Subbing for Andrew Sullivan, David Frum rehashes the lump of labor fallacy
But here’s a crucial fact that Brookings omits: that 125,000 per month increase in the US labor force is not a law of nature. In fact, during the Bush years, more than half the growth in the US labor force was due to the arrival of immigrant labor.
Immigrants now make up some 15% of the US labor force. They are concentrated in the less skilled portion of the labor force and in industries hardest hit, especially construction.
If immigration levels were curtailed, the job gap would be a lot smaller. And if illegal immigrants returned home, rather than being put on a “path to citizenship,” the problem of putting the unemployed back to work would be smaller and easier.
The US population and thus the number of job seekers has grown fairly remarkably over the last 200 years. Why is it that unemployment hasn’t grown steadily as well?
Because every worker is also a consumer. When you send a immigrant worker packing you are sending his consumption packing with him. For those who have trouble with the abstract interwovenness of the economy think about it this way: Is the one thing our economy really needs right now fewer residents and thus less demand for housing?
If anything we have a construction industry which is predicated on a large and growing population. Perhaps faster growing than we can maintain, but in any case, slowing down growth is not likely to improve matters.
Ryan Avent has made some important points about the structural problems in the labor force. And, this is something that I hope I’ll get a chance to address directly.
But, I will reiterate, we didn’t get smacked with some grand structural calamity in the last 24 months. We got smacked with a huge increase in liquidity demand and federal funds rate stuck a zero.
Innovative monetary policy is the solution1. Not the 2010 Smoot-Hawley labor trade restriction act.
(1) I am not rejecting fiscal policy as fiscal and monetary policy become mixed at the Zero Lower Bound.
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Friday ~ July 16th, 2010 at 6:14 pm
Matthew Yglesias » Endgame
[...] Frum and the lump of labor [...]
Friday ~ July 16th, 2010 at 6:51 pm
Lord
Not if they are replaced with the unemployed, though that may not be so likely.
Friday ~ July 16th, 2010 at 7:18 pm
Yissil
We got hit with the worst unemployment since the great depression is what we got hit with. Blaming it on Mexicans is like blaming the fall of Lehman brothers on the custodial staff.
Friday ~ July 16th, 2010 at 10:44 pm
Steve Sailer
“Is the one thing our economy really needs right now fewer residents and thus less demand for housing?”
Because letting in huge numbers of illegal immigrants during the Bush years to build houses in the exurbs of California, Arizona, Nevada, and Florida so that residents could get their kids out of schools flooded by illegal immigrants’ kids really worked out well for all concerned the last time!
Saturday ~ July 17th, 2010 at 7:18 am
evan
The problem you identify with Frum’s argument isn’t the real issue. Of course every worker is a consumer. And sending home all those illegal hispanic immigrants would certainly send home consumers, but what kind of consumers? Many hispanic immigrants do not intend to reside permanently in the United States. Often they are young males who are working in the US at higher paying jobs than they could find in Mexico, and doing so with the intention of building up a nest egg for their family back in Mexico. They frequently send a lot of the money they earn home each month.
When they do “consume” here in the US, what to they tend to buy, and where do they tend to shop? Much of their money is spent in predominantly hispanic neighborhoods, where non-payment of sales tax is a huge problem. I would also venture to guess that much of the consumption by the obviously frugal and still low-paid illegal mexican immigrant workers consisted of a lot of cheap foreign-made goods purchased at stores like Wal-Mart. Larger purchases like cars, I would guess, tend to be second hand.
Finally, if Frum is correct and illegal mexican immigrants have soaked up jobs that otherwise would have went to US citizens, then the economic effect of losing those worker/consumers to deportation would be balanced out by wages earned by the newly employed.
And that’s where we find the problem with Frum’s argument. There weren’t very many citizens were willing to do those jobs at wages which made them available. For whatever reason, we have a shortage of people in this country who are willing to build homes, wash dishes, & mow lawns at a price US consumers are willing to pay. Therefore we imported labor. The problem isn’t some “fallacy” of economic thinking, but a deeper problem with the american labor market & its appetite for menial work.
