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Bloomberg reports on Alabama’s recent immigration crackdown:
When Tuscaloosa, Alabama, begins rebuilding more than 7,200 homes and businesses leveled by an April 27 tornado, it may find itself missing a workforce capable of putting the city together again… Tuscaloosa County’s 6,000-strong Hispanic population –including roofers, Sheetrockers, concrete pourers, framers, landscapers and laborers — is disappearing, he said, before a law cracking down on illegal immigrants takes effect.
The obvious question to ask is whether there be others who step in to take the jobs these immigrants would have taken at the wage that will be offered. This question, which I go into detail on here, does ignore one crucial aspect of the problem. The cost to employers is not simply higher wages per hour, but higher unit labor costs. That is, for a given unit of value-added output, what happens to the total cost of labor? Wages may only need to go up by 10% in order to find workers willing to replace illegal immigrants, but if the quality of work goes down -if the workers are slower, sloppier, etc.- then unit labor costs may double or more.
You can see this implied in the Bloomsberg article where a contractor says “It’s not the pay rate. It’s the fact that they work harder than anyone. It’s the work ethic.”
The lesson can be seen in Georgia’s attempt to replace illegal immigrants with probationers:
For more than a week, the state’s probation officers have encouraged their unemployed offenders to consider taking field jobs. While most offenders are required to work while on probation, statistics show they have a hard time finding jobs. Georgia’s unemployment rate is nearly 10 percent, but correction officials say among the state’s 103,000 probationers, it’s about 15 percent. Still, offenders can turn down jobs they consider unsuitable, and harvesting is physically demanding.
The first batch of probationers started work last week at a farm owned by Dick Minor, president of the Georgia Fruit and Vegetable Growers Association. In the coming days, more farmers could join the program.
So far, the experiment at Minor’s farm is yielding mixed results. On the first two days, all the probationers quit by mid-afternoon, said Mendez, one of two crew leaders at Minor’s farm.
“Those guys out here weren’t out there 30 minutes and they got the bucket and just threw them in the air and say, ‘Bonk this, I ain’t with this, I can’t do this,’” said Jermond Powell, a 33-year-old probationer. “They just left, took off across the field walking.”
Mendez put the probationers to the test last Wednesday, assigning them to fill one truck and a Latino crew to a second truck. The Latinos picked six truckloads of cucumbers compared to one truckload and four bins for the probationers.
This isn’t a knock on the probationers. Despite being labeled “unskilled” work, this is clearly an extremely difficult job that even healthy, able-bodied adults can’t just pick up and do. Yes, for a high enough price the probationers can probably be induced to stay out in the fields all day. But with wages moving up at the same time productivity is moving downward, it’s not hard to see how employers of illegal immigration might be forced to close up shop as business becomes unprofitable.
So remember this when you read about low-paying jobs illegal immigrants are doing and people tell you that high school students or the unemployed would do them for a couple dollars an hour more: it is not hourly wages that matter, it’s wages per value added output.
I’ve long suspected that immigration amnesty would be a boon to housing markets. The idea is that illegal immigrants could be deported and so will be less willing to make the fixed investment of homeownership, and illegal status holds down wages which should also decrease the demand for housing. However I haven’t seen any persuasive studies on this issue. Today I discovered a new paper by Catalina Amuedo-Dorantes and Kusum Mundra that provides some evidence:
A significant homeownership gap still remains between natives and immigrants in most countries. Because of the many advantages of homeownership for immigrants and for the communities where immigrants reside, a variety of countries have tried to implement policies that facilitate immigrant homeownership. Many of these policies hinge on immigrants’ legal status. Yet, owing to data limitations, we still know very little about its impact on immigrant homeownership. We address this gap in the literature and find that legalization raises immigrant homeownership by 20 percentage-points even after accounting for a wide range of individual and family characteristics known to impact housing ownership. This finding underscores the importance of legal status in immigrant assimilation –housing being an important indicator of immigrant adaptation, and the need for further explorations of the impact of amnesties on the housing markets of immigrant-receiving economies.
Note that this does not address the question of whether legalization increases the demand for housing or just the type of housing. For instance, legalization may simply lead illegal renters to buy houses that are identical to the ones they were renting, which aside from potential externalities to homeownership shouldn’t affect prices. This seems unlikely to me, and I’d wager that legalization also increases the demand for housing, and therefore house prices.
I’ve argued frequently that letting in more immigrants is the last best tool we have to help increase house prices, but perhaps legalizing the immigrants we already have would help as well.
