BrookesNews.Com
Monday 25 July 2005
There is considerable dispute in America regarding the effects of massive immigration. On the one side there are those who argue that uncontrolled immigration lowers wage rates while the pro-immigrant side argues that immigration has driven the US economy. Stephen Moore, a member of The Wall Street Journal’s editorial board, boldly and proudly supports the pro-immigrant side.
In More Immigrants, More Jobs (The Wall Street Journal, 17 July 2005) he launches a barrage of positive statistics at his opponents, apparently hoping to demoralise them with the good news that heaps of immigrant labour, regardless of quality, are a jolly good thing for the US economy.
Now Moore fleetingly acknowledges that some lower paid Americans have suffered from this unofficial influx of competing labour. Nevertheless, he casually dismissed their plight and their concerns by arguing that “natives have generally migrated into other professions with higher wages”. Perhaps he thinks these displaced unskilled workers suddenly took up work as computer programmers and brain surgeons.
Despite his quotes and glowing figures on incomes, social mobility, employment, etc., it evidently escaped Moore’s attention that his figures, no matter how accurate, do not prove his case therefore demonstrating that the <The Wall Street Journal needs to greatly improve its board’s understanding of elementary economics.
On the unemployment side Moore told us that “renowned labor economist Richard Vedder of Ohio University has shown, moreover, that the states with the highest levels of immigration have generally had the lowest, not the highest unemployment rates”. So what? Free market economics shows that so long as there is sufficient land a capital to employ labour there can be no persistent widespread unemployment.
Moore is unknowing walking in the steps of Josiah Tucker who pointed out about 250 years ago that “One man’s work is another man’s employment”, thus neatly summing up Say’s Law. But no competent defender of Say’s Law ever argued that increased employment in itself would cause general incomes to rise. The real driving force behind rising purchasing power is increased per capita investment. As Ludwig von Mises explained:
In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested. The accumulation of capital soars above the increase in population figures. Consequently the marginal productivity of labor, wage rates, and the wage earners standard of living tend to rise continually. (Human Action, Third Revised edition, Henry Regenery Company, 1966).
This is a vital fact that Moore did not address. Mises also said of the very poor countries:
There is very little domestic capital accumulation, and manifest hostility to foreign investors. In many of these countries the increase in population figures even outruns the increase in capital available. (Ibid.)
Therefore the question is not whether the US economy has enough land and capital to employ people but whether the growth in the workforce has had a depressing effect on wage rates by offsetting to some degree the increase in capital accumulation. Moore’s immediate response to this line of enquiry could be that the general increase in US incomes during the past 20 years proves the opposite. It does not.
One could argue just as strongly that the increase in real wages, particularly for the low paid, would have been much higher if the immigration rate had been lower. It is a telling point against Moore’s argument that he is blind to this observation. David Weinstein and Donald Davis, Columbia University economists, recently estimated that in 2002 the net economic loss to US natives from mass immigration was $68 billion. This was the result of an increased labour supply.
The $68 billion figure was calculated by measuring the decline in wages relative to the price of goods and services, taking into account changes in consumer prices caused by immigration. A recent paper by George Borjas, The Labor Demand Curve Is Downward Sloping: Re-Examining The Impact of Immigration On the Labor Market, also concluded that increased immigration had depressed wages.
I certainly cannot vouch for the accuracy of these studies, suffice to say that they rightly focus attention on the fact that the demand curve for labour is downward sloping. Therefore increasing the labour supply at a faster rate than the movement in the demand curve to the right will reduce real wages. It follow that even where the labour supply does not increase at a faster rate than the real demand for labour the growth in incomes will be retarded.
As it happens we do have an example of this phenomenon from American economic history. During what Moore called “the great Ellis Island influx in the first two decades of the 20th century” annual real wage growth was slashed from the 1.27 per cent rate that prevailed from 1855-1895 to 0.55 per cent for 1896-1916. I think Mr. Moore would be hard put deny that this 57 per drop was caused by anything but his “third wave” of immigrants”. (This chart illustrates the point).
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| The Tucker series converted to hourly rates and adjusted to the cost of living, Employment and Wages in the United States by W. S. Woytinsky and Associates (New York: The Twentieth Century Fund, 1953) |
The situation of New York maidservants on the eve of WW I provide an excellent example of what happens when large-scale immigration is suddenly halted. In 1913 these girls’ average weekly wage was $3.50. (Living expenses were provided by employers.) The supply of these girls had been maintained by a steady flow of young black girls from the South and girls from Ireland and Germany.
The war cut off the foreign supply of girls while attracting many others into factories and offices. This meant that from very early on in the war maidservants’ wages began to rise as employers competed against a reduced supply. By 1918 their weekly wage averaged $18. After the 1920-21 depression their wages fell to an average of $14 to $15 a week. Adjusting for inflation, their real wages had more than doubled in a mere six seven years.
The reason is not difficult to fathom. Not only did strict immigration restrictions remain in force but the country had accumulated an enormous amount of capital from 1914-1918, a process that continued for a number of years. It was this change in the labour capital ratio that maintained these girls’ wage rates. From 1917-1955 the average annual increase in real wages was 2.47 per cent.
The Wall Street Journal has clearly failed to give the immigration question the serious thought it deserves. It has recklessly nailed its colours to a policy based on a badly flawed understanding of history and economics.
I strongly suspect that it is aware, if only dimly, that it has made a serious error of judgement. This probably explains why Mr Moore apparently believes that he can win the immigration debate by smothering his critics in a dense fog of statistics. He evidently finds this approach preferable to using a straightforward economic argument.
Note: It goes without saying that the issues raised by America’s immigration debate apply equally to Australia.
Gerard Jackson is Brookes’ economics editor