Immigration & Wage Suppression

[unlawflcombatnt]

The biggest problem created by uncontrolled illegal immigration is wage suppression. According to economics professor George Borjas, immigration reduces the average annual earnings of U.S.-born men by an estimated $1,700, or roughly 4%. (See Yahoo News story: Illegal Workers Have Mixed Impact.) If that reduction is applied to the roughly 135 million employed Americans, that reduces aggregate annual worker income by $230 billion, or $0.23 trillion. That's roughly 2% of our $12 trillion GDP. That's a loss in consumer spending of $230 billion (less taxes). Given that our entire GDP growth in 2005 was $384 billion, this is a significant amount. Considering that consumer spending is approximately 70% of GDP, that makes the "growth" in consumer spending around $269 billion.

Again, the loss of that $230 billion is no small amount. And it is also $230 billion less money that could have been taxed, costing the Federal government anywhere between $36-55 billion per year. (Increasing the taxable income of a single taxpayer making $35,000/year by $1700 increases Federal income tax by $413. Increasing taxable income of a married taxpayer filing making $35,000/year by $1700 increases Federal income tax by $267. Multiplying these numbers by 135 million amounts to $55.7 billion and $36 billion, respectively.)

Right-wingers will argue that this wage suppression is offset by business profits, and that these profits fuel investment. But investment capital is OVER-abundant at present. Increasing this excess even further will not result in more capital investment. It will result in higher CEO salaries, further overinvestment in the stock market, and further investment in foreign production facilities, the latter of which puts even further downward pressure on American wages.

Furthermore, business profits don't fuel consumer spending. And consumer spending is the engine that drives our economy, not investment. Without consumer spending, there are no returns on investment. And if no returns are anticipated on investment, no investment takes place.

The immigration-fueled reduction in wages does NOT help our economy. It hurts it. It reduces aggregate consumer income and the consumer spending it finances. The reduction in consumer spending reduces consumer production demand, further reducing demand for the labor to provide that production. The reduction in labor demand drives down employment and wages. The resultant labor demand reduction further reduces aggregate consumer income and further reduces consumer purchasing power.

As consumer buying power declines, so do investment opportunities, since those opportunities are created by consumer demand for production. Thus the increased profits resulting from reduction in labor costs create even more excess capital, while reducing investment opportunities still further.

Does anyone really think that wage suppression is "good" for the economy? Doesn't someone have to purchase the goods produced for business to profit? Won't reducing consumer income also reduce consumer goods purchasing? Won't a decline in consumer goods purchasing reduce business revenues and reduce potential profits? Once again, is immigration-fueled reduction in worker/consumer income really "good" for the economy?

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriot Forum

______________________
Capitalism cannot function without consumer income. The benefits of capital investment are limited by consumers' ability to buy the products of capital investment.

There must be balance between the "means of consumption" and the "means of production."

[Selatius]

1. They aim for feudalism, not marketplace competition.

The people at the very top don't care if people can't buy stuff anymore. They only care in as much as the money that used to circulate in the economy now sits in their private vaults and bank accounts. That's money taken out of the country and put under the control of somebody besides Joe American. The rest of the country deterioriates, and these elitists will re-emerge and annoint themselves feudal landlords who have the money to exert control over everyone else and make them their serfs.

[styersc]

24. Immigrants, upon amnesty, will demand higher wages.

Once employers cannot threaten them with deportation, they will demand better conditions. We should welcome our immigrant friends. If we organize (unionize) with the entrenched immigrant workforce that will all of the sudden be in a position to have a powerful say- the people, organized, will be unstoppable.

[silverojo]

32. We should welcome our immigrant friends?

Then would you please pay back the hospitals for all the money they lose treating your "friends" in E.R. and bankrupting 80+ hospitals in California, alone?

[Cobalt Violet]

2. This is unexceptable..

"The situation was worse if one considers only the 10 million U.S.-born men who lack a high school degree. For them, the increased supply of workers depressed wages by 7.4 percent, he found."

