AP Flunks Economics 101
Economic thinking about immigration is often confused, losing sight of what really are economic benefits, how to measure them and how markets work. Paul Wiseman’s recent AP piece is no exception.Wiseman begins with an unsourced “government” claim that nearly half of the jobs emerging by 2026 will require, at most, a high school diploma. Many of these jobs will be passed over by “unwilling” Americans, and taken by “willing” immigrants. He gives the example of Mexican workers in North Carolina more reliably holding down seasonal farm jobs than Americans at $9.70 per hour.This is half-truth. Yes, unskilled Americans facing immigrant competition are stuck with intractably low wages. But Wiseman assumes that absent that competition, either employers will not respond to labor shortages with wage increases or that unskilled workers will not respond to higher wages by taking those jobs, or both.Wiseman then notes how vital the immigrants are to the American economy. He summarizes Penn Wharton Budget Model results, claiming that the continued flow of immigrants will make a difference of 4.6 million jobs by 2040.Yes, they make the American economy bigger. But bigger isn’t always better. Implicit here is a failure to distinguish aggregate GDP from per capita GDP. Arguably you get more GDP and jobs, the more people you have, if more of them are employed than the number of citizen workers who are displaced. But the welfare of Americans is approximated by per capita GDP, not aggregate GDP. India has a higher aggregate GDP than Switzerland, but Switzerland with its much higher per capita GDP is where you would choose to live.Wiseman takes his push for expanding unskilled labor further. Supposedly we need more of them, not just people with certain degrees. We need more of everybody.https://soundcloud.com/fairfederation/fair-educates-the-associated-press-on-immigration-and-economics-1This confuses aggregates with benefit at the margin. We have the good fortune to know the benefit at the margin of an additional labor input: We have the price, the cost of labor! Would the economy (remember, GDP per capita) benefit more from bringing in someone whose value to an employer is $100,000 per year or someone whose value to an employer is $30,000 per year? The question answers itself.But Wiseman is relentless, appealing to his likely readers’ interest in having nannies and housekeepers. True, cheap domestic help allows American women to work longer hours on the job. Considered on a micro basis, immigrants, especially illegal aliens, benefit upper income Americans. They, and the owners of capital, get the benefits and the harms are spread out on the general population, especially concentrated in the low-skill sector.Finally, as a last resort, Wiseman generates the fear we have as the baby boomers retire. We need replacement workers. The author has trapped himself in a reductio ad absurdum: Because acclimation to American culture and incomes leads to lower fertility rates, our ever growing population of people too old to work generates a need to import an ever larger supply of immigrant labor. Forever, like a Ponzi scheme.The economics of low skilled immigration is easy if you sort out a few basic concepts. First, labor markets work. Expanding supply drives down wages. Second, an economy that is bigger isn’t necessarily better, on average, for Americans. Third are the distributional effects. Even if low-skill immigration did make the economy better, on average, the benefits are to the owners of capital, both financial capital and human capital – basically the rich and educated. The costs are to those who own neither, and are without a voice.
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