promoting the unwanted, redheaded stepchild that is individual liberty

Immigration and human capital

In economics on May 14, 2010 at 3:23 am

“Free trade is a lot like technology. It lowers the price of things for consumers, expands markets for businesses and provides jobs.” — Drew Carey

“Illegal immigrants are taking jobs away from hard-working Americans.” The claim is repeated often — but is it true?

Some fans of a Facebook page created “for conservative Americans” apparently think so. While perusing the discussions tab, a thread titled “Top Ten Myths About Immigration” caught my eye. The title seemed oddly out-of-place for a conservative group.

The creator of the discussion simply reposted information from the Justice for Immigrants website. Basically, the post attempts to debunk popular myths about immigration. One reoccurring falsehood is that undocumented workers are flooding the workforce with cheap labor, thus stealing jobs from American citizens.

But an understanding of simple supply and demand economics renders this argument void.

The fact is, immigrants would not be able to come to this country and work if it weren’t for market demand. And the market is controlled by consumers, so ultimately, it is American consumers who create job opportunities for their Mexican neighbors.

The argument that somehow an increase in population depletes the number of available jobs is completely illogical. If this were fact, the reverse argument — that a decrease in the population makes more jobs available — would also be true. Job availability has nothing to do with population. It has everything to do with the condition of an economy.

Human beings are not a burden, they are a benefit. Labor, or human capital, is a valuable resource for an economy. And an economy that has jobs available for labor to fill is a healthy one. Robinson Crusoe author Daniel Defoe thought so:

“People are indeed the essential of commerce, and the more people the 
more trade; the more trade, the more money; the more money, the more 
strength; and the more strength, the greater the nation…All temporal 
felicities, I mean national, spring from the number of people.”
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  1. It isn’t simply that illegals are taking jobs. They are, but that’s only a portion of the impact.

    First, jobs are finite. There are only but so many to go around. Obviously, as you stated, the numbers depend on the economy. When the economy is booming and more people have demand for a product, there are more jobs, as the need to produce product to meet demand requires an increase in the labor force. In a bad economy, the opposite is true. The labor force decreases. When jobs are fewer in number but the population increases due to illegal immigration, there’s bound to be friction there. To put it another way, if you have 100 people vying for 50 jobs, you have competition with decent odds of coming out on top. If you add another 15 people to that mix and now have 115 people for the same 10 jobs, there’s going to be some animosity. Now factor in that 15 of those 115 are willing to work below the wage of the rest (which I discuss below), thus all but guaranteeing them jobs, and you have in effect 100 people now vying for 35 jobs. The odds have gone down considerably, and no one is going to be happy about that. Our labor force is currently roughly 153 million. Add an estimated 20-25 million illegal immigrants (13-16% of the labor force) and you start to see friction, especially when those additional numbers are not under any obligation to play by any set of rules.

    Next we have the way illegals are often employed, which goes to your “cheap labor” point. They will often work for below minimum wage, making them more attractive to businesses than the native labor force. As they are illegal, there’s no need to enforce minimum wage laws, and many if not all will also work without being on the tax rolls. Then, because they are working for very little pay, many find ways to get government assistance in order to survive. Therefore they draw from the government without contributing. This further drains the economy. In fact, it’s estimated that 43% of all food stamps issued in the United States go to illegal immigrants. Let’s check to see where we are at this point. So far we have increased numbers vying for fewer jobs, workers who are willing to work outside the wage rules in order to take jobs, and workers who are in fact ultimately a cost to society rather than a net gain. Add in that many will send their money — for which they’ve paid no taxes — back to their families in their home countries, where it does little to nothing to benefit our economy. Those things more than counter any benefit derived by simply having a warm body to do a job. We end up with workers who don’t make enough to survive relying on the public for support, paying no taxes on the wages they earn to offset the costs, while the potential worker from whom they took the job also has to live off the public. One person fills a job yet creates two more people on the dole, and sends the majority of what wages they do make out of the country. This doesn’t really seem like a viable economic plan to me.