[unlawflcombatnt]

9. Unacceptable

Completely unacceptable. The reason we have so-called "low-wage" jobs is because there are so many workers available to drive wages down. We don't need any more labor competition from illegal immigration to drive those wages down even further.

[Neil Lisst]

3. Exactly right on target, again, Professor Economics.

The blue collar workers - white, black, hispanic, asian - are the Americans who take the brunt of the hit by illegal workers.

Today at a restaurant, I saw a black man in his 40s bussing tables. I thought to myself "don't tell him there's work Americans won't do."

[unlawflcombatnt]

6. Exactly

Exactly right. There are no jobs Americans won't do if they're paid enough.

If you pay me enough, I'll bus tables.

It's simply a matter of employers who don't have to pay the going market rate for labor because they can hire an illegal worker for less. Remove that option and you'll force employers to pay Americans enough money to do all of this alleged "work no Americans will do."

[AtomicKitten]

20. in high school, my son applied for a job as a bagger in a grocery store

There were 200 applicants for the job.

[area51]

4. Great post.

k & r.

[Zookeeper]

5. Thank you. (K&R.) n/t

[doc03]

7. Professor George Borjas must be a

racist pig. Illegal immigrants pay taxes and only do jobs Americans won't do.:sarcasm:

[unlawflcombatnt]

8. Yes

LOL. That must be it.

[xchrom]

10. legal immigration also suppresses wages.

for a little different view.

http://www.econlib.org/LIBRARY/Enc/Immigration.html
The Impact of Immigrants on Native Earnings



There are two opposing views about how immigrants affect the labor market opportunities of American natives. One view is that they have a harmful effect because immigrants and natives tend to have similar skills and compete for the same jobs, thus driving down the native wage. The other view is that the services of immigrants and natives are not interchangeable, but rather complement each other. For instance, some immigrant groups may be unskilled but particularly adept at harvesting crops. Immigration then increases native productivity and wages because natives can specialize in tasks for which they are better suited.

The first view is more likely correct. Economists who have rejected this view on the basis of evidence have looked at somewhat superficial data. These economists speculated that if the services of natives and immigrants are interchangeable, natives should earn less in cities where immigrants are in abundant supply, such as Los Angeles or New York, than in cities with few immigrants, such as Nashville or Pittsburgh. Although natives do earn somewhat less in cities that have large immigrant populations, the correlation between the native wage and the presence of immigrants is weak. If one city has 10 percent more immigrants than another, the native wage in the city with the most immigrants is only 0.2 percent lower.

[unlawflcombatnt]

11. Link

Thanks for the link to Borjas.

It should be noted that the article in that link was written in 1990, and Borjas has changed his thinking somewhat since that time. His latest book was written in 2001. In that book Borjas states that there has been a direct loss in wages of $160 billion due to immigration. In fact, he describes it as a transfer of wages to the employer hiring the workers. Just what we need, more potential investment capital at the expense of consumer income.

[unlawflcombatnt]

12. Labor Force Charts

Below are charts showing the increase in the total working age population in the U.S. (top) and the total increases in the (alleged) participating labor force size. The working age population has increased over 14 million since January 2001. The "participating" labor force has increased over 6 million during the same time period. The number of those employed, according to the Bureau of Labor Statistics, has increased slightly over 2 million in that time. (See BLS Employment at BLS-Employment)
Do we really need more workers to further increase the surplus of labor? Is that going to help the American worker, or will it help Corporate America drive wages down even further?

Below is a copy of the chart showing the size of the total working age population in the U.S.



The link to the above is at LaborForceTotal

Below is a copy of the chart showing the size of the "participating" labor force in the U.S.



