Yes, Wages Respond to Market Forces

The editors of The Economist struggle, like fish on a hook, before admitting that the evidence seems to support that mass immigration has been holding U. S. wages down:

There are nonetheless scraps of evidence that some workers are benefiting from America’s growing antipathy to immigrants. Gordon Hanson of Harvard University suggests that if the impact of reduced low-skill migration is showing up anywhere, it will be in three particular occupations: housekeepers, building-and-grounds maintenance workers, and drywall installers. These occupations rely heavily on immigrant labour and the services they provide cannot be traded internationally. Average wages in those occupations are rising considerably faster than wages in other low-paid jobs, according to calculations by The Economist.

Intriguing evidence also shows up geographically. According to research by William Frey of the Brookings Institution, a think-tank, five big metro areas saw absolute declines in their foreign-born populations in 2010-18. Wages in those areas are now rising by 5% a year, according to our calculations. Cleveland, which is in one such area, has pockets of severe poverty but seems to be doing better than before. Many of the city centre’s astonishingly grand buildings are being converted into luxury lofts for millennials.

and

The lesson from all these papers is that, over time, the economy adjusts to a fall in the number of immigrants. In the short term, native workers may well see a wage boost as labour supply falls.

just as I have been saying here for well over a decade. They go on to warn:

But businesses then reorient production towards less labour-intensive products; natives take jobs previously occupied by foreign-born folk, which may be worse paid; and bosses invest in labour-saving machinery, which can reduce the pay of remaining workers.

Even the apparent short-term benefits to wages are a poor economic argument for tough immigration restrictions. Migrants have economic effects far beyond the labour market. They spur innovation and entrepreneurship and they help create trade links between America and their home countries. Both low- and high-skilled migration are linked with higher productivity.

Reorienting production towards less labor-intensive products is jake with me. It should have been happening for a long time. Consider the story of fast food. IMO it’s pretty obvious that fast food franchises developed in response to a large number of new, unskilled, inexperienced workers coming into the labor force—the Baby Boomers. After that wave ended it was able to continue with a reliable stream of immigrant workers (legal and illegal). Is the development of fast food really a good thing? I would not mourn the demise of McDonalds and Burger King.

And, of course low- and high-skilled migration produces higher productivity as long as those workers work for lower pay than those they’re replacing. That’s just arithmetic. Again, is that really the model we want for the United States? The sort of increasing productivity we really want is the sort which is too low. What we need comes from business investment in something other than financial assets.

As for innovation and entrepeneurship, there are different groups of immigrant workers. The groups responsible for the greatest number over the last 30 years aren’t the same as those innovating or starting their own businesses.