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.


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.

13 comments… add one
  • CuriousOnlooker Link

    Well McDonalds is not suffering from higher wages if the ones around where I live are any indication.

    They slashed the number of “front end” workers taking orders by having digital kiosks and the mobile app.

    Having been to Japan, McDonalds could have done it 30 years ago but waited until the last few years.

  • TarsTarkas Link

    Curious: Is your town one of those where the Fight For Fifteen succeeded? Not criticizing, just interested.
    However the Fight for Fifteen did accelerate the move towards ordering kiosks. Kiosks don’t call in sick and you can’t blame them if your order comes out wrong. Thanks, SEIU.

    Fast Food fills a need for people who don’t want to spend significant chunks of the day waiting to be served and who aren’t particular about taste. Like me (more than I should). As the insane tax revenue push to force waitstaff towards minimum wage continues I expect to see more FF and FF expanding into the lane now occupied by sit-downs.

    As Dave pointed out reduction of manual labor costs have been going on a long time, to the huge overall benefit of the populace. More food produced by farms with a fraction of the amount of workers needed a century ago (even counting the factory workers making the equipment), cargo shipping containers (goodbye stevedores and all the lost time, waste, theft, and destruction from hand loading and unloading), and much more. And those laid off generally didn’t stay that way forever. Unfortunately we haven’t figured out how to automate government bureaucracy too well.

  • GreyShambler Link

    Everyone here knows this but high minimum wages destroy entry level jobs, that’s where teenagers gain experience and build a resume and references. If you are 30 years old and still in one of these jobs, wake up! I’ve seen kiosks now at the doctors’s office to take personal and insurance information. These things are robots. Don’t expect the robot that takes your job to look like “Lost in Space”.

  • If you are 30 years old and still in one of these jobs, wake up!

    The “Fight for 15” movement is predicated on the belief that you should be able to maintain a household and raise a family on minimum wage.

    The practical problem with that is that there are some places in the country where $15/hour would place you in the top quintile of income earners and others where it wouldn’t be a livable wage.

  • GreyShambler Link

    $15/hr here is actually pretty good, that’s what a dump truck driver makes. You have to have a nearly clean driving record, pass annual health exams, and random drug tests. Plus of course show up on time, reliably, take care of the equipment, not to mention, don’t be an asshole, (quitcherbitchin).

  • Guarneri Link

    “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.”

    Please tell me you are having a brain cramp.

  • CuriousOnlooker Link

    I am in a state that has close to $15 minimum wage and close to a jurisdiction that has a $15 minimum wage.

    One caveat is where I live, the economy is sufficiently hot that employers could not offer a lower wage and hope to attract workers even if it was legally possible.

    I think there are two sides of the coin. To raise wages one has to work on both demand and supply side for labor — run the economy hot to generate demand, and restrict supply of Labor (minimum wage, enforcement against informal labor).

  • TarsTarkas Link

    Curious: Thanks for the reply. I would imagine the municipality with $15 minimum wage is losing a significant number of restaurants, some shuttering, others moving.
    Yes, restricting immigration both legal and illegal will shrink the labor pool and help drive up wages. The danger is of course when the price of labor crosses the is-it-worth-automating line. Get too greedy with demands, everyone suffers.

  • TarsTarkas Link

    Dave, here is a link to an article (I know, it’s a right-wing site) that gave me a brand-new look at why infrastructure costs and pension liabilities have skyrocketed. I’m suspicious of the stats quoted, and not convinced the whole argument is valid, but I found it a very interesting read. What I consider the meat of the article is in the section.

    Needless to say Steyer is a hypocritical pandering lunatic.

  • TarsTarkas Link

    Second section of the article.

  • The article is okay as far as it goes.

    Based on everything we know about bureaucracies, bureaucracies grow. That is their natural trajectory. It’s true of government bureaucracies, corporate bureaucracies, educational bureaucracies, medical bureaucracies, not-for-profit bureaucracies, all bureaucracies. That growth plus hierarchy means that administrative costs increase on an exponential basis. We need to find a means other than catastrophe to break bureaucracies down every so often. That takes a commitment which is lacking.

  • Jimbino Link

    What has been driving down wages for decades is the rampant breeding of new Amerikans. Why should we continue to subsidize production of ever more babies in need of potty training and the usual years of mis-education with Other People’s Money, when it would be far cheaper to import when need foreign labor that is already educated, skilled and ready to work? Opening the borders would benefit people on both sides and save countless taxes once we move to limit or eliminate our domestic over-breeding.

  • GreyShambler Link

    As a former breeder myself, I’d say I enjoyed it and would have a go at it again if I got the chance.

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