UPDATE: MorallyBankrupt provides some excellent thoughts in the comments:
I used to live in Boston. While living there, a few of my friends lived in inexpensive rental apartments where line cooks–often Brazillian–also lived. They used to pack-in pretty tight in those apartments to minimize expenses and maximize remittances. A common theme was that the men would often move out to their own place if and when their wives / girlfriends came into the country or if they formed a family locally.
I think that amnesty coupled with the ability to extend legal resident status to immediate family (spouses, children) would be a great option. Not only would the units of houses demanded per newly-legal resident probably increase, but the number of residents demanding housing would increase as well. Additional positive effects would be to move (at least some) of the consumption from those remittances into the US.
Finally, establishing residence would allow access to legal, documented earnings which would increase tax-receipts and access to credit, enabling purchases of not only housing, but also durables.
Will Wilkinson has another excellent post on the DREAM Act up at Democracy in America. He takes on David Frum, who is critical of the act. You should really read the whole thing, but to give you a taste here is how it ends:
Were Mr Frum to read the bill, he would see that he has made a serious error. DREAM is a stopgap measure of exceedingly limited scope which would slightly mitigate the injustices wrought by America’s reality-defying immigration and citizenship law. I look forward to his correction.
For more from Will on the DREAM Act see here.
A recent story on how the minimum wage is hurting South African workers is getting some attention. It opens with this tragic scene:
The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor — the supposed beneficiaries of the crackdown — clambered atop cutting tables and ironing boards to raise anguished cries against it.
“Why? Why?” shouted Nokuthula Masango, 25, after the authorities carted away bolts of gaily colored fabric.
The story naturally generates sympathy for the workers and should make anyone question the desirability of the minimum wage in that country. In one sense though these workers are relatively lucky; when the minimum wage destroys their jobs they at least have a chance to cry out and get attention for their plight, most jobs destroyed by the minimum wage are jobs that are never created, so the workers never even get a chance to be heard. I think progressives should think about this story when they consider whether minimum wages help the poor.
Conservatives will probably agree with this and want to call progressives hypocrites or uncaring, but would they feel better if the sheriff gathered these workers up and deported them after they closed down the business? The minimum wage is not the only thing destroying jobs, so too are the stepped up immigration restrictions that most conservatives support.
Structural labor market problems are not the majority of what’s causing unemployment, but they are a significant and potentially growing problem. It’s time to reconsider policies like minimum wages and immigration restrictions that prevent job creation or, even worse, actively destroy jobs.
The illegal immigrants come seeking higher wages, steady employment and a chance at better lives for their families. They cross the border in remote stretches where there are no fences or they pay traffickers to sneak them past border guards.
Then they work as maids, harvest crops or toil hunched in sweatshops.
Think you’ve heard this story before? No, it’s not illegal Mexican immigrants coming into the United States, but Southeast Asian, North Korean, and African illegal immigrants coming into China. If you think our border problem is daunting, consider that China’s mostly unprotected border stretches 13,670 miles across rain forests, mountains, and deserts.
According to the article, from the L.A. Times, the demand for foreign labor comes from rising Chinese wages and a shortage of low-skilled workers, and those willing to do harder field work at profitable pay. For instance:
Chinese farmer Lu Qixue hires Vietnamese laborers before the autumn sugar cane harvest. For as long as five grueling months, the foreign workers put in 10-hour days thwacking sugar cane stalks with scythes.
“They work slowly and we always have to train them, but we can’t find enough skilled Chinese,” said Lu, a rail-thin 58-year-old village chief with gravelly stubble. “If we don’t hire the Vietnamese we won’t be able to grow as much.”
“I don’t want to carry sugar cane down the mountain,” said his youngest son, Lu Xinghuan, 26, who aspires to own a trucking company. “It’s hard work.”
Labor activists said the increasing use of undocumented foreigners is undermining gains made with China’s 2008 labor law regulating working hours and workplace conditions.
For those who oppose more immigration and want to crack down on illegals, I am curious if they think that welfare would be increased in this scenario by preventing the vietnamese workers from coming into the country, and thus decreasing the output of the cane farmer and his wealth and spending power. I suspect people will be more sympathetic to illegal immigration into China than they are with illegal immigrants into this country.
A common perception is that people who hire illegal immigrants are necessarily exploiting them with below minimum wage pay and horrible working conditions. The story I linked to yesterday about the effects of illegal immigration crackdowns on some restaurants serves as a useful reminder that this need not be the case:
Mr. Malecot is an active philanthropist in San Diego, contributing to causes including Alzheimer’s and cancer research and education to help victims of torture. His employees describe him as a father figure who has paid for their dental work and babysitting, charters a fishing boat for the annual company party and provides every employee with a week’s paid vacation, extremely rare in restaurants.
