Immigration, Wages, and Broken Clocks

When this publication was founded in January 2011, it was the product of several years of endless frustration with the direction of this country, its leaders, the lack of good answers on either side of the political spectrum, and an acute dissatisfaction with those leading the charge against America’s principles and institutions—namely the Obama Administration. It is not often since that time that we have agreed with the administration, but as it is said that even a broken clock is right twice a day, so an irrational administration may be right once every few years, and when it is, as a matter of integrity, it is incumbent upon all rational Americans to admit it and encourage reason as firmly as we condemn its opposite.

Such was the case in the White House press room yesterday, a room which, under the heading of Robert Gibb and now Jay Carney, has been the scene of some of the most mind-numbing (if at times darkly entertaining) distortions and machinations of the Obama White House, and a metric of just how gullible they think Americans are this week. The proverbial flower of light in a field of darkness came in a series of questions and answers on the recent debate over immigration reform and amnesty.

At the end of the exchange, Jay Carney commented, “In fact, comprehensive immigration reform–I’m sure this is of interest to at least one reporter–would significantly reduce our deficit, would expand economic growth, would raise wages—“ At this time audible laughter erupted from the press corps, before Carney continued, “—and would enhance our, you know, the creation of innovative businesses.” It is an unfortunate irony that of all the absurdities spilled forth from the White House’s press machine, this should be the statement to provoke laughter. Unfortunate—because it might actually be true. Admittedly, for all we know, the White House’s line that immigration reform will help the economy is just that– a line, and one they don’t even believe. Its long history of ignorance to economic principle and consistent privileging of its own political gain over the good of the country would seem to support the suggestion. But that doesn’t make the line wrong.

There is a bipartisan misconception as to the economic effects of immigration, one that holds that immigration leads to economic detriment for those who already live in the receiving country, who are citizens and either have or are seeking paying jobs. The myth teaches us that immigrant labor “steals” jobs from American citizens who can’t support themselves or their families on the same low wages that immigrants are willing to take. It characterizes immigrants as a drag on the economy and a threat to the country’s fiscal future. Nothing could be further from the truth.

Wages and Employment

Let us take the case one myth at a time, starting with the question of wages and employment. The first error to be disposed of is a moral one: the notion that immigrant labor “steals” jobs. This is a fallacy at the most basic level. The fact of the matter is that none of us owns our job. Our employer, the owner of the company that hires us—whether an individual or, in the case of a publicly owned company, the shareholders—owns our job and we contract with them for a wage, but ultimately it is theirs to fill as they see fit. If they should find someone—immigrant or native—who can do the same job for a lower wage, it is their right and privilege to choose the best person for the position. To claim otherwise or to guilt employers for doing so is to deny them their right to pursue their own best interests and to demand that the owners of a company, by virtue of being entrepreneurs or shareholders, should devote their labor to the service of others.

Economic Growth

The corollary economic myth to this is that such practices—employers consistently choosing the best person for the lowest wage—is in any way to our detriment. In fact, the opposite is the case. When employers throughout an economy consistently choose employees who offer the best performance for their dollar, something economically profound happens: efficiency increases and the prices of goods and services fall! Thus, the overall price level faced by consumers throughout the American economy (or the economy of whatever country this process transpires in) falls accordingly. Capital that would have been spent on labor can then be reallocated into new endeavors, starting new businesses and increasing the productivity and profits of pre-existing ones, thus spurring economic growth. Through this process, it can well be argued that immigration doesn’t cause unemployment, but rather more employment. This is how sustainable, long-term increases in quality of living occur. It is how they have always occurred.

“But what about the American (or otherwise native) worker?” critics will demand. The answer: he shares in those increases as much as anyone. Let us use a parable to see what happens to him. Assume that John, an American, is a cement layer servicing construction projects of many forms and sizes. After a wave of immigration, John sees that his competition—composed largely of immigrant workers—is receiving many contracts that would otherwise have been his. John, however, has cultivated responsibilities, commitments, or a lifestyle that forbids him to operate on such low commissions as his competitors demand. John is left with a few choices: having greater experience than his new competition, he can opt to start his own company, relying on his years of experience to take on a managerial position and perhaps even hire his competition, merge with them, or buy them out while their costs of labor and overhead are small; he can move his business elsewhere, evading competition; or he can otherwise exit the marketplace and apply his skills and experience elsewhere.

In the process, however, John’s community will be able to achieve the same construction projects at a lower cost, thus lowering the financial outlays of local businesses and governments for their construction needs. If this were to occur in just the local cement-pouring industry, the effect may not be so great, but across industries—construction, trades, foods, retail, services, etc.—the cost of living to the whole community lowers and the standards of living rise. Even if John’s nominal wage—the number on his paycheck each month—lowers, his real wage—what he is able to purchase with that paycheck—will rise.

In the end, this what we care about: real wages and real wealth. If everyone in the country made 10% less income, but all goods and services cost 10% less, the net effect would be zero. However, history has shown that efficiency gains on a free market outpace nominal declines in income, generating real gains in wealth. This is how, after a century of the Federal Reserve degrading our currency, Americans today enjoy a higher quality of living than they did a century ago. Indeed, few economic studies on the subject find substantive declines in the wages of native laborers. “But,” critics will proclaim, “that’s just a lot of theory and speculation. Where’s the proof?” The answer: all around you, but particularly in those periods of history when immigration was appreciated for the economic benefits it could yield.