The link to the above is at ParticipatingLaborForce

unlawflcombatnt

EconomicPopulistCommentary

EconomicPatriotForum

___________
The economy needs balance between the "means of production" & "means of consumption."

[PsycheCC]

15. Thanks for the charts! You always make for interesting reading.

[AzDar]

13. That's rather eye-opening, isn't it? More fine work,unlawflcombatnt..

[unlawflcombatnt]

14. How About "Guest Employers"?

AzDar,

It is pretty amazing, especially when someone on the Right starts bleating about a potential labor shortage. My calculation is that we have

227 million (working age population)
- 134 million (payroll employed)
= 87 million workers who aren't working.

Though 77 million of these have some alleged reason for not being included in the participating labor force, just see how many of them return if wages increased enough.

This isn't a matter of not having enough workers, or having jobs no Americans will do. It's a matter of not having enough employers who will pay enough to hire Americans.

Maybe we should have a "guest employer" program, so we could import jobs, instead of workers. That's a "guest" program I could get behind.

[Andromeda]

16. Thanks, k&r

[unlawflcombatnt]

17. Employer Prosecution: 6-yr Delay

Here is an excerpt from this most recent immigration bill, H.R. 4437 from the Thomas government directory.

"SUMMARY AS OF:
12/6/2005--Introduced."

"Provides for: (1) voluntary employer verification utilizing such system two years after enactment of this Act for previously hired individuals; (2) mandatory employer verification three years after enactment of this Act by federal, state, and local governments, and the military for employees not verified under such system working at federal, state or local government buildings, military bases, nuclear energy sites, weapons sites, airports, or critical infrastructure sites; and (3) mandatory employer verification six years after enactment of this Act for all employees not previously verified under such system.

Makes employer participation in the basic pilot program mandatory two years after enactment of this Act.

Authorizes the Board of Immigration Appeals to reverse an immigration judge's removal decision without remand."

Below are some links to this from H.R. 4437 Main Page

http://thomas.loc.gov/cgi-bin/bdquery/z?d109:h.r.04437:

CRS Summary:
http://thomas.loc.gov/cgi-bin/bdquery/z?d109:HR04437:@@@D&summ2=m&


To me it looks like it will be 6 years before employers will be held accountable. That's my interpretation, at least. This is the basis for their false claim that "employers will be held accountable." They know full well that this aspect will be modified or eliminated before 6 years have passed. They're hoping no one will notice this 6-year grace period.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

[Neil Lisst]

18. they call it anything they want, then write something

that is the opposite.

The recent increase in the debt ceiling was called the balanced budget act, or something similar.

[radio4progressives]

19. Not when they join Unions.. They Will help Drive UP wages and benefits..

not too complicated, when the Unions become strong again they have more power, and that's a cause all working class should understand and join common cause.

[Telly Savalas]

22. Unions? Take that liberal shit back to whatever commie spot

on the internet you came from.

[ZombieGak]

41. this is the union pipedream

And because of this hope, unions will undercut wages.

[Telly Savalas]

21. If an economics professor says it, it must be true.

Milton Friedman was an economics professor at the University of Chicago, yeah? Should we believe everything he says?

The logical extension of the "wage suppression" argument is that if we rid the nation of immigrants, the Magical Invisible Hand of capitalism would let wealth "trickle down" to labor. When Reagan tried to foist this nonsense on us, we called it voodoo economics. It was bullshit then and it's bullshit now, no matter how many times somebody posts "finally, somebody sane at DU!" in response.

The issue at hand is that people aren't being paid a fair day's wage for a hard day's work. This isn't the fault of the immigrant, but rather a failure of the market. When the market fails, it's the job of the government to intervene. In this case it's a simple matter of imposing living wage laws and repealing "right-to-work" legislation and other policies which hobble unions.

And to save people some time, yes I'm aware I'm a "Lexus Liberal" for thinking that raising the minimum wage is a good idea. Rush Limbaugh says so everyday, so you don't need to bother repeating his talking points here at DU.