    Now are those things all the fault of illegals? Not at all. Many businesses love illegal aliens because they’re getting labor at a reduced cost. Why hire a high school dropout at minimum wage who’ll do little but complain all day and barely do enough to get by when you can hire someone who will work hard for half that wage? They don’t look far enough to see they’re actually hurting their business in the long run by reducing the number of consumers who can afford their product. That’s for someone else to deal with. Businesses must be compelled to not hire illegal aliens, and must be severely punished financially for knowingly doing so. That will serve to reduce the numbers coming over the border. If they can’t get work, the reason to cross the border is reduced or eliminated.

    Lastly, we cannot forget the most important factor in this argument: These people are here illegally. We have immigration laws, and they choose not to abide by them. Some may not like the law, but it still stands. If one does not like it, one must work to get it changed. We must continue to enforce it until that time. If we are each allowed to pick certain laws we feel we can just ignore, we’ll descend into anarchy fairly quickly. There is nothing at all wrong with immigration. Our history is built around it, and our future survival depends on it. But we have to be able to control it, and we can only do so by enforcing our immigration laws. That means using any and all humane means to eliminate illegal border crossings, from erecting fences to apprehending illegals inside the country to eliminating the available jobs for them. Failure to control immigration will make our economy completely unsustainable in the long run.

    I’m all over the place with this post, I know. I should learn not to multitask when trying to make a point. Even so, we cannot sugarcoat what illegal immigration does to an economy. I’m all for increased legal immigration. But we have to stop the ones who are outside the system. It’s a disaster waiting to happen, exacerbated by the current state of the economy.

    • Moose,

      Your argument about a finite number of jobs and how people in a slow economy vie for them is illogical. Let’s not forget that workers are also consumers. As the population grows, more jobs are needed simply because of consumer demand. Again, population has nothing to do with the economy or number of jobs available.

      “Therefore they draw from the government without contributing”:
      If undocumented persons are being paid too little to meet their basic needs, perhaps we should document them and pay them minimum wage — of course, the cost will be passed on to the consumer.

      The claim that undocumented persons living in the U.S. do not pay taxes is unfounded. Most pay state and federal taxes out of their paychecks and all pay sales, property and other such taxes.

      However, the greatest benefit these people provide for Americans is lowered product cost. Because of immigrants hard work, Americans enjoy a higher standard of living.

      It is hard to find a definitive answer on the “costs-versus-benefits of illegal immigration” debate. I have seen contradictory statistics. However, it is impossible to measure the benefits reaped from cheap labor.

      One thing is for certain, the market does not lie.

      Your statement, “They don’t look far enough to see they’re actually hurting their business in the long run by reducing the number of consumers who can afford their product,” does not make logical sense. Businesses hire undocumented workers because it is in their best interest to do so. They are not “reducing the number of consumers who can afford their product.” Rather, they are lowering their cost of production therefore lower the cost of the product for consumers. Illegal immigration is a net benefit to the U.S. economy.

      Finally, all laws are not created equal. Our current immigration laws are disastrous and immoral. You suggest tougher enforcement of our current immigration laws and a fence around the border. I see these “solutions” as only furthering the problem. We already have a partial fence on the border and more agents stationed than ever before. Yet illegal immigration is only increasing.

      Why not change the laws to allow anyone who is willing to work and does not have a criminal background to live and work in the U.S.? The free flow of labor, like goods, increases economic prosperity. Knowing who these people are by allowing them to reside here legally is the solution.

      One last thing: I’ve decided to refer to persons who illegally reside in the U.S. as “undocumented persons” or “immigrants” rather than “illegals” or “illegal immigrants.” You’ll notice when you type the word “illegals” in a Word document spell check corrects it. This is because illegal is an adjective/adverb. It is not a noun and cannot be used to describe a person. Human beings, by definition, cannot be illegal. However, their entrance into and residence within the U.S. can be.