Saturday ~ July 17th, 2010 at 9:24 pm
drbobby
I’m not sure evan knows what he’s talking about. how do you know where the average immigrant shops? where he dines? what he buys? I don’t think there are statistics out there to substantiate his claims. In my community most of the “menial” jobs are well-paying and taken by citizens.
Sunday ~ July 18th, 2010 at 1:49 am
Jon H
“There weren’t very many citizens were willing to do those jobs at wages which made them available. ”
Also, their employers aren’t necessarily eager to hire an unemployed American college grad or mid-career white collar layoff victim to do the job.
There’s this weird idea a lot of people seem to have, that if you’ve had a job making $X, then you will automatically get hired for any job paying less than $X, especially if the difference is large.
That’s not how it works in the real world. The employers hiring people for low-wage jobs don’t want overqualified people, because they expect such people to bolt ASAP.
Monday ~ July 19th, 2010 at 5:03 pm
John
Much of the earned income from illegal and legal immigrants is sent back to the home country
that pulls consumption dollars out of the U S economy, further stifling any hope of economic recovery
Saturday ~ July 17th, 2010 at 11:09 am
al-Fubar
Immigration rates WILL be ‘curtailed’ – not by border fences or racial profiling, but by the lousy job market. Prospective immigrants aren’t stupid. It was one thing to pay a ‘coyote’ to get you across the border when you could count on a drywall or hotel maid job that would pay more than you ever made at home. But paying to be dumped on a Sunbelt street corner with no job prospects?
So long as unemployment is high, immigration will fall and the labor force will grow more slowly, allowing the balance to be restored more quickly than the Brookings graph implies (though it will still be painfully slow).
Saturday ~ July 17th, 2010 at 11:15 am
Milton Waddams
Evan writes:
“but a deeper problem with the american labor market & its appetite for menial work.”
Is this a problem with the American labor market, or with the salary being offered? As you said in the same post, “Often they are young males who are working in the US at higher paying jobs than they could find in Mexico, and doing so with the intention of building up a nest egg for their family back in Mexico. They frequently send a lot of the money they earn home each month.”
So because a dollar of salary can go a lot farther in Mexico than in the US, the Mexican immigrant, legal or illegal, can sacrifice in the short and intermediate terms, build up a meager savings, and then live better in Mexico in the long term.
The American worker doesn’t have the option of moving to Mexico where his meager savings can go farther. Nor does he have the satisfaction of knowing that his family is living better while he sacrifices abroad.
Also, some illegal immigrants can live together in extreme bulk (8 to a house), against county and state laws, an illustration that the wages for these menial jobs are too low to afford legal housing.
So I question whether it is truly a problem with American labor’s appetite, and more a problem with American employer’s compensation.
Monday ~ July 19th, 2010 at 8:11 pm
Albert
You know there are lots of Wal-Marts in Mexico. Relatives who receive money from workers in US can buy “cheap foreign-made goods” from Wal-Marts in Mexico. What is the difference.
Monday ~ July 19th, 2010 at 8:18 pm
Bobby
It’s spelled Smoot. With regards to Milton’s comment, the strength of the dollar may make working in the U.S. attractive, but it also drives down demand for American exports, limiting job opportunities.
Monday ~ July 19th, 2010 at 8:32 pm
Our Immigration Policy Is Obsolete, Ctd
[...] Smith counters Frum. United States – Immigration – Law – Karl Smith – David [...]
Tuesday ~ July 20th, 2010 at 8:27 am
Mara
I would think that the reduction in ‘consumers’ would be offset by the billions of dollars NOT sent out-of-country as ‘remissions’. Not to mention an increase in the number of taxable, legal workers receiving fair wages for the work they do. And, of course, the savings from not having to provide remedial, bilingual public education to ‘undocumented’ minors and welfare benefits to anchor babies.
frankly, I doubt that a decrease in the criminal alien population would mean a net loss for the economy. I think the increase in legal employment (with it’s accompany-ing increase in wages and consumption) will offset any loss in consumer spending by illegals.