Because of his financial troubles as a result of the case, he said, he can no longer afford some of these perks. The next court date is Nov. 29.
“He’s very generous,” Asunción Gallardo, a Mexican immigrant who has cooked at the restaurant for 16 years, said in Spanish, out of earshot of Mr. Malecot. “It’s like we’re all a family. We eat — he gives us three meals a day and food to go. And then he gives out food for the poor.”
People who favor crackdowns in illegal immigration often argue as if they are really looking out for the best interest of illegal immigrants, who are victims being exploited by greedy employers. And this may be true some of the time, but it is clearly not true all of the time. It is important to remember this when people try to overgeneralize about the working conditions faced by illegal immigrations in order to justify kicking them out.
Imagine if there were some productive input, say for example a source of energy, that was cheaper than all of the other alternatives and allowed many businesses to operate with lower costs. Say this productive input was also illegal, but did not cause any externalities. Would right now, in the midst of a terrible recession, be a good time to crack down on this illegal input that many businesses depended on? This is what the Obama administration is doing with their crackdown on illegal immigration, and it is hurting businesses.
A recent story from the New York Times highlights how economically damaging this can be to successful businesses. Michel Malecot, a restaurant owner, faces 30 years in prison, $4 million in fines, and the seizure of his assets for hiring illegal immigrants at his restaurant. The governments indictment is causing him serious economic distress:
Since the indictment, Mr. Malecot said, he has lost at least $500,000 in catering jobs. Catering accounts for about 70 percent of the French Gourmet’s revenues, which so far this year amount to roughly $4.5 million, Mr. Malecot said.
In an industry with that employs an estimated 500,000 illegal immigrants, Mr. Malecot is not alone:
In June, the owner of two Maryland restaurants who pleaded guilty to hiring and harboring illegal immigrants was ordered to forfeit to the government more than $700,000 in assets — in addition to his motorcycle — and faces up to 10 years in prison. In November, a restaurateur in Mississippi who had pleaded guilty to hiring illegal immigrants was sentenced to a year in prison and a year of supervised release. Combined fines in the case, shared among several defendants, amount to $600,000.
I understand the rule of law is important and all that, but is there some pressing reason why choose now, of all times, to crack down on illegal economic activity? Note this is not just Obama fighting illegal immigration as previous presidents have, but “[u]nder a policy that went into effect in April 2009, the Obama administration is taking a much tougher stance on employers who hire illegal immigrants than any administration in decades”.
Now would actually be a good time to be really lax with illegal immigration, not crack down on it. People seem to understand that limitations on international flows of capital, aka protectionism, is a bad idea in a recession. This is true of international flows of labor as well: preventing labor from moving to it’s highest use will reduce global economic growth.
It has apparently become a complaint that the Obama administration has not been arresting and deporting enough illegal immigrants. According to Suzy Khimm, subbing in for Ezra Klein, while workplace raids have gone up 50% since the Bush administration, arrests and deportations have gone down 80%. This apparently has at least one former Bush official saying that Obama’s policy is “de facto amnesty” and they are “turning a blind eye to entire categories of aliens”. But no matter what Obama is doing, you would expect arrests and deportations to be going down right now, since immigrants are already deporting themselves, so to speak.
Contrary to the popular perception that illegal immigrants come here to lay in the shade and grow fat off of our generous welfare state that is freely available to illegal immigrants, they actually come here to work. Labor markets are thus a key determinant of immigration, and when labor markets get tight illegal immigrants leave. This inexplicably colored chart from the Office of Immigrant Statistics tells the story:
Between 2000 and 2008 the illegal immigrant population grew by 3.1 million, from 8.5 to 11.6. From 2008 to 2009, the latest year for which I could find numbers, the population decreased by 800,000, from 11.6 million to 10.8 million. These numbers are as-of January 2009, and I’m betting that downward trend has continued over the last 19 months since this measurement was done.
While the decrease may not be huge percentage-wise, especially compared to the 80% decrease in arrests and deportations, it is an indicator that the illegal population is currently experiencing a large amount of unemployment or underemployment. This decrease in illegal immigrant employment would also partly explain why arrests and deportations are going down: since the raids target workplaces, it’s harder to find them if more of them aren’t working.
It’s a lot easier to arrest and deport illegal immigrants when they are flowing into the country by the hundreds of thousands than when the population is decreasing by the hundreds of thousands. So maybe critics can lay off Obama on this and stop demanding that he actively destroy jobs in the middle of a recession.