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How to Unemploy Immigrants
In a shocking op-ed in the NYTimes two well known liberals, Michael Dukakis and Daniel Mitchell (a former price-control Czar), acknowledge that the minimum wage creates unemployment. Nevertheless, they are in favor of raising the minimum wage. Why? Because it will create even more unemployment among immigrants than among natives.
The mean-spirited, Machiavellian nature of their op-ed is chilling but I will give Dukakis and Mitchell this, their logic is impeccable. The minimum wage creates unemployment among the low-skilled. As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.
Similarly, since many immigrants have lower-skills than natives, Dukakis and Mitchell are correct that a well-enforced minimum wage will put immigrants out of work reducing the pull of the American economy to workers in foreign countries.
I wonder if the NYTimes would have printed an op-ed that advocated minimum wages as a way of creating unemployment among African Americans and raising white wages?
(Long-time readers will know that the original proponents of the minimum wage had in mind exactly that so Dukakis and Mitchell are true progressives.)
Posted by Alex Tabarrok on July 26, 2006 at 07:14 AM in Economics | Permalink
Comments
As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.
Not necessarily. If the minimum wage is so low that the unemployed in these groups do not perceive it as worth their while to enter the job market, then their participation may increase as the minimum wage increases. Then depending on the elasticity of labor demand and employer preference for legal employees, you might indeed have a net increase in employment for citizens while decreasing illegal immigrant employment (obviously by more than the net gains).
One other aspect of minimum wage is whether one *wants* to have jobs of minimal value in the economy. There may well be huge numbers of jobs that are viable at 50 cents per hour, but do we as a society want to have huge tiers of people who live at that level? Many might argue that stratification of society is already bad enough without adding a layer of "untouchables" at the bottom doing jobs that are of minimal value.
Posted by: Tom West at Jul 26, 2006 8:11:26 AM
"One other aspect of minimum wage is whether one *wants* to have jobs of minimal value in the economy. There may well be huge numbers of jobs that are viable at 50 cents per hour, but do we as a society want to have huge tiers of people who live at that level?"
If the economy would support 50cents/hr jobs, they would exist no matter what price control you put in place. The black market always has and always will fill the void that the government deems illegal.
Posted by: AMacfarl at Jul 26, 2006 8:23:56 AM
"Millions of illegal immigrants work for minimum and even sub-minimum wages in workplaces that don’t come close to meeting health and safety standards...Before we had mass illegal immigration in this country, hotel beds were made, office floors were cleaned, restaurant dishes were washed and crops were picked — by Americans."
Just a bit of a non sequitur here? Or are making hotel beds and cleaing offices more dangerous than I thought?
Posted by: dg at Jul 26, 2006 8:48:25 AM
1) Why the drop of the adjective "illegal"?
2) That "illegal" part is important. One reason they're popular is employers can and do pay them less than minimum wage (saves on taxes too).
3) Because of 2), any increase in the minimum wage should make illegal immigration more attractive not less as more jobs are excluded from legal competition.
4) The authors deal with this a little by saying that all the government would have to do is visit workplaces and enforce minimum wage laws. Yet, all the government would have to do to stem illegal immigration is visit workplaces and enforce immigration law. I do not understand why the authors think enforcing the minimum wage law is more likely to occur than enforcing immigration law as both wage and immigration laws are frequently jointly violated now.
Posted by: Jody at Jul 26, 2006 8:50:24 AM
I too was shocked by this op-ed. A further point worth noting is that an increase in the minimum wage will not discriminate between low-skilled illegals and low-skilled natives. This plan will indeed discourage immigration through its affect on unemployment, but at the expense of America's working poor. I can't think of anything more perverse.
Posted by: Frank DiTraglia at Jul 26, 2006 9:14:06 AM
"If the minimum wage is so low that the unemployed in these groups do not perceive it as worth their while to enter the job market, then their participation may increase as the minimum wage increases. Then depending on the elasticity of labor demand and employer preference for legal employees, you might indeed have a net increase in employment for citizens while decreasing illegal immigrant employment (obviously by more than the net gains)."
Tom, the central argument against the minimum wage (from an employment standpoint) is that newly elevated price floors would reduce the amount of labor demanded. Increasing the supply of labor does not mean that net EMPLOYMENT will increase, in fact, it suggests the opposite.