As evidence, one need only look to America in the late eighteenth and nineteenth centuries, a period of mass immigration in which the quality of living, available technologies, and life expectancies skyrocketed while things like disease and infant mortality rates fell markedly*. And for those wont to arbitrarily claim that economic examples have an expiration date and that the ‘changing world’ we live in somehow changes economic principles, know that the benefit of immigration has long been one of those elusive subjects uniting economists of many predispositions, but dividing them from the general public. By some estimates, the benefit is such that open immigration would render to the world a 67-147% increase in global GDP within the first few years while a Cato Institute study found a benefit of $180 billion to the US economy in the first decade.

The truth is that the burden of proof is soundly on those claiming that immigrants are a threat to a country’s economy, and it is an immense burden, for they are required to argue not only against the moral right of individuals to contract and do business without coercion and a broad agreement among economic theorists, but a century of progress that saw the single largest and most rapid increase in quality of life in the history of humankind, as well as modern statistics that show the incredible propensity for innovation of immigrants and their far greater likelihood of being entrepreneurs– a species that a thriving economy always needs, but especially in today’s tough economic environment.

But Aren’t They In It for the Welfare?

In arguing the economic benefits of immigration, one invariably comes upon the claim that immigrants come to America (or other developed Western countries) seeking welfare payments or other government benefits. The evidence, at least in the US, is soundly against this claim. When the recession hit, job availability plummeted and, as with all economic downturns, affected first those who employers were reluctant to hire in the first place—immigrants. However, with jobs on the decline and welfare benefits still intact, immigrants from south of the border weren’t sticking around and, for the first time in years, the US saw immigration from that part of the world decline to approximately zero—with possibly even a net outflow of immigrants from Mexico and Latin America.

As for those who remained, their effect on entitlement programs may surprise you. As an excellent article from the Cato Institute’s Alex Nowrasteh argues,  “Without immigration, America’s welfare state would actually go bankrupt sooner.” He continues,

“A recent study in the journal Health Affairs shows that in 2009, immigrants paid $13.8 billion more into Medicare Part A than they received in benefits. Noncitizens were responsible for $10.1 billion of that $13.8 billion surplus. By contrast, native-born Americans drew $30.9 billion more from the system than they contributed. From 2002 to 2009, immigrants contributed a total surplus of $115.2 billion to the Medicare trust fund. Immigrants, especially non-citizens, contribute a surplus”

Philosopher Andrew Bernstein likewise argues in Forbes,

“Some argue that because of America’s current welfare state, the country cannot afford an open immigration policy. This is false for two reasons. One is that a welfare state is pernicious to both those funding it and those parasitical off of it; the former, because they’re robbed—the latter because its perverse financial incentives support men’s most indolent premises, and seduce onto the dole many who could otherwise gain minimum wage employment. From purely humanitarian considerations, the welfare state must be irrevocably dismantled, regardless of America’s immigration policy.

Second, most persons who ship out of the only society they’ve known are rationally ambitious individuals. The U.S. is the favored destination of such rationally ambitious persons because they recognize that America is the greatest country on earth—and is so, not because it has welfare programs, but because its mixed economy contains more elements of capitalism and fewer of statism than any other nation.”

What’s more, history supports this. From Andrew Carnegie and Nikola Tesla to Albert Einstein, Ayn Rand, Ludwig von Mises, Subranhmanyan Chandrasekhar, Madeleine Albright, Sergei Brin, and countless more, America has gained immeasurable benefit from its immigrants. Regardless of economic projections, the true economic benefit of immigrants is immeasurable, as no one knows what potential, what ideas and abilities rest in the minds of countless individuals overseas or how they might actualize those ideas in coming here. If the technological progress of the last few decades has proven anything, it is that the mind of one person like Bill Gates or Steve Jobs (whose biological father was a Syrian immigrant, by the way) can improve the productivity and well being of the world literally beyond measure.

Without a doubt, welfare and entitlement programs leave every bit of room for abuse, whether one is immigrant or native. But beyond this, even in their intended capacity, they are fundamentally violations of individual rights and immoral (a point which has been well-argued elsewhere, so I’ll refrain from going into it here).

So, one is brought to ask, why accommodate one unjust system with the perpetuation of another? Why deny the rights of immigrants so that we might continue to deny the rights of citizens? Why sacrifice economic success in one capacity so that we might continue to injure it in others? If you’re concerned about immigration being a drain on the welfare system, direct your anger where it is well deserved: on the system itself. If the worst and most detrimental parts of our political system are preventing us from accepting what could be the best, don’t throw out the good for the sake of preserving the bad. And, finally, why laugh at Jay Carney on the rare occasion he gets one right? Let’s enjoy these moments when we can—it might be a few years before we get another.

 * For an excellent assessment of the subject, I recommend historian Robert Hessen’s work on the Industrial Revolution.

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