New Voodoo Economics

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In a recent statement touting a new immigration plan proposed by Senators Tom Cotton (R-AR) and David Perdue (R-GA), the White House stated, “Since 1979, Americans with a high school diploma or less have seen their real hourly wages decline.” On its own, this statement is true. Statistics available from the Congressional Budget Office, the Bureau of Labor Statistics, and the US Census Bureau bear out the factual nature of this statement.

However, we must put this statement into the context in which it was uttered. While the statement may be true as a conclusion to a mathematical argument, its validity as a premise to another argument is not so certain. Specifically, when used as a premise to support the conclusion that significantly curtailing our American immigration system will positively affect wage growth in the named demographic, we see this statement makes an assumption not rooted in economic reality.

The argument put forth by the White House assumes that immigration has caused the stagnation of wages for low-income earners in the United States since 1979. While it is undeniably true that wages have largely stagnated and it’s equally true that immigration to the United States has increased over this same period, little empirical evidence exists to suggest a causative link between the two, despite the glut of anecdotal claims.

At this point, it may be helpful to point out that this period of wage decline began several years before the current American immigration policies were signed into law. It should also be helpful to point out that since the current immigration laws have been put into effect, including the diversity visa lottery system, real wages for low-income earners, while still stagnant, have not declined any further than they did in the first few years of the Reagan economic experiment. From this observation alone, we can call into question the assumption made by the White House and Congressional Republicans that immigration has caused low-income wage decline.

In fact, many federal agencies and nonpartisan economists have spent years drilling deep into the low-income wage decline that started with the election of Ronald Reagan in 1980. In 2014, the Federal Reserve Bank of Chicago published a series of reports on this subject in which they specifically studied the period of time starting in 1979. One of these reports, written by Daniel Aaronson and Andrew Jordan, concluded a strong link between lagging growth in real wages and medium-term unemployment as well as a link between lagging real wage growth and marginally attached workers.

According to their analysis, recent failures of the labor market to produce real wage growth at the bottom end of the scale can be directly attributed to the fraction of the labor force out of work for five to 26 weeks. Declines have also been linked to a significant increase in workers employed part-time for economic reasons. These are workers who would work full-time if full-time employment was available to them, but remain marginally attached to their employment on a part-time basis at the moment.

The rationale behind these factors in declining wages really isn’t all together exotic either. Workers who change jobs between employers without much disruption are more likely to make the same wage or a better wage at their new employer than they did at their previous one. Generally, people who experience very short-term unemployment are those people who voluntarily switch jobs for a better opportunity, or those people whose skills are in such high demand that finding new employment is rather easy.

On the other hand, workers who experience medium-term unemployment, defined as being out of work for more than five weeks but less than 26 weeks, are not in the same bargaining position heading into their new employment. Frequently, as the period of their unemployment grows, they act more desperately to find new employment. This often means accepting a lower wage than that of their previous employer.

This same emotional decision-making process occurs with people who are marginally attached to their employment. Many people in this situation fear that asking for a raise will make it harder for them to get more hours. So, they trade marginal increases in their hourly schedules for real increases in their rate of pay per hour. As more and more people in the economy become marginally attached to their jobs, this microeconomic stagnation works its way into the larger economy.

We must realize that many people in our American economy have not been served by the recent recovery after the Great Recession. Although most at the top of the economic ladder have fully recovered their wealth, and even added to it, many who live on Main Street have not seen much growth in their real wages for several decades, especially the last one.

However, in seeking to solve this crisis, we should not seek scapegoats or appeal to false arguments. Not only does this insult those who are unfairly made to be the excuse, it insults those who will remain adversely affected by our labor market conditions when we make decisions based on those false arguments.

Blaming immigrants for our stagnant wages at the bottom of the labor market won’t fix the problem.

To fix the problem, we need to address medium-term unemployment and marginally attached workers. We need to make it desirable for businesses to transition part-time workers to full-time positions. We need to create incentives for businesses to hire medium-term unemployed persons as well as long-term unemployed persons. And, we need to reverse the trend of stripping workplace employee protections, including those associated with practical labor unions.

Most importantly, we need to remember the lessons we’ve learned through nearly 40 years of economic history. Trickle down economics doesn’t work. The data speaks for itself. While those at the top of the economic system benefit greatly from such management friendly policies, the vast majority of people receive little or no benefit.

And none of this has anything to do with immigration, legal or otherwise.

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