  2. You may choose to refer to illegal aliens as you wish. I’ll continue to refer to them as illegal aliens, or “illegals”, because that is what they are. You’ll notice if you type your last name in a Word document, spell check will correct it. That doesn’t prove you do not exist. 😉

    Your theory on population and jobs sounds great on paper, but it fails to take into account the economic viability of those persons. If everyone of your theoretical persons were middle class, perhaps your plan would work. You could put a million new souls in an area, but if few of them are able to afford the products offered at the current price, demand will not go up simply because of population growth. That will only occur for “need” items, and some will not even be able to afford those, instead relying on either the kindness of their neighbors through charitable donations, public services paid for by the taxes of their neighbors, or eventually and unfortunately, theft. If the population grows too quickly, as in the case of illegal immigration, then the market cannot respond quickly enough, and there aren’t enough taxes being paid by those who work to support those who do not. Jobs don’t magically appear simply because there are people there, especially when they growth in population is a large percentage of unskilled workers with little to no possibility of landing work that pays a living wage. You end up with an economic nightmare that takes years to correct. In the mean time you have poverty, starvation, and civil unrest. Hungry, unemployed people do not make the best of neighbors. That’s doubly true when many of the ones who do have the jobs don’t speak the language, and by law are not supposed to be here.

    I’d be interested to see a citation that “most” illegal immigrants pay payroll taxes. If they do not have valid social security numbers, how are they paying payroll taxes to the state and the feds? And if they’re here illegally, how do they have valid social security numbers? Yes, everyone pays sales taxes. However, when a good portion of what they earn is being sent back to their home countries, not much of that is then being spent in the community, and therefore no taxes are being earned on it. In short, for unskilled or low skilled workers, what they pay in taxes is generally going to be less than what they take in the form of public services (public education, food stamps, welfare, etc.)

    Businesses hire illegal aliens because it is in their best interest in the short term. Cheap labor is cheap labor. But if, for example, you’re paying your workers $300 a month, the average rent in the area is $250 a month, and your product costs $400 to buy, you’re not going to sell much locally. You hit a point where you as a business can sell X number of product at Y price with Z labor force, and that’s that. No more jobs. Anyone else still there is out of luck, and bringing in more people to the area who cannot afford the product is not going to create more jobs. Short term, businesses profit from illegal aliens. Long term, they do not. That applies throughout the economy. To claim that illegal immigration is a net benefit to the economy is something I’ve seen no reputable economist say. Immigration is absolutely a net economic boom to the country, when taking into account the high skill level immigrants who come here legally. Illegal immigration, however, is predominately low or unskilled labor, and is a net detriment to the economy. More information on that can be found at http://www.cfr.org/content/publications/attachments/ImmigrationCSR26.pdf . Yet another reason why immigration needs to be controlled. As an analogy, let’s say you’re a landlord. Someone offers to give you a rental property that costs you $500 a month in fees and taxes, but rents for $1000. You’d probably snatch that up, as you’re gaining $500 a month. Good deal! But in order to give you that property, they also demand that you take from them five other properties, each of which costs $1000 in fees and taxes a month, and rents for only $500. The deal doesn’t look so good now, correct? You’re losing a net $2000 a month. If we’re gaining five unskilled illegals for every skilled legal immigrant, are we coming out ahead? If we open the borders to all of them, is that really economically feasible? As I’ve stated before, higher fences, but bigger gates. We can afford to increase immigration, but we have to be selective as to just who gets in.

    The idea that our current immigration laws are immoral is simply opinion. That being the case, you are obviously entitled to it, and if you’re willing to do so, you’re also entitled to work to change those laws. As I stated before, simply choosing to ignore a law that you do not like is not really a viable option. There are several laws with which I’m not all that enamored. I have to follow them, or pay the consequences when I am caught breaking them. Someone like Kelly Maddy has the right idea. If you do not like a law, you work to get it changed. I support him in his fight to change those laws. However, if someone gets arrested tomorrow for possession, there’s not a lot of sympathy, as they know it is currently illegal. It is currently illegal to immigrate here outside of the laws and regulations we have in place. Choosing to break that law is a criminal act.

    Lastly, as to your point of illegal immigration increasing even though we have a “partial” fence and more agents: Of course it is. We have a large group of people in the United States who refuse to enforce the immigration laws, including several in political positions of authority. If one leaves one’s door unlocked and puts up a big sign that says “I’m not home, come take what you want, I won’t press charges”, can one be surprised to come home and find the house cleaned out? What we have in place to stem the flow of illegal immigration at the moment is comparable to putting a tiny Band-Aid on arterial bleeding. Until we apply a tourniquet, it won’t stop. When we have people whose idea of “helping” is to hack at the open wound with a machete, it’s unlikely we’ll see the patient recover any time soon.

