How to Unemploy Immigrants

In a shocking op-ed in the NYTimes two well known liberals, Michael Dukakis and Daniel Mitchell (a former price-control Czar), acknowledge that the minimum wage creates unemployment.  Nevertheless, they are in favor of raising the minimum wage.  Why?  Because it will create even more unemployment among immigrants than among natives.

The mean-spirited, Machiavellian nature of their op-ed is chilling but I will give Dukakis and Mitchell this, their logic is impeccable.  The minimum wage creates unemployment among the low-skilled.  As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.

Similarly, since many immigrants have lower-skills than natives, Dukakis and Mitchell are correct that a well-enforced minimum wage will put immigrants out of work reducing the pull of the American economy to workers in foreign countries.

I wonder if the NYTimes would have printed an op-ed that advocated minimum wages as a way of creating unemployment among
African Americans and raising white wages?

(Long-time readers will know that the original proponents of the minimum wage had in mind exactly that so Dukakis and Mitchell are true progressives.)

Comments

As a result, the minimum wage tends to create disproportionate unemployment among teenagers and young African Americans.

Not necessarily. If the minimum wage is so low that the unemployed in these groups do not perceive it as worth their while to enter the job market, then their participation may increase as the minimum wage increases. Then depending on the elasticity of labor demand and employer preference for legal employees, you might indeed have a net increase in employment for citizens while decreasing illegal immigrant employment (obviously by more than the net gains).

One other aspect of minimum wage is whether one *wants* to have jobs of minimal value in the economy. There may well be huge numbers of jobs that are viable at 50 cents per hour, but do we as a society want to have huge tiers of people who live at that level? Many might argue that stratification of society is already bad enough without adding a layer of "untouchables" at the bottom doing jobs that are of minimal value.

"Millions of illegal immigrants work for minimum and even sub-minimum wages in workplaces that don’t come close to meeting health and safety standards...Before we had mass illegal immigration in this country, hotel beds were made, office floors were cleaned, restaurant dishes were washed and crops were picked — by Americans."

Just a bit of a non sequitur here? Or are making hotel beds and cleaing offices more dangerous than I thought?

I too was shocked by this op-ed. A further point worth noting is that an increase in the minimum wage will not discriminate between low-skilled illegals and low-skilled natives. This plan will indeed discourage immigration through its affect on unemployment, but at the expense of America's working poor. I can't think of anything more perverse.

Who do you think would get more minimum wage jobs if minimum wage was raised?

A) Lazy American teens and unskilled citizens that are already comfortably dependent on our government.

B) Immigrant with an actual desire and worth ethic that is working for the betterment of his family and believes in the "American Dream."

I know who I would choose.

While the authors' logic is impeccable, Alex's is not. The premise of the article is that there will be some sort of crackdown on illegal immigrants. If the alternatives are building a huge wall, having a national id card and suing employers for hiring illegals, or raising the minimum wage then the minimum wage is likely the least costly way to reduce illegal immigration. Plus, it is politically feasible, liberals want increases in the minimum wage and conservatives of some stripes don't want cheap labor. There is the potential for a coalition here.

Alex, obviously you don't understand the word "ILLEGAL." If they are violating the law, then it's the state's OBLIGATION to punish them.

If you think it's "chilling" to punish people who break the law, does this mean you think we should open up the prisons and let out all the prisoners?

Clearly he believes that that law is a violation of rights and civil liberties. Just as he would say so about laws against non-violent drug offenders, and just as I hope all of us would say about sedition laws or political prisoners.

Why tolerate illegal immigration?

"For the rich to be comfortable, the poor must be abundant."

Voltaire

John Thacker:

Higher minimum wages do NOT make prospective workers better off. As Jake points out, this is the central argument against minimum wage laws.

Of course, if the labour market is monopsonistic, then a minimum wage can make prospective workers better off AND raise employment, but that's just correcting a market failure.

the central argument against the minimum wage (from an employment standpoint) is that newly elevated price floors would reduce the amount of labor demanded

But if the increase shifted income distribution, demand could well increase instead of decreasing shooting a hole in this argument.

A "shift in income distribution" is just a lump sum transfer - how could it affect aggregate demand? (Sure, it could reduce deadweight losses from progressive taxation, but then government would have to raise other taxes).

You guys are missing the obvious problem here.

Increasing the minimum wage will drive a demand for more automation. Leaving
both legal and illegal low-skilled workers out of a job. At least, that
is, until some new, labor intensive industry starts demanding new workers.

Xmas: That's not the problem, that's their plan!

And, as Joan rightly points out, human capital investment is especially critical to teenagers.

Joan and anon:

Education is not the only form of human capital, work experience is too. A very real example of this are unpaid internships. Teenage occupations have the potential to teach teenagers responsibility and provide teenagers with a glimpse into the "real world". Certainly abandoning school in favor of work as a high schooler is not the best option for the vast majority of teenagers, but the vast majority do not take this route.

