Does Immigration Lower Wage Rates?
Does Enforcement Reduce Illegal Immigration?
Yes and yes
18 Jan 2007 in Regulatory Economics, Regulatory Policy
There are wide differences of opinion about what, if anything should be done about illegal immigration. There seem to be several camps. Both extremes are best known for how their opponents label them. Opponents of immigration are called "restrictionists," whereas those who support it are called advocates for "open borders." Most of the population has views in the middle, and capturing them is the public policy contest.
Two economic issues arise in debates about immigration policy. The first concerns whether enforcement of federal immigration laws reduces illegal immigration. The second concerns the extent to which immigrant labor is "needed" to "perform work that Americans won't do." A recent Page One Wall Street Journal story sheds light on both questions.
- Enforcement does reduce employment among illegal immigrants.
- Labor supply is price-elastic -- that is, higher wages do attract more citizens and legal residents to work, even at unpleasant jobs.
Business trade groups, libertarians, and even President Bush often say that immigrants are needed to do work Americans won't do.The Wall Street Journal editorial board is noted for its pro-immigration views. It says "the U.S. depends on these workers," without whom "[c]ertain jobs would simply not get done." The Journal views the U.S. as part of a worldwide labor market and says that work requiring unskilled labor will simply move overseas if "employers [are] forced to raise wages to attract Americans, perhaps to levels above what productivity and competition allowed."
National Review editor Rich Lowry disputes this notion, noting an irony in the implied claim that U.S. labor markets don't work:
Oddly, the people who warn that without millions of cheap, unskilled Mexican laborers, this country would face economic disaster are pro-business libertarians. They believe in the power of the market to handle anything — except a slightly tighter labor market for unskilled workers. But the free market would inevitably adjust, with higher wages or technological innovation.
Slate's Daniel Gross agrees:
It's not so much that Americans aren't willing to pick fruit and become computer programmers. Rather, they aren't willing to do those jobs for the prevailing wages and benefits.
Neutral Source takes no position on immigration policy. We strive only to make sure the economics of policy options are properly understood.
Journal reporters Evan Perez and Corey Dade tell the story (available temporarily for non-subscribers) of what happened in Stillmore GA when chicken-processor Crider, Inc., lost 75% of its 900 workers because of immigration law enforcement. The point Perez and Dade emphasize is that the immigration crackdown opened up the job market for local citizens and legal residents, many of whom are unskilled blacks.
[F]or local African-Americans, the dramatic appearance of federal agents presented an unexpected opportunity. Crider suddenly raised pay at the plant. An advertisement in the weekly Forest-Blade newspaper blared "Increased Wages" at Crider, starting at $7 to $9 an hour -- more than a dollar above what the company had paid many immigrant workers. The company began offering free transportation from nearby towns and free rooms in a company-owned dormitory near to the plant. For the first time in years, local officials say, Crider aggressively sought workers from the area's state-funded employment office -- a key avenue for low-skilled workers to find jobs. Of 400 candidates sent to Crider -- most of them black -- the plant hired about 200.
Perez and Dade present the economics question clearly:
Do illegal immigrants take jobs from low-skilled American workers? The answer in Stillmore initially appeared to be yes.
They recount how Crider raised wages to attract locals, and locals responded by taking these jobs. After awhile, it became clear that wage increases from $6 to $7 per hour were insufficient to maintain this local labor force given the nature of the work:
[I]n the months since Crider began hiring hundreds of African-Americans, the answer has become more complex. The plant has struggled with high turnover among black workers, lower productivity and pay disputes between the new employees and labor contractors. The allure of compliant Latino workers willing to accept grueling conditions despite rock-bottom pay has proved a difficult habit for Crider to shake, particularly because the local, native-born workers who replaced them are more likely to complain about working conditions and aggressively assert what they believe to be legal pay and workplace rights.
Working conditions in a poultry slaughterhouse are said to be "grueling," but there is a wage that American citizens and legal residents will accept to endure them. Perez and Dade show that Crider wasn't willing to pay wages that high. When turnover and productivity problems arose, Crider searched for different workers rather than pay more. (Given the nature of jobs involved, the high productivity and low turnover rates Crider enjoyed using illegal labor may have been the true aberration.)
Crider's ability to pay wages high enough to attract and retain local citizens and legal residents is severely limited. Market demand for processed chicken is almost certainly very price-elastic' even small changes in wage rates likely have a major impact on competitiveness. Crider is a small regional firm in a business dominated by national giants like Tyson, which in 2002 had 41 poultry slaughter plants processing almost 150 million pounds of chicken per week (PDF p. 4).
There is no reason to believe that the predominance of illegal immigrants laboring at these huge firms is much different than at Crider. Over 1,200 illegals were recently arrested at six Swift meatpacking plants, and the company knew the feds were coming. The company is said to have lost $30 million worth of production because of the raid, and despite $9 billion in annual sales it is losing about $60 million per year. This suggests that the industry as a whole operates on a very thin margin, thus making the employment of illegals willing to work at below the wages demanded by citizens and legal residents all the more attractive.
If an effective immigration control regime can be imagined, it would result in uniformly higher wages for citizens and legal residents who worked in poultry processing. The number of such jobs would decline, and firms would be quicker make their operations somewhat more capital intensive. And the price of chicken would go up.
Whether it's worth bearing these consequences is not an economic question but one of values and trade-offs. But it's not true that there are jobs Americans won't do. The market for unskilled labor in poultry slaughterhouses works just fine.