    I’m enjoying the discussion. We obviously disagree on most every point, but I appreciate being able to discuss it with you civilly.

    • Moose,

      Firstly,

      I read the CFR report. Notice its sources are men such as Pat Buchanan and Tom Tancredo who refer to undocumented persons as “the enemy” and illegal immigration as an “invasion.” Books referenced include titles such as “State of Emergency: The Third World Invasion” and “Conquest of America.”

      I am highly suspicious of anything CFR produces. Its president, Richard Haass, favors weakening American sovereignty — or any nation’s sovereignty for that matter. In an article for the Taipei Times Haass wrote:

      “State sovereignty must be altered in globalized era.

      Our notion of sovereignty must therefore be conditional, even contractual, rather than absolute. If a state fails to live up to its side of the bargain by sponsoring terrorism, either transferring or using weapons of mass destruction, or conducting genocide, then it forfeits the normal benefits of sovereignty and opens itself up to attack, removal or occupation.

      Globalization thus implies that sovereignty is not only becoming weaker in reality, but that it needs to become weaker.

      Moreover, states must be prepared to cede some sovereignty to world bodies if the international system is to function.”

      Secondly,

      According to The Tax Foundation, many undocumented workers pay state and federal taxes either by using an invalid Social Security Number or, more commonly, a Tax Identification Number:

      “It is true that many undocumented immigrants pay payroll taxes (i.e. FICA and Medicare) using either an invalid Social Security number or a Tax Identification Number (TIN), and empirical evidence tends to show that a large fraction of the economic incidence of these taxes falls on workers.

      The IRS has seen an increase in the number of tax returns filed using an Individual Tax Identification Number. The system originally was designed for people living abroad who had investments in the US. But it quickly is becoming used by undocumented workers who aren’t eligible for Social Security numbers. Last year, 1.4 million people filed tax returns using the numbers. That’s an increase of 40 percent over the previous year. In 2003, 7,600 people in New Mexico requested the numbers.”

      “Some of these same individuals also pay income taxes, assuming their reported adjusted gross incomes are high enough to where they actually have a positive liability.”

      And in a USA Today article, AP writer Travis Loller said, “The tax system collects its due, even from a class of workers with little likelihood of claiming a refund and no hope of drawing a Social Security check.”

      Finally,

      Your argument about the skill level of workers is invalid. Hardworking people are an asset to an economy regardless of skill level. Likewise, hard working Americans possessing only a high school diploma are an asset — not a burden. By their very nature, immigrants are ambitious, hard working people. After all, most have left their families, homes, countries and risked their lives to better themselves.

      I should be studying for finals so I will now cease my rambling. 🙂

  3. A person can be horribly wrong on one topic and still make valid points on another. The nut sitting next to me at the bar mumbling about space critters which are hiding out in the bathroom holding top secret conversations with giant koala bears in fluent Afrikaans might still have a valid point when he mentions that the chicken tastes a little “off”. It’s entirely reasonable to question a source, but don’t be too quick to dismiss one due to past disagreements.

    The Tax Foundation article you cite doesn’t mention numbers, other than the 1.4 million using TINs. Even if we double that number to account for those who have illegally obtained social security numbers, we have 2.8 million of an estimated 20+ million illegal immigrants paying payroll taxes. While it may be an argument of simple semantics, roughly 15% doesn’t qualify as “most” to my way of seeing it.

    And as for the skill level, it really does make a huge difference. No one is questioning how hard anyone works. In any economy certain skills are valued over others. When you have a large group with very few marketable skills, no matter how hard they work, they aren’t contributing as much to the economy. That’s not intended as an insult or to be looking down my nose at certain jobs. Those jobs are vital in their way. It’s simply a statement of fact. Too many unskilled workers in a market with out enough unskilled jobs for them to fill, and you have the makings of a serious economic imbalance. From both a personal and an economic standpoint, if I need a doctor or a lawyer or an engineer, a ditch digger isn’t going to help me, no matter how hard he works.

