Beat the Press

Dean Baker's commentary on economic reporting

5/29/2006

Immigrant Labor and Supply and Demand

The Times had an article this morning that explained the immigration problem in very simple terms, "this many jobs; only this many visas." As the article reports, there are a huge number of less-skilled jobs waiting to be filled by immigrants, but almost no visas are available for immigrants to come across the border and work at these jobs legally.

To prove this case, the article quotes Stephen P. Gennett, president of the Carolinas chapter of the Associated General Contractors of America (a builders’ trade group), “we have a problem here, a people shortage.”

While Mr. Gennett is undoubtedly knowledgeable about the state of the labor market for construction workers, he also represents an organization that has a clear interest in this issue, they want cheap labor. Ordinarily, the claim that there is a people shortage would imply that wages are rising at an extraordinary rate. (This is the way economists ordinarily think about markets – shortages mean higher prices.) This means that there is a quick way to verify Mr. Gennett’s claims about a people shortage: see if wages in construction have been rising at an extraordinary rate.

A quick trip to the Get Detailed Statistics section of the Bureau of Labor Statistics website tells us that inflation adjusted wages for construction workers have actually fallen about 5 percent since 1980, a period in which productivity has increased by more than 70 percent. So, we have wages falling in spite of a labor shortage – not where I learned my economics.

Labor is a cost to employers, and they would all like to get their labor as cheaply as possible. The Times would like to hire reporters for $25,000 a year. While there are plenty of smart people in places like India and China who would be happy to work for the Times at this wage (and could do a very good job), reporters and other higher paid professionals are powerful enough lobbies to largely foreclose this option. But, let’s be clear. There is no more a shortage of workers for low-paid jobs than there is a shortage of workers for higher paid jobs. The difference is simply that the workers who perform less-skilled work have less political power to protect themselves against the efforts of employers to get low cost immigrant labor.

14 Comments:

  • At 10:22 AM, Anonymous sandwichman said…

    What I find fascinating is that the business lobby folks magically forget their beloved "Say's Law" refrain when these "labor shortages" loom. To concerns about immigration or outsourcing taking job opportunities from current residents they reply that supply creates its own demand.

     
  • At 12:01 PM, Anonymous Anonymous said…

    Sounds like a surplus of employer greed more than anything else.

    What's direly needed these days is a way to use economic policy to force business leaders to integrate the long-term externality of artificially depressed wages into short and medium term decision making processes. In the long run, driving down wages will hurt firms by reducing the nummber of people able to buy their products and services. Even Henry Ford figured this out. In the short run, though, there's basically no economic or policy incentives for firms to pay sustainable wages.

    This has got to change or we're all going to be in for an economic meltdown. The only questions are how to do it and where to find political leaders who aren't in the pockets of business interests.

     
  • At 2:23 PM, Blogger PGL said…

    I checked total compensation for this sector over the past two year and it has not kept pace with inflation either (see Angrybear)>

     
  • At 8:11 PM, Anonymous James Schipper said…

    Dear Mr Baker
    As a rule, the less skilled work is the more people can do it. Only a tiny percentage of the population can be a physicist, but at least 80% of the adult population should be able to be a dishwasher. That fact alone makes a mockery of complaints about shortages of unskilled workers.
    Some unskilled work, such as garbage collection, may not be at all intrinsically appealing, but experience shows that if you pay garbabe collectors enough, people will line up to become one.
    The more unskilled work is the more easily the market can correct supposed shortages through wage increases.
    Regards. James

     
  • At 8:50 AM, Blogger Hoosier said…

    Mr. Gennett, president of the Carolinas chapter of the Associated General Contractors of America should then support making it easier for the workers that he needs to join trade associations such as the one that pays his salary. Most worker trade associations have a method for allocating workers (the local union hall) for companies that support Mr. Gennett's group. Contrary to the practice today, there should be no difference in the law that governs the ability of corporations and workers to participate in a trade association.

     
  • At 3:10 PM, Anonymous sexy bikinis said…

    Immigrants play an important part in the success of America's free-enterprise economy. Immigrant workers willingly fill important niches in the labor market. They gravitate to occupations where the supply of workers falls short of demand, typically among the higher-skilled and lower-skilled occupations. That hourglass shape of the immigration labor pool complements the native-born workforce, where most workers fall in the middle range in terms of skills and education. As a result, immigrants do not compete directly with the vast majority of American workers.

    Immigration provides needed flexibility to the U.S. economy, allowing the supply of workers to increase relatively quickly to meet rising demand. When demand falls, would-be immigrants can decide not to enter, and those already here can decide to return home. The result is a more efficient economy that can achieve a higher rate of sustainable growth without encountering bottlenecks or stoking inflation.

    Immigration not only increases the supply of labor but also the demand for the labor of others—to provide food, housing, transportation, services and consumer goods. Immigration helps to maintain a steady, healthy growth rate in the U.S. labor force. Because of immigration, the U.S. workforce and economy will continue to grow well into the 21st century, while Japan, Germany, and other advanced economies will be forced to adjust to an unprecedented decline in their workforces.

     
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  • At 11:33 PM, Anonymous Anonymous said…

    emigration not only increases the supply of labor but also the demand for the labor of others—to provide food, housing, transportation, services and consumer goods. Immigration helps to maintain a steady, healthy growth rate in the U.S. labor force. Because of immigration, the U.S. workforce and economy will continue to grow well into the 21st century, while Japan, Germany, and other advanced economies will be forced to adjust to an unprecedented decline in their workforces.

     
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