Does Illegal Immigration Explain the Disconnect Between Jobs and Wages?

After seven years of “recovery,” the jobs picture is finally beginning to brighten a bit. Last month’s jobs number, 280,000, was relatively good. But economists are puzzled: if hiring is picking up, why are wages and GDP stagnant, or even shrinking? At ZeroHedge, the pseudonymous Tyler Durden proposes an answer. It begins with the fact that nearly all job gains have gone to immigrants:

There were other curiosities: the vast majority of jobs added in May, over 200K, were in the 20-24 age group, and the number of self-employed workers mysteriously soared by 350K to 10 million.

But the biggest surprise came from Table 7, where the BLS reveals the number of “foreign born workers” used in the Household survey. In May, this number increased to 25.098 million, the second highest in history, a monthly jump of 279K. …

Assuming, the Household and Establishment surveys were congruent, this would mean that there was just 1K native-born workers added in May of the total 280K jobs added.

Alternatively, assuming the series, which is not seasonally adjusted, was indicative of seasonally adjusted data, then the 272K increase in total Household Survey civilian employment in May would imply a decline of 7K native-born workers offset by the increase of 279K “foreign borns.”

But while all of these comparisons are apples to oranges, using the BLS’ own Native-Born series, also presented on an unadjusted basis, we find the following stunner: since the start of the Second Great Depression, the US has added 2.3 million “foreign-born” workers, offset by just 727K “native-born”.

foreign vs native_3_0

This means that the “recovery” has almost entirely benefited foreign-born workers, to the tune of 3 to 1 relative to native-born Americans!

Which helps to explain the general lack of enthusiasm for Obamanomics. Durden argues that the key to these data may be the number of illegal immigrants in the job numbers:

How does the BLS determine a foreign-born worker? This is its definition:

The foreign born are persons who reside in the United States but who were born outside the country or one of its outlying areas to parents who were not U.S. citizens. The foreign born include legally-admitted immigrants, refugees, temporary residents such as students and temporary workers, and undocumented immigrants. The survey data, however, do not separately identify the numbers of persons in these categories.

In other words, the “foreign-born” category includes both legal and illegal immigrants unfortunately, the BLS is unable, or unwilling, to distinguish between the two.

As a result, it may well be, that the surprise answer why America’s labor productivity (which recently posted its worst 6 month stretch in 22 years) has plummeted in recent years and certainly months, confounding economists who are unable to explain why “solid” labor growth does not translate into just as solid GDP growth and why wage growth has gone precisely nowhere, is because the vast majority of all jobs since December 2007, or 75% to be specific, have gone to foreign-born workers, a verifiable fact. What is unknown is how many of these millions of “foreign-born” jobs have gone to illegal immigrant who are perfectly willing to work hard, and yet whose wage bargaining power is absolutely nil (after all they are happy just to have a job) thereby leading to depressed wages for native-born workers in comparable jobs, resulting in wage growth which over the past 8 years has been non-existent.

wages of all workers

Note how much better wage growth was during the Bush administration, compared with the Obama administration.

I don’t think there is any doubt that the fact that nearly all net new jobs are going to immigrants, legal and illegal, is part of the explanation for low wage growth. Another factor that can’t be forgotten is that BLS statistics do not distinguish between full-time and part-time jobs. It is literally true that if you are unemployed and a neighbor takes pity on you and hires you to mow his lawn for one hour a week, you have a job, according to BLS standards. The bottom line is that jobs numbers must be seen in context, and are no substitute for robust economic growth and sane immigration policies.