Posted by: Jake at Jul 26, 2006 9:39:27 AM
Who do you think would get more minimum wage jobs if minimum wage was raised?
A) Lazy American teens and unskilled citizens that are already comfortably dependent on our government.
B) Immigrant with an actual desire and worth ethic that is working for the betterment of his family and believes in the "American Dream."
I know who I would choose.
Posted by: bryce at Jul 26, 2006 9:44:25 AM
Alex, obviously you don't understand the word "ILLEGAL." If they are violating the law, then it's the state's OBLIGATION to punish them.
If you think it's "chilling" to punish people who break the law, does this mean you think we should open up the prisons and let out all the prisoners?
Posted by: Half Sigma at Jul 26, 2006 10:12:31 AM
While the authors' logic is impeccable, Alex's is not. The premise of the article is that there will be some sort of crackdown on illegal immigrants. If the alternatives are building a huge wall, having a national id card and suing employers for hiring illegals, or raising the minimum wage then the minimum wage is likely the least costly way to reduce illegal immigration. Plus, it is politically feasible, liberals want increases in the minimum wage and conservatives of some stripes don't want cheap labor. There is the potential for a coalition here.
Posted by: jwm22 at Jul 26, 2006 10:16:25 AM
If the alternatives are building a huge wall, having a national id card and suing employers for hiring illegals, or raising the minimum wage then the minimum wage is likely the least costly way to reduce illegal immigration.
Well, it depends on how easy it is to sue employers for not paying the minimum wage. Are most illegal immigrant workers paid minimum wage in the first place? If not, wouldn't this just create another advantage for the illegal sector over the legal employment sector?
Don't forget that the presence of a higher minimum wage, like any higher wage promise, will draw more people seeking that work, including more immigrants. Higher minimum wages cause the supply of labor offered at the higher price to exceed demand. So it could make the enforcement problem worse.
Also, of course, it could cause people starting a career to choose low-skill work over education. It's not clear whether that effect would exceed that of people who would now choose work over welfare. In any case, the EITC and other negative income tax mechanisms are better solutions than a higher minimum wage.
Posted by: John Thacker at Jul 26, 2006 10:51:10 AM
Alex, obviously you don't understand the word "ILLEGAL." If they are violating the law, then it's the state's OBLIGATION to punish them.
If you think it's "chilling" to punish people who break the law, does this mean you think we should open up the prisons and let out all the prisoners?
Clearly he believes that that law is a violation of rights and civil liberties. Just as he would say so about laws against non-violent drug offenders, and just as I hope all of us would say about sedition laws or political prisoners.
Posted by: John Thacker at Jul 26, 2006 10:53:06 AM
The flawed logic of this proposal goes something like this: if the undocumented are doing the work at wages that documented will not work for , then raise the minimum wage to a level that the documented will work for , with the expected result of increasing the incentive for the documented workers to do those arduous jobs. This coupled with a strong big brother enforcement of employer hiring practices should cure the growing undocumented problem.
While I applaud the increase of the minimum wage , I reject the logic of this type of approach because all it does is burden employers with disincentives that are likely to encourage them to:
A) do business elsewhere as in out-sourcing to other countries.
B) leave the market all together
C) find loopholes and illegal solutions, such as under the table employment
D) strike back against regulations which interfere with business properity.
Posted by: nwa at Jul 26, 2006 12:03:29 PM
Why tolerate illegal immigration?
"For the rich to be comfortable, the poor must be abundant."
Voltaire
Posted by: Lars Smith at Jul 26, 2006 12:07:43 PM
How is the authors' logic impeccable? Their proposal contains two completely independent suggestions: 1) increase the minimum wage, and 2) improve enforcement to the point where employers will have to turn to legal labor. Part 1, taken alone, would only worsen the problem of illegal immigration because more employers would have an incentive to resort to cheap, illegal alternatives. Part 2 can be accomplished without Part 1, if the desire to crack down on illegal immigration was strong enough. In other words, the authors seem to draw an relationship between two proposals that are independent. Is my reasoning incorrect here?