Tuesday ~ July 20th, 2010 at 9:19 am
Karl Smith
A lot of people are making this assumption but I’ll reply here as an answer to them all.
You argue in favor of the Lump Labor position by assuming that less immigrant employment will mean more native employment. However, this is exactly what’s being disputed.
I bring up housing because it might be easier to understand. Regardless of anything else, if immigrants leave will the demand for housing be greater or lesser?
If the demand for housing falls will we need more construction workers or fewer?
The problem is that there aren’t simply a pot of jobs out there. Jobs are determined through the market and supply and demand. Immigrant necessarily affect both of these.
You take away agricultural workers but you also lessen the number of mouths to feed. You take away construction workers but lessen the number of housing units needed. You take away factory workers but lessen the number of cars on the road, shoes on the sidewalk, and jackets protecting people from the wind.
An economy of fewer people has less demand for almost everything.
Tuesday ~ July 20th, 2010 at 11:53 am
Mara
Perhaps in the *short* term, your concerns might have merit. Sure, as illegals vacate we’ll see a surplus of inventory in the housing market. But since market logic says the price will go down until inventory balances with demand, it also means that as illegals vacate properties, rental (or purchase) costs go down, which leaves people with more money to spend. More disposable income means more demand for other goods. And the market chugs on.
But it seems to me that you, and those who agree with you, seem to be basing your position SOLELY on how much money is being made, while the rest of us look at how much is being *spent* to provide the illegal with those things that Americans take for granted. Not just what we spend on education, infrastructure, health and safety, etc…but also the social costs of having an economy based on criminal enterprise – which is what the illegal labor industry is.
Many of us believe that the economics of cheap, illegal labor have skewed the balance of power too far toward the employer, to the detriment of the workforce. The contempt the illegal AND the employer show toward the law becomes pervasive. After all, if we aren’t required to follow THIS law, why in the world should we follow THAT one, or the next one, or the one after that? In a country supposedly founded on the rule of law, do we really want to predicate enforcement on a profit-loss calculation?
When it’s all said and done, I believe it will all even out in America’s favor – you don’t. Fair enough. But do not forget that the economy you’re touting is based completely on criminality…the criminality of illegal labor and the criminality of illegal employers. Is THAT the kind of nation you want to live in?
Tuesday ~ July 20th, 2010 at 10:24 am
Greg
For anyone to say that illegals sent home would be just replaced by US citizens means that person does not know the real world. Programmer who lost his job due to its moving to India, if forced to take lawn mowing job would mean a huge harm for economy: he will no longer qualify to get unemployment, yet his salary would be so small that his house would be foreclosed and his car loans and credit cards would be in default. On top of that, he will empty out his 401K savings, and saved college money for his kids thus causing less saved money to be reinvested into economy and causing further harm. For Frum to claim these jobs can replace the jobs that were lost during this recession makes me think thet Mr. Frum has no idea about economy today and lives in a bubble of his beliefes. What this philosophy ignores is that it would cause huge shift in US living standards causing suburban living to be very expensive (US citizen will demand more money by law to cut grass) and so suburban living would make little sense. That will cause huge shifts. And while in the end we will survive, in the process of that shift countless people will suffer. This is something Frum never cares about because he already got his money.
Tuesday ~ July 20th, 2010 at 10:37 pm
Ryan Vann
“we didn’t get smacked with some grand structural calamity in the last 24 months. We got smacked with a huge increase in liquidity demand and federal funds rate stuck a zero.”
Disagree on this point entirely. The initial shock was in fact a structural issue. Basically there was too much leverage in the housing market. Of course, the monetary effects would later come into play, and magnified the problem.