Jobs Americans Won’t Do, and the Economics of Mass Low-Skilled Immigration

On the Laura Ingraham show, Thomas Sowell blasted Paul Ryan’s argument that we need immigration “reform” in order to avert labor shortages:

That’s incredible. I mean-—first of all to an economist, it is incredible to speak about shortages without talking about prices, in this case wages…You know there, there have been so many predictions of shortages of so many occupations and the shortages don’t materialize. And why not? Because if there is a shortage, the wage rate goes up. That attracts in more people and lo and behold, the jobs are filled.

In agriculture, the farmers would obviously prefer to get workers who get low pay rather than workers they have to pay a higher wage. And as long as there are an unlimited supply of farm workers coming in from Mexico, they will never have to raise the wages very much. They say Americans won’t do these jobs. These are jobs Americans have done for generations, if not centuries. And it’s a time when millions of Americans are out of work, and are looking for any kind of work. And so this is utter nonsense.

That seems like common sense, not to mention sound economics, but it drew criticism from an open-borders advocate at the Cato Institute:

If Sowell is going to quibble about words like “shortage,” it’s fair to criticize Sowell’s use of the word “unlimited” to describe the supply of farm workers coming from Mexico. If the supply of workers in agriculture was truly unlimited, or infinite, the wage would be 0. Furthermore, Americans are not “looking for any kind of work.” If they were, they would be lowering their wages quite a bit more than they currently are, until they become attractive hires. …

Issues of economic vocabulary aside, Sowell only described one possible outcome from a reduction in the supply of low-skilled immigrant farm workers: an increase in wages. The far more likely reaction is that American farmers will stop growing crops that require many workers. …

Furthermore, it’s hard to see why it’s desirable to increase the wages of low-productivity farm workers by increasing their scarcity.

A knowledgeable reader whom we have quoted before offers what I think is a devastating critique of the Cato scholar’s rejoinder:

Excellent from Thomas Sowell on immigration:

http://dailycaller.com/2013/07/16/thomas-sowell-paul-ryans-argument-for-immigration-reform-utter-nonsense/

The immigration celebrationists at Cato are squealing like stuck pigs, though:

http://www.cato.org/blog/thomas-sowell-economics-immigration

They have to concede that he is right about the concept of “shortage”: a shortage just means the price is too low. The rest of it combines sophistry with an overlay of the economism fallacy.

They seem piqued that they have to forgo the propaganda around worker “shortages” — an absolutely essential element to the claims of the immigration celebrationists and the provisions for “guest workers”-who-never-leave in the Senate bill. So they pedantically quibble about “unlimited” immigration. It’s laughable, though. Sowell’s correction on the “shortage” propaganda is a critically important conceptual point. He did not mean to suggest that there is already an in place literally infinite supply of ag labor. He meant that the “shortage” propagandists advocating effectively unlimited immigration so ag interests never have to adjust wages to domestic supply DO have what is effectively an “unlimited” foreign labor supply in reserve. It needn’t be exclusively Mexican. For example, if they “need” yet more supply of imported labor to keep wages down what is to stop them from importing, say, scores of millions of ag workers from Bangladesh? There are 4 billion people in the world whose economic well being would be improved by at least an order of magnitude by coming to the U.S. If that isn’t “unlimited,” it is all but.

What are the terrible consequences of failing to permit unlimited immigration of low skilled 3rd world ag workers?

“…Sowell only described one possible outcome from a reduction in the supply of low-skilled immigrant farm workers: an increase in wages. The far more likely reaction is that American farmers will stop growing crops that require many workers. Without a large supply of low-skilled immigrant farm workers, labor-intensive farming would either shrink dramatically or disappear entirely. American farmers would either grow different crops that could be profitably harvested mechanically or stop farming.” [emphasis added]

Just so. Exactly what should happen in an efficient market. They would have to adjust; to modify the mix of capital and labor inputs in response to a constraint — a labor constraint that arises naturally precisely because the economy has higher valued uses for that labor than one more acre of cucumbers. So the farmers can’t expand cucumber growing indefinitely? Our optimal production function is more of something higher valued than the next acre of cucumbers? Tough…then it’s not economic activity we want, and the market is telling us so. And telling them that if they overplant and the yield on the marginal acre is worth less than the cost of the labor to pick it…then let it “rot in the fields”.

Note as well the misleading formulation of the argument: “a reduction in the supply of low-skilled immigrant farm workers”. That’s not the situation; it’s an inability to increase the supply of low-skilled workers by raising wages sufficiently to elicit that supply — like every other employer has to — and also profitably increase the low value-added output. Sure, it is also a prohibition on bringing in foreign workers at the lowest possible wages, at least legally. But that isn’t the same as “a reduction in the supply of low-skilled immigrant farm workers”.

