Funmurphys: the Blog

Immigration Ecomonics

I expect you've heard this big picture thermodynamics question before: You have a thermally isolated room with a refrigerator. You plug the refrigerator into a working outlet and open its door. Does the room get colder, warmer, or stay the same? The answer is that the room gets warmer because the total energy in the room is increasing due to the electricity flow via the plug. If you look at the big picture, it's really a very easy problem.

So we come to the point of this post, the effect of large scale immigration on workers. The relevant law here is that of supply and demand, and if you increase the supply of workers, the price at which they are employed will inevitably fall relative to the price without an increase. Now it may well happen that if the increase in demand is greater than the increase in supply the actual price increases, just less than it would have if there had been no increase in the supply. So if you get a lot of immigrants who are increasing the supply of labor, then that will inevitably lower the price everybody is getting paid in that labor pool relative to what they would get without a change in labor supply. I'm not saying this is a good or bad thing, I'm just saying what happens.

What sparked this particular post is a John Tierney column which would appear to be behind the Times Select Wall since the St. Louis Post Dispatch ran a column the NYTs published May 30th today. I'm a fan of Mr. Tierney, but I think he stumbles a bit in this article as he's pretty breezy with one consequence to large scale immigration (legal or not). And yes Virginia, there isn't just one consequence.

First off, neither Mr. Tierney or I compete in the same labor pool with the overwhelming majority of immigrants, so we are able to offer a bit more detachment than those who do. I admits its easy to blase, even upbeat about trends that you don't think affect you.

Secondly, Mr. Tierney makes the common mistake of confusing an anecdote with data. He offers the nice tale of a native American women (not to be confused with Native American) who loses her nail salon to the more numerous, lower cost salons run by Vietnamese immigrants. But she lands on her feet by going freelance and working for the wealthy of LA who are willing to pay to have someone who can carry on an intellegent conversation while doing their nails at home. So, despite the fact that a particular person was able to land on her feet, did the average wage in the nail salon business go up or down? Mr. Tierney doesn't comment on this directly, but I think we are safe to infer from the rest of the story it went down. And I'll point something out that Mr. Tierney doesn't -- the (better) job that his nail salon owner found existed before she found it; that is there were plenty of wealthy people who were willing to pay extra for in home nail care before the Vietnamese took over the salon business, its just that the salon owner was comfortable in her job and was not looking to make a change. But what about the wages of such freelance workers - have they gone up or down with the influx of American workers into that niche, displaced by the Vietnamese into the salon business? Again, Mr. Tierney is silent on this subject, but uses the anecdote to claim out that everything will be just fine for all the displaced workers because everything worked out for the particular lady he featured. What would the story have been like had this particular worker moved into the at home/freelance nail business several years ago? Would it have been quite to happy and upbeat? Or would she have been complained of declining wages due to the increased competition with her fellow natives who were moving into the business?

Well, I have no doubt that some workers will move to better jobs because they will actively seek jobs where they weren't looking in the past. But I also have no doubt that some workers will not move to better jobs, and there will be downward pressure on the wages of those workers who remain in their jobs.

And whether you considered this a positive or negative affect might depend if you were a worker in the field, or if you were a consumer of this product or service who was seeing a decline in its price.

And this raises an even bigger point for me -- I think we are better off as a nation looking at the issue, exploring the costs and benefits, weighing the options, and then devising the laws and regulations through the political process with representative government, than we are with our current system of immigration policy by default, with inflows determined by the immigrants themselves, because they aren't looking at the big picture, nor would I expect them to. They are looking at what it means to them.

One of the problems with illegal immigration is that not only the immigration, but so much of the life of such an immigrant takes place off the books. And as Hernado De Soto observes, this life in legal limbo is what makes so many countries poor, and will certainly hurt our own nation. So for me, whatever else the outcome of immigration reform, I just want to see the illegal, off the books part brought back into the law, back onto the books.

A great American Stephen Decatur once said "Our country! In her intercourse with foreign nations may she always be in the right; but our country right or wrong.” I'm going to say: "Our representative goverment! May the outcome of our representative government always be in the right; but the process of representative government right or wrong."