Economics

I've got to admit that I wasn't the greatest Econ student back in grad school. Macro Economics in particular just about killed me, and Micro was taught by a foreign professor nobody could understand.

But I got enough out of those classes to be able to view today's big issues through an economic lens.

Take illegal immigration. Emotional topic, with lots of arguing and demonstrating and demagoguery about the legal and moral issues. Which by the way I am on the law-and-order side of the argument, and agree with those who think we need strong border enforcement and to deal harshly with employers who cheat by hiring illegal immigrants. But that's not what this post is about.

What this post is about is the economic impact of illegal immigration on our society. Let's assume for a moment that the estimate of 12 million illegals in the USA is fairly accurate. That's a staggering number, which can't help but have a real impact on the nation's economy. What is that impact?

Basically, a large influx of workers who are willing to work for below-market wages impacts many sectors of the economy. Those workers take jobs many native-born citizens consider beneath them. They take jobs for lower wages than would be acceptable to citizens. That lowers cost of production, thus lowers consumer prices and increases company profits. It is quite a testament to the strength of the American economy that we have absorbed these gigantic numbers of illegal immigrants in addition to the many legal immigrants that came in the front door and still have a healthy and growing economy with low unemployment rates.

The downside of this trend is that American citizens are now finding that jobs they want are also being given to illegal immigrants. Traditionally higher-paying jobs in the construction trades and manufacturing are now being given preferentially to illegals by companies who have discovered that they can hire those workers at much lower hourly rates without fear of government sanctions. And the traditional student employers in fast food, lawn care, and other services are abandoning their student workers in favor of illegals who accept lower wages and don't have school schedules to work around.

Let's say that tomorrow our government answered the demands of those who want the border sealed and all illegal immigrants rounded up and deported. Note that when the President says it's impossible, he can't really mean it's impossible, because if our government had the will it absolutely could be done. What he really means is that it would shock the economy too much to undertake. Here's why.

Suppose that tomorrow we find and deport all 12 million or so illegals. The immediate effect is a void in the jobs those people were filling. Companies will have two choices: either recruit new employees to fill those jobs at market rates, or close. It is safe to assume that most of the companies will raise their wages to attract workers.

Higher wages sounds great for the workers, right? Sure, it would be. For a very short time. But think about it for a minute. Let's say millions of jobs that were being filled by illegals at $5 per hour now must be filled at twice that, or $10 per hour. That means everybody else who is currently earning $6 to $10 per hour in more highly skilled jobs will demand they be paid equitably in comparison to the entry-level people now making more than them. And so on, throughout the entire salary scale, bottom to top. Great for everyone, right?

Not so great. It's called inflation. Upward pressure on wages due to a lack of supply in the labor market will place a corresponding upward pressure on prices. As prices rise, demand will decrease for the end products. With reduced demand for products comes reduced demand for workers to produce those products. Higher wages will bid up prices for everything, inflating the economy throughout. The inevitable result is recession. And given the relatively significant percentage of the workforce today that may be illegal, the recession could be deep and long-lasting.

That's why Bush wants a guest worker program. Such a program guarantees a permanent entry-level underclass of $5 per hour workers. Morally I have a major problem with creating such a permanent poverty-level working class just to prop up the economy. Moreover, the cynical reality of the guest-worker concept understands that if these low-wage visitors are given a path toward citizenship, they will become Americans in many ways, including becoming activists demanding higher wages and benefits for themselves. Thus the guest worker program instead of easier immigration policies.

Therefore, my preference would be a gradual change that protects borders, admits immigrants based on carefully designed limits, and over time eliminates the illegal class. I also have a major problem with importing high-tech workers from India and the Far East to take jobs of native-born Americans simply because they will accept a fraction of Americans' salaries. If these trends continue, eventually there will no longer be a middle class, because even the most highly skilled workers increasingly have to compete with people from around the globe for their jobs.

I've been installing payroll systems for companies of all kinds around the country for about 25 years now, and the trends I've seen over the years are disturbing. Back in the '80s and early 90's, payrolls had a nice wage distribution. The exectives brought in the nice 6 figure salaries, followed by managers in the 70's to 100K, then supervisors in the 40's to 50's, then the line workers from the 30's to 50's. Now those payrolls have changed. Executives now pull in high 6-figures and often 7 figures. The Manager class has been slashed to a small fraction of people compared to the past, and their salaries have not increased. Supervisors are no longer professionally trained and certified, but are better described as "Lead Clerks" or "Team Leaders", which means they are more like senior front-line workers placed on salary so they can be forced to work uncompensated overtime. For example, companies used to employ a Payroll Manager who was a highly professional and often certified expert in payroll. Today, instead of a Payroll Manager there is a Payroll Supervisor or Payroll Coordinator who earns half what the Payroll Manager was paid, is not a certified professional, and knows only what she was taught by the Controller about processing the company payroll using advanced software systems that make everything nearly foolproof. And finally, the front-line workers have not gained any noticable wage increases, and generally earn the same or even less than the same groups did 20 years ago.

The weakening of labor unions, the introduction of new technologies, outsourcing, offshoring, and the influx of low-wage legal and illegal immigrants all contributed to these trends. And it is true, based on my actual observations at so many companies around the country, that the average American worker may be able to stay employed, but has not made any real gains in wages. No doubt, the typical American household needs 2 full-time incomes to maintain a middle-class lifestyle, whether they are educated and skilled or not.

I wonder if any of this is discussed in college economics classrooms? Because I sure don't hear it discussed in the American media.