2018-09-03

A Border Wall Creates a Public Gated Community, Or How to Make Wages Rise

The battle for a "living wage" has been going on for year. The Fight for $15, to raise the minimum wage to $15 an hour. There's been little success because it's a dumb policy. Price controls don't work. If wages are set artificially high, employers demand less labor and supply increases. There will be an unemployment crisis that will require a new solution, and unless it's repeal of the minimum wage, it will be another dumb policy. Even if you believe wages are too low, having the government set a price floor for all types of labor in all markets is stupid. One-size-fits-all policies have lots of unintended consequences.

Still, that doesn't mean stagnant and falling wages aren't an issue that should concern everyone. The question is what can be done, and what is the best option. Some people want to spend billions and billions on education and training. That's expensive and the results are mixed, it isn't a cure all. It takes years. Moreover, the best training is on the job training, learning the very skills needed for a job.

Luckily, there's another way government can create pressure on wages without dictating wage policies to companies. It's really cheap, if fact by some calculations that consider all-in costs, it's policy whose savings pay for itself. It also has been successfully implemented and wages have soared almost immediately. The policy: deportation of illegal aliens.

Many wealthy Americans live in gated communities surrounded by walls and security systems. They send their children to gated schools (private schools) and then hope to get them into a gated university (Ivy League colleges don't have open admissions policies). Revealed preferences tells us that when people get wealthy, they seek out walls for themselves.

Poor people can't afford to wall off their neighborhoods and if they tried, it would be deemed illegal. They send their children to public schools with open admissions and they have to compete for jobs in a free-for-all low-skill labor market where showing up everyday and on time are solid job qualifications. The only way they can put up walls to protect their labor, the amount of capital spent on their children in public education, is with a vote. They're starting to vote for populists and the establishment calls them a bunch of ignorant xenophobes or worse.

None of this is shocking. What is shocking is how not only do the wealthy seek out walls for themselves (no complaint from me), but they systematically tore down the public walls designed to protect American workers. Even economists joined in. The laws of supply and demand seem to have evaporated when it comes to labor. Look away from the models arguing that capital surpluses in post-war Germany or the Gulf States today can be solved by importing labor because if you look at them you'll see there are times when capital is at a deficit, in which case there should be close to zero immigration and certainly no low-skill immigration. The new argument ignores capital and says they should bring in more labor because more labor is always good. Everyone needs more immigration always, even if wages are falling and automation is replacing labor.

Many papers have been written over the years arguing that immigration doesn't drive down wages and they may have been true 30 and 40 years ago. As with almost anything though, numbers matter. Scale matters. Economists started finding evidence of native wages being negatively impacted back in the 1990s. Here's George Borjas in 1994: The Economics of Immigration

The best argument from Borjas (according to economists) seems to be the Muriel boatlift. He published the paper in 2015. THE WAGE IMPACT OF THE MARIELITOS:
A REAPPRAISAL
. Here's the abstract:
This article brings a new perspective to the analysis of the wage effects of the Mariel boatlift crisis, in which an estimated 125,000 Cuban refugees migrated to Florida between April and October, 1980. The author revisits the question of wage impacts from such a supply shock, drawing on the cumulative insights of research on the economic impact of immigration. That literature shows that the wage impact must be measured by carefully matching the skills of the immigrants with those of the incumbent workforce. Given that at least 60% of the Marielitos were high school dropouts, this article specifically examines the wage impact for this low-skill group. This analysis overturns the prior finding that the Mariel boatlift did not affect Miami’s wage structure. The wage of high school dropouts in Miami dropped dramatically, by 10 to 30%, suggesting an elasticity of wages with respect to the number of workers between 20.5 and 21.5.
Yet even that case receives a lot of pushback from economists. Here's one example: The Mariel Boatlift Controversy that claims Borjas' findings were total spurious. Here's Borjas' response: More Fake News On Mariel

We don't have to read economic papers anymore though. We have some real world evidence that conforms to common sense and fundamental laws of economics.

Chicago Sun-Times: At major Northwest Side bakery, labor issues pit blacks vs. Hispanics
A major bakery on the Northwest Side once known for making Little Debbie snack cakes was sold earlier this month after an immigration audit cost the company about a third of its workers.

About 800 employees of the main Cloverhill Bakery on the Northwest Side and the company’s bakeries in Cicero and Romeoville lost their jobs when the audit found many were hired after presenting fake or stolen IDs.

...According to a former consultant to the bakery, MSI paid the black workers $14 an hour, versus the $10 an hour the Mexican workers were making through Labor Network.
Los Angeles Times: How this garlic farm went from a labor shortage to over 150 people on its applicant waitlist
Christopher Ranch, which grows garlic on 5,000 acres in Gilroy, Calif., announced recently that it would hike pay for farmworkers from $11 an hour to $13 hour this year, or 18%, and then to $15 in 2018. That's four years earlier than what's required by California's schedule for minimum wage increases.

Ken Christopher, vice president at Christopher Ranch, said the effect of the move was immediately obvious. At the end of last year, the farm was short 50 workers needed to help peel, package and roast garlic. Within two weeks of upping wages in January, applications flooded in. Now the company has a wait-list 150 people long.

"I knew it would help a little bit, but I had no idea that it would solve our labor problem," Christopher said.
I don't know of any economists predicting wages would rise 40 percent if illegal immigration crackdowns were launched, but there it is. (Before someone jumps in to say the farmer didn't lose workers to the immigration crackdown, farmers are screaming for more migrant workers and work visas. If they don't get them, they'll be forced to raise wages and hire Americans as Mr. Christopher has.) Those wage hikes won't necessarily scale across all of society, but who knows what the overall impact would be if a real crackdown on illegal aliens was launched, accompanied by the RAISE Act. The evidence tells us wages would rise though, and rise immediately. As in if President Trump ordered stepped up enforcement on Tuesday, wages could be rising by Wednesday.

Considering nearly everyone can vote in a democracy, the public generally favors policies that benefit the poor and the government is supposed to serve the interests of its citizens, immigration restriction is a no-brainer policy. It raises wages, reduces demand for social services, reduces demand for populism, reduces demand for socialist solutions to stagnant wages. President Trump should nickname his immigration agenda the "Fight for $15" because in practice, it is the only policy actually fighting for a sustainable "living wage" in the USA.

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