(Typo edit)

[lumberjack_jeff]

25. Nonsense

1) What phenomenon supports unionization in an environment where the labor pool is infinite?
2) "Supply and demand" isn't "trickle down". It's been fairly well proven - as a trip to your local gas station will attest. A limitless labor pool depresses the value of labor.
3) The market hasn't failed, it's doing exactly what you would expect it to do, devalue the limitless resource. Government should step in all right, act in the interests of its constituents and staunch the flow of cheap labor.
4) Raising the minimum wage is only minimally effective when there are millions of workers here who will take less and not object for fear of deportation. It effectively puts americans at a further disadvantage when competing for the jobs.
5) I live in an area where unemployment has been in double-digits for 20 years. Paradoxically, residential real estate has appreciated sharply. You'd think that people would prosper in the building trades, wouldn't you? Not here, because the successful contractors hire the illegals that came here to work in the woods picking brush, logging or tree-planting. I talked to a couple of guys who work for the local foundation contractor. One guy had several years of construction experience and he was being paid $10.25 an hour and the helper was making $9. Property can be purchased here and a house built and sold in 10 weeks or so for a 50% (or more) profit. There's plenty of money to be made, but it's not trickling down because the guys who build 'em compete in a bottomless pool of labor.

[unlawflcombatnt]

29. Flood of Workers

Lumberjack Jeff,

You're right. Supply and demand effects have been pretty well proven, and it applies to labor supply as well as product supply. Increasing the supply drives the price down.

A reporter on television made the same point you did about construction workers. With the huge increase in building construction, an expected increase in construction wages should have occurred due to the increased demand for labor. But that wage increase did not occur, due to the increase in the construction worker pool from illegal immigration. As a result, the construction "boom" was not a boom for construction worker wages. In fact, in real terms, wages are less than they were in 1965.

You don't need to be an economist to understand the logic behind Borjas's report. It's simple supply and demand dynamics. Illegal immigration increases the labor supply while the demand remains unchanged. The result is a reduction in the price of labor.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

[styersc]

23. The only answer is to organize- SUPORT THE UNION!!!!

One of the most tremendous aspects of the demonstrations of the last few weeks is the unity and organization that has been promoted. If immigrants gained legal status they could afford to work against exploitation-ie., low wages, poor conditions, lack of benefits etc. It is the exploitation of illegal immigrants by management that keeps wages stagnant, not the immigrants. Do you think they are demanding low wages and dangerous workplaces?

The conditions are ripe for the reemergence of the labor movement- which was born of immigrants in the early 20th century. Immigrants learn, and remind us, that the American dream often comes only as a result of struggle and action. I think this can be great for wages, and activism. Progressives should embrace our immigrant brothers and sisters and look forward to the new blood and momentum.

[AzDar]

26. Illegal is illegal, period. Absolutely support the unions; but we also

must staunch the flow of illegal immigrants, which is taxing resources at EVERY level.

[PsycheCC]

27. Exactly! Support of unions will boost real wages, but only if the

supply of workers isn't increased by a large pool of illegal aliens. Again, this re-distribution of wealth toward the top few (tax cuts, pro-corporate legislation, etc.)will hurt ALL in the long run as the middle class has fewer dollars to spend. Corporate giants will see their profits fall as U.S. consumers, their main market, stop buying.

The solution is definitely NOT to encourage an even greater influx of illegals by "bringing them out of the shadows" (what shadows?, they're everywhere) and unionizing them. That will only create more competition for jobs due to the larger pool of available workers. Corporations will happily pay lower wages, continuing the downward spiral created by so much cheap labor.

As noted in an above post, even if congress passes any legislation on immigration, it looks like it will be at least SIX YEARS before employers will have any consequences for hiring illegals. Who knows how many ways congress will have gutted the legislation by then? What a mess.

