US labor markets, so there is competition between say San Francisco and LA. If LA and SF tend to pay $8 for a certain job, and then immigration knocks the LA wage down to $6, but there is no immigration in SF (this is hypothetical). The statistician will look for an SF-LA wage gap because of the extra immigration to LA. But a $2 gap would cause some US workers to switch form LA to SF, and the result might be a $7.10 wage in SF and a $6.90 wage in LA. Our statistician will then find that LA wages dropped only 20cents below SF wages, when the real story is that SF dropped $0.90 and LA dropped $1.10. The problem is that statisticians have a hard time picking up long-term trends because of confounding factors, but instead look for differentials are washed away by US labor market dynamics.
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You can’t have it both ways
The two prominent views just discuss are contradictory. One holds that without immigrant or guest-worker labor, we would be in big trouble. There would be no one to perform many necessary jobs, and many other jobs, such as construction, gardening and housekeeping would be much more expensive. The other holds that immigrants have almost no impact on the labor market. They don’t affect wages much, and they do not much affect the employment level of US workers.
If immigrants are making things so much cheaper and filling in millions of jobs that "no one will do" (because the wage is too low), they are having a huge impact on the bottom tier of the labor force. If things would cost more without them, that means we would be paying more to a smaller labor force without them. It just doesn’t makes sense to claim they are indispensable and save consumers lots of money, but they have little impact workers.
The truth is probably closer to the folk wisdom—the first view. The impact is large. It is just no so large that we have millions of unfilled jobs waiting around for workers. The wages would go up, some jobs would go away and the economy would soon be back in balance. To prevent disruption, it is probably best to stop the inflow, but allow those here to stay. Better would be to let them return home and come back again since many would likely spend time at home if they could return. This would reduce their impact.
The hard part is stopping the flow humanely, but we owe it to American workers to make a serious effort.
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http://zfacts.com/p/385.html | 01/18/12 07:22 GMT
Modified: Thu, 01 Jun 2006 00:06:44 GMT
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