Your suggestion that you know what is best for all teenagers is very seriously flawed (and arrogant). The generalization that work necessarily distracts teenagers from schoolwork certainly does not hold for all, much less the majority, of teenagers. In any case, limiting their opprotunities to accumulate wealth and human capital via the minimum wage does not make them better off.

anon,

If labor becomes more expensive relative to capital, firms will shift input costs to capital.

And, you are right, the demand for labor is not fixed. Thus, if the costs of labor increase, demand for labor will decrease relative to capital. Firms will not pay workers above the value of their labor. Employment will go down.

Finally, your suggestion that people unemployed by a raised minimum wage will try to become high-skilled employees via education is wrong. Why didn't they become high-skilled in the first place? Were the returns to education not high enough beforehand?

Jake:

Labour markets are not perfectly competitive. The costs of labor will only increase if the minimum wage is set beyond the marginal productivity of labor. More realistically, addressing imperfect competition in the labor markets involves difficult trade-offs, as you point out wrt. unexperienced workers.

My previous post was dealing with the common fallacy that "once all jobs are automated or go offshore, there will be no jobs left".

I guess "minimum wage" is wrong, but "legal wage" is correct, because I think many farm worker get paid far below the normal minimum wage, but this is legal because the minimum wage is the minimum "non-farm wage".

I don't have any specific studies to site, but you seem to be confused about what exactly the conventional wisdom is:
http://en.wikipedia.org/wiki/Illegal_immigration "Most unauthorized workers are paid well above minimum wage."
http://select.nytimes.com/gst/abstract.html?res=F60C14F635540C778DDDAE0894DE404482&n=Top%2fReference%2fTimes%20Topics%2fSubjects%2fI%2fImmigration%20and%20Refugees
$15 an hour is close to 3 times the minimum wage!
http://select.nytimes.com/gst/abstract.html?res=F2081EFE395E0C768CDDA00894D1494D81&n=Top%2fReference%2fTimes%20Topics%2fSubjects%2fI%2fImmigration%20and%20Refugees

Obviously it's extremely difficult to know the exact number, but the vast majority of illegal immigrants were actually hired legally. Come to San Francisco where I live. Go to Mission street and you can buy a social security card for $5, and a California id for $20. A company can then hire you without breaking the law. When you're hired legally, how could they pay you below the minimum wage?

That same wiki says:
Unauthorized immigrants are especially popular with many employers because they can pay less than the legal minimum wage or have unsafe working conditions secure in the knowledge that few unauthorized workers will report them to the authorities.

the vast majority of illegal immigrants were actually hired legally

This is wrong (tis illegal to hire illegals). However I assume you mean "for a legal wage if they were otherwise here legally"

In my area of California, we pay our illegals $10/hr, occasionally more, never less. Cash, no fake SSN. This is for non-farm manual labor.

I think if the CW says that illegals get paid < minimum they're the ones that need a citation. Does anyone even profess to know how many people actually work for at or below minwage? I remember reading someone write that if they increased the minwage to 7 absolutely nothing would happen because almost no one works for 5 anymore anyway. Of course it would be doubly useless in California, given that state min is already there. And isn't this where most of them come to anyway?

Andrew: The VAST majority (at least 99%) of illegal immigrants get paid at least the minimum wage.

Jody: Andrew, can you provide a citation? Because that assertion runs counter to conventional wisdom.

I sympathize - I had a lot of misconceptions about all these issues until I read the latest issue of Reason, which was (more than usual) a dense mix of unabashed propaganda and crucially relevant facts that somehow have got lost in the debate. Definitely worth a look.

Yeah, turns out most illegals just buy fake ids and go get ordinary jobs. Go figure.

http://www.reason.org/commentaries/dalmia_20060501.shtml
"A stunning two-thirds of illegal immigrants pay Medicare, Social Security and personal income taxes." Kind of sad, really: they'll never see that Social Security money again. (Of course it's possible the rest of us won't either...)

And each year, eight million illegal immigrants voluntarily file personal income tax returns. I imagine most are seeking refunds, but some pay as well. This story says ITIN holders sent the IRS about $300M in 2001: http://www.foxnews.com/story/0,2933,84745,00.html I can't find a source for that, though.

I agree that raising the minimum wage will actually create more illegal immigration, more jobs outside of the formal economy and greater unemployment among the law abiding. Way to go, guys. How very dookaka of you.

What we need to do instead is remove the burdens we've place on employers and achive our social goals directly with government payments to employees or benefit providers. That will get rid of the incentive for hiring outside the formal economy, reduce the incentives for illegal immigration and create jobs for less employable legal workers.

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hope this gets rid of the italics...

I have long argued in favor of a higher minimum wage as a means of eliminating jobs for illegal immigrants. Thank you Mr. Tabarrok for confirming the wisdom of my ideas.

By rasing the minimum wage to $10-12 per hour we could eliminate the jobs held by hundreds of thousands (perhaps millions) of illegals. This would be a huge plus for American workers and the economy of the United States.

Of course, Mr. Tabarrow is now admitting that immigration reduces wages. Otherwise, how could higher wages even possibly eliminate jobs? In the past this obvious truth has been either been denied or ignored.

Thank you

Peter Schaeffer

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