[unlawflcombatnt]

28. Worker Exploitation

Though you're right about it being the employers who are creating the problem, but you're dead wrong about illegal immigrants "helping" the process. Wages rise and fall based on supply and demand of workers. If there are more workers, it increases the supply in relation to the demand. That decreases the "price" of labor (wages.) Illegal immigrants have exactly the same effect as "scabs" do when a union is on strike. They undercut the wages of the striking workers. In this case they undercut the wages of American workers.

This is caused by 3 separate factors. The 1st is that they are willing to work for less. The 2nd is that they increase the "supply" of labor, thus putting downward pressure on wages.

The 3rd is a macroeconomic effect. The decrease in average wages decreases the aggregate total of American labor income. This reduces the total amount of money consumers have to spend. This results in less consumer spending which causes less consumer production demand. The reduction in production demand reduces the demand for workers to provide that production. Reduced demand for workers reduces employment and wages.

The net labor effect of illegal immigration is to reduce the bargaining power, employment, and wages of American workers. The net Corporate effect is to increase the short-term profits of Corporate America by reducing labor costs. There is a reduction in the fraction of sales income going to labor, and an increase in the fraction going to management.

The long-term effect on Corporate income is negative, however, due to the macroeconomic effect of reducing consumer income and the consumer spending it finances.

Consumer spending power puts the ultimate ceiling on Corporate profits. That ceiling is reduced if consumer spending power is reduced through wage reduction.

unlawflcombatnt

EconomicPopulistCommentary

Economic Patriots' Forum

___________
The economy needs balance between the "means of production" & "means of consumption."

[1932]

30. What's stopping citizens from taking these low-paying jobs?

It's not like there's a "no Americans need apply" sign at the door. They're not checking anyone's passports when they hire for these jobs.

Is there a study on the negative impact on the economy of Americans working low-wage jobs?

[Kaylee]

33. If I understand, it's not just the low wages the employers can pay,

but the fact that they do not have to pay benefits (or taxes) on non-citizens. Therefore, many refuse to hire Americans.

[Elwood P Dowd]

36. Hammer hits nail!

Employers can pocket extra cash by not paying their share of FICA, Workman's Comp, and state/local taxes. They can fudge on the worker's hours or force them to perform overtime at reduced pay. What's the worker going to do - go tell authorities he is illegal and being abused?

[Le Taz Hot]

37. Well, from one who lives

in the Central San Joaquin Valley (we grow your food), there are ways of weeding out American citizens. How? In the Help Wanted ad you read the following: "Must be Bilingual." Why? Because all of your potential co-workers are illegals who are unable to speak even the most rudimentary English, therefore, it is WE who have to speak Spanish.

This is true in probably 70% of the jobs here and that's not just farm jobs (and yes, I WOULD take a farm worker job but my Spanish isn't good enough), it's construction, landscaping, food manufacturing plants, packing plats, retail stores, ANY job which is located in an area with a high illegal population, and that's just a few examples.

So, no, there are no actual signs saying "no Americans need apply" but there are other ways of weeding out "unwanted workers" (i.e., American citizens).

[unlawflcombatnt]

49. Low Wages

1932,

What's stopping Americans from taking low-wage jobs is the low wages. If the market would dictate a wage of $11.00/hour using the available American worker pool, enlarging the pool to include extra workers brings that market wage down. That's the whole problem.

If American workers won't work at a job for a certain wage, the solution is to raise the wage, not bring in illegal workers who'll work for less.

[ProudDad]

31. As you make these arguments

Please don't blame the "illegals" for the situation.

I hope you can realize that the whole corrupt system of corporate capitalism and the people at the top of the wealth pyramid are the ones you should blame for this situation. Please don't blame the poor folks just trying to survive and showing enough initiative and hard work to get here to do it.

[unlawflcombatnt]

39. Blame

In this case I'm blaming the employers that are doing the illegal hiring. Immigration reform should start with employer prosecution for illegal hiring. The employers get the lion's share of the blame, with their never ending quest for cheap labor.

[QC]

34. Why do you hate brown people? The Statue of Liberty

doesn't hate brown people! Are you a full-blooded Cherokee? Are you mad because someone took your toilet-scrubbing job away? etc.