    Good luck with finals!

  4. Immigrants… illegal or otherwise are what our country is made of. The idea that the number of jobs is finite is ludicrous… the number of jobs expands or contracts with the economy. However, the number of jobs is not always in balance with the number of people looking for work. One thing I have noticed about Mexicans is that they are always looking for work and working. They have a place called “under the bridge” in KC. We had more yard work at my wife’s house than we two could do, so we went to “under the bridge” and hired a couple of Mexicans to help us out. Man! I’ll never make that mistake again! Those two guys nearly worked us to death… they refused to take a break. By the way, don’t confuse “under the bridge” with on the on-ramp… the guys standing there are fully legal Americans, but they are not actually looking for work.

  5. Steve, when I say “finite” I don’t mean finite as in a hard number. I mean finite as in “there is a limit before profitability is affected”. Wal-mart could, out of the goodness of their hearts, hire tomorrow every single person in Joplin who needs a job. The jobs can be created. However, that would last only a short period before Wal-mart goes under and the jobs again disappear. You could hire 4500 people to work on your lawn instead of just “a couple of Mexicans”. Why do you not? Therein lies my stance that jobs are “finite” within an economy. When this economy improves, jobs will come with it… but not an unlimited number of jobs. The number of available jobs varies every day. Some days there are more, some days less. Perhaps I should have been more clear as to what I meant by “finite”. In this case I mean “the opposite of infinite”. The number of jobs certainly isn’t infinite, if one takes into account economic realities and profitability.

    By the way, the illegals it sounds as though you admit you hired… I’m sure you paid them exactly what you would have paid TruGreen or another lawn company to do the same amount of work, didn’t you? They weren’t willing to work for less, were they?

  6. First of all, I don’t believe they were illegal. Secondly, I would never hire TruGreen, regardless of the availability of other labor. They would not be willing to do the work I needed done.

    Finite within the economy is true, but that is not how your first argument sounded. Theoretically, the number of jobs is infinitely expandable… the catch to that is the population and the demand for labor. As new people come in they create new demands and the pool of jobs expands. At any given moment in time, there are only a certain number of jobs open, but that situation is fluid… it can either expand or contract.

    If you prefer to hire the guy at the end of the WalMart driveway with a hand out instead of a Mexican, help yourself. I have tried both and I can tell you which one works.

  7. I don’t care about nationality or ethnicity, Steve. If they’re citizens or are here legally, know how to do the job, and are willing to work, great. There are minimum wage laws, of course, which is another of the laws I don’t like but can’t just choose to ignore because I think it’s none of the government’s business. If the guys you hired were legal, great. Personally I believe it should be as much of or an even greater crime to hire illegals than it is to illegally immigrate. The death penalty might be a bit too sever a punishment (I kid! I kid!), but astronomical fines and prison time should be involved. Stop hiring them and a large portion of enforcement is already taken care of.

    And yes, my “finite” statement did read as though I meant some hard number rather than finite within the economy and within the realm of profitability. I’m hopeful I clarified that I meant “not infinite” as in jobs won’t be created just because people come to an area and want them.

  8. Jessica great blog, and your point is well taken. I do not entirley agree but your views on it being an economic problem are correct for sure. I do think that all immigrants have to be legal to work here, for many reasons but still well said.

    The real issue here are the companies that just can’t even afford to stay here anymore. My hometown in Waterbury CT used to be known as the brass center of the WORLD, until it became way too expensive for them to stay. We used to produce 1/3 of the ammunition for the entire country during the world wars, among many other things. We used to house tens of thousands of jobs, in one little city, and as a result came many other places like bars, and retail. But like many others accross the nation, the cost of living and conducting business has just gotten way out of hand, and they cant afford to be here anymore.

    Our domestic and foreign policy have ruined it for us, and companies just cant afford it anymore. It shouldent be cheaper to bring our goods in over seas, it just doesnt make sense! The Federal reserve debasing the dollar, creating endless debt, and encouraging government over-spending, is what is killing us, and if it werent for that, we wouldent worry about immigrants coming in to fill the jobs.

    Great blog! I may not totaly agree but it’s very well thought out.

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