Posted by: Ray Seilie at Jul 26, 2006 12:07:46 PM
John Thacker:
Higher minimum wages do NOT make prospective workers better off. As Jake points out, this is the central argument against minimum wage laws.
Of course, if the labour market is monopsonistic, then a minimum wage can make prospective workers better off AND raise employment, but that's just correcting a market failure.
Posted by: anon at Jul 26, 2006 12:15:14 PM
nwa: "While I applaud the increase of the minimum wage"
Why do you applaud the increase of the minimum wage? Who does it help, and how?
And Lars, how does allowing extremely poor people access to more and better jobs hurting the world's poor? Further, how does restricting immigration Help the world's poor?
Posted by: Jake at Jul 26, 2006 1:17:02 PM
the central argument against the minimum wage (from an employment standpoint) is that newly elevated price floors would reduce the amount of labor demanded
But if the increase shifted income distribution, demand could well increase instead of decreasing shooting a hole in this argument.
Posted by: Anon at Jul 26, 2006 1:26:28 PM
John Thacker:
Higher minimum wages do NOT make prospective workers better off. As Jake points out, this is the central argument against minimum wage laws.
Yes, anon, and I never claimed that they did. However, they do draw more people to seek out that work, causing the number of people who would like to work at the higher, legally mandated wage to exceed the supply of jobs at that rate. That is the central argument against minimum wage laws, and that is what I said. I'm sorry for the confusion. Do you have me confused with someone else, like the people I quoted?
Posted by: John Thacker at Jul 26, 2006 1:52:06 PM
A "shift in income distribution" is just a lump sum transfer - how could it affect aggregate demand? (Sure, it could reduce deadweight losses from progressive taxation, but then government would have to raise other taxes).
Posted by: anon at Jul 26, 2006 1:53:19 PM
anon,
Aggregate demand would only be affected if one makes the outlandish assumption that the poorer one is the more likely one is to spend an additional dollar (versus saving it).
By definition, minimum wage workers are the poorest (in terms of income if not wealth) workers, unless the company owners and customers are living paycheck to pyacheck, both groups are more likely to save than the poor do. Shifting money (that'd otherwise be saved by the customer or earned by the owner) to the minimum wage earners would increase aggregate demand.
Posted by: beowulf at Jul 26, 2006 2:05:25 PM
You guys are missing the obvious problem here.
Increasing the minimum wage will drive a demand for more automation. Leaving
both legal and illegal low-skilled workers out of a job. At least, that
is, until some new, labor intensive industry starts demanding new workers.
Posted by: Xmas at Jul 26, 2006 2:31:06 PM
Their argument isn't just that the minimum wage will encourage American workers to compete with immigrants for those jobs. They fully recognize that many lower-end jobs will cease to exist:
If we raise the minimum wage, it's possible some low-end jobs may be lost; but more Americans would also be willing to work in such jobs, thereby denying them to people who aren't supposed to be here in the first place.
Julian Sanchez at Reason says it better than I could:
But gosh, since "[m]illions of illegal immigrants work for minimum and even sub-minimum wages," wouldn't pumping up the minimum hourly wage by a few dollars entice still more workers over the borders? Well, no, not if you assume that whatever incentive is provided by the higher wage gets washed out by such dramatic job shrinkage that the expected value of hoofing north drops despite the significant income boost for those lucky enough to find a job. (And add the assumption that you don't just drive that many more into the illicit economy paying those "sub-minimum" wages.)
I'm guessing any conservative economist who predicted employment contraction of that magnitude following a $3 hike in the minimum wage would get roundly blasted as an alarmist wingnut and shill for business.
Posted by: Swimmy at Jul 26, 2006 2:37:32 PM
Xmas: That's not the problem, that's their plan!
Posted by: Swimmy at Jul 26, 2006 2:39:11 PM
At a time when almost all agree that education is the path for success both for the nation and individuals, it seem to me that teenage employment is not beneficial. Jobs during the school year distract students from school and the low skill jobs avalible to them teach little of value. Instead of creating policies that decrease teenage unemplpoyment, we should be sending the message that getting educated is their job.
Posted by: joan at Jul 26, 2006 2:41:48 PM
Mickey Kaus is commenting on this, albeit indirectly.
Posted by: Bernard Guerrero at Jul 26, 2006 2:43:26 PM