:sarcasm:

Just figured I would save a few people some trouble.

Interesting post! Why do you suppose it is that the corporate elite doesn't seem to understand that no one can buy their stuff if no one has any money? Can they just not think that far ahead, or have they just written off the U.S. middle class in favor of the much larger ones emerging in India and China?

[unlawflcombatnt]

40. Thanks

QC,

Thanks for getting that out of the way. Now we can move on. :D

[Bushknew]

35. Outsourcing = Wage Suppression

Substitute the word Outsourcing for illegal immigration and the figures and
consequences are even more dire.

Am I right or wrong.

[QC]

43. It depends on what you do for a living.

For white-collar workers, outsourcing is a bigger concern. For blue-collar workers, insourcing is a bigger concern.

[unlawflcombatnt]

44. White Collar vs. Blue Collar

I agree with you here. However, there is also the little problem created by H1B visas, because Corporate America doesn't want to pay American professionals enough to do the jobs either.

They whine about an insufficient number of engineers and other professionals graduating and being trained. However, the people who would have gone into those fields decided to go into something else, because the pay wasn't good enough in those fields. But Corporate America has been able to bypass paying the going wage for highly trained professionals as well, by simply hiring foreign professionals who'll work for less.

Some free market. If the market price for labor is too high, Corporate America and business just hire illegal immigrants who'll work for less, or in the case of higher-paid professionals, just lobby Congress to allow more lower-paid, high skilled professionals to take jobs Americans won't take for below market level wages.

Corporate America hypocritically espouses free markets, unless it reduces profits. What they really want is no competition for their products and the ability to fix profits, while opening up the entire world labor force to "market" forces. Make sure the world's workers are in full competition with each other, and forbid them from unionizing, while allowing business interests to merge and collude to eliminate competition and fix the price of goods.

This is exactly what the "party of Davos" wants, and it is exactly what the "New World Order" wants.

[Gormy Cuss]

45. Outsourcing affects both.

I believe you mean offshoring for the white collar workers, which is only one kind of outsourcing. The other one, which does create risks for blue collar workers is domestic outsourcing of jobs like janitorial services, housekeeping, etc.

[unlawflcombatnt]

48. Outsourcing

That's a good way to put it. Both ways they "outsource" the jobs to non-Americans. Both force American workers to compete with workers willing to work for less and under worse conditions. In addition, it gives American workers that many more workers to compete against. When there is no limit to the workforce that employers can pick from, there is no supply limitation to labor and no pressure to raise wages to employ a sufficient number of workers.

[rman]

38. Wage suppression is a result of lobbying

for corporate interests. They want low minimum wages so they can make more profits, they lobby congress, they get low minimum wages.

[Capn Sunshine]

42. Shouldn't you be writing about the "real estate bubble"?

That info is just about as egalitarian.

Statistics that begin with forgone conclusion are assembled in this argument every day.

I don't see anything in those statistics about how much lower wages would be if corporations had to pay higher taxes to cover the lack of tax money (from sales tax, tolls, bus fees, etc.) that the "illegal alien" population currently provides.

[APPLE314]

46. I''D CEDE THE POINT IF THEY SPENT THE MONEY HERE.

BUT THEY DON'T.... IT'S RUSHED TO THE THIRD, FOURTH, FIFTH, AND SIXTH WORLD AND WE GET BEAT OVER THE HEAD WITH IT.
SO I HAVE AN ABBREVIATED COMMENT FOR THEM. FUHKEM.......

[unlawflcombatnt]

47. Lost Spending

Apple314,

That's another good point. Add in the money shipped home to the $230 billion already lost from wage suppression, and it reduces consumer spending even further, further reducing production demand, and further reducing the demand for workers to provide that production. This all results in still further declines in employment and workers' wages.

It's a lose-lose situation for American workers and the American middle class.