Further consequences:

“American consumers would either import fruits and vegetables that require large numbers of workers from countries where those workers are abundant, or scale back their consumption of those food stuffs.”

Again, just so. But the horror! We might become “dependent” on cheap foreign cucumbers? Ironically, über-libertarian Cato wants a policy that, in effect, like tariffs and import quotas, amounts to import substitution to “protect” domestic producers, something they would never advocate for, say, steel. No American other than the landowner would lose anything: not workers….these are jobs Americans won’t do!….not consumers…they can import…not distributors and retailers…their margins do not depend on the provenance of the commodities…not investors…they can get similar risk-adjusted returns investing elsewhere. The landowner’s land value is potentially at risk, if he cannot adjust to higher value uses. Again, tough.

Here is the nub of the policy issue, in a disingenuous but clever bit of sophistry:

“Those effects would be the economically efficient outcome if increased labor scarcity was driven by changes in the free market. In this case, however, the increase in labor scarcity would come from legislation mandating such scarcity.” [emphasis added]

VERY slippery move! Did you see that? “The increase in labor scarcity would come” [emphasis added] not from legislation but from the market allocation of the labor supply to its most productive uses, based on the marginal product/marginal value of product relationship for that labor. No legislation required at all. It’s just the ex ante status quo — the default condition, like the entirety of our legal regime which also prohibits, say, labor peonage in agriculture…also a constraint. What they want is new legislation to permit an injection of foreign labor from outside the economy to prevent a naturally occurring — and economically beneficial — labor allocation arising from that constraint. The “scarcity” arises from an increase in demand which assumes the price of labor to remain as low as it can possibly be. A “shortage” means the price (wage) is too low. It’s only if you think that the default condition should be unlimited immigration that the inability to increase low skilled immigration comes from “legislation mandating…scarcity”.

Here’s where the economism fallacy comes in:

“Sowell is right that the economy would adjust to a decrease in the supply of low-skilled labor, but he fails to mention that it would do so by shrinking.”

Misleading. He means, of course, that aggregate GDP might be less — not even absolutely, compared to the ex ante baseline — only relatively compared to an ex post GDP that included the increased but low value ag production as well as the higher value output from workers who are attracted into those positions instead of picking cucumbers, at the margin. GDP per capita, however, would necessarily be lower: the increase in output derives from a lower than average value of output per capita — and a population increase! We get bigger, but not richer, certainly not existing, native-born Americans. Moreover, the implication is that our incremental aggregate GDP growth should come from a relative increase in the lowest value-added economic activities — even by importing the labor necessary to make that activity feasible from the lowest possible wages. And it ignores the potential adverse impacts from massive population growth to accommodate these low value ag interests: overcrowding, pollution, land use, environmental degradation — and net government spending.

But note further: they simply assume that the default constraints on economic agents in America do not, or should not, include population based on our collective democratically determined policies regarding the population levels and demographics we want. If marginal low value economic interests can expand only by first ignoring that constraint by intentional and flagrant violations of the law implementing the democratically enacted policies and now want new legislation to repeal the policies leading to the constraint, in the interest of nothing but more GDP in aggregate, so be it. It’s economism on steroids.

And there is no principled stopping point. The labor supply globally in excess of American labor willing to do the cucumber picking at the ever expanding margin at the lowest possible wages is for all practical purposes unlimited; so they want, and openly argue for, completely unlimited immigration. How could they not? Once any limit becomes binding the argument compels them to want to eliminate it! But once you concede that there should be some limit set by policy and not the narrow economic interests of the ag lobby, then the question arises as to what’s wrong with the limits we already have?….that the scofflaw ag sector has worked to undermine? If the answer is that the existing limit is arbitrary, ANY limit becomes arbitrary and the reason to prefer a new limit becomes nothing but special pleading for special interests. And why stop at ag? Why not let entrepreneurs in the strategic T-shirt and bra and panty sectors of the textile industry import millions of those Bangladeshi workers toiling in unsafe sweatshops? Think of the GDP!….and import substitution for cheap Asian T-shirts.

Effectively, the Cato-type extreme libertarian arguments for unlimited immigration depend on a fallacy of economism: only considerations of gross first order economic conditions are relevant to any policy question. Only aggregate GDP matters, not GDP per capita, not second order environmental non-GDP impacts, not the economic welfare of existing native-born Americans, not population densities, not cultural or demographic issues. America is just a geographic expression; it just identifies a place where rational economic maximizers happen to be living because they can rationally maximize. It’s economism…and it’s specious, no matter how sophisticated the economic claims appear to be.

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