Migrants raise American Wages

The detrimental impact of migrants on US wages is a recurring theme, with a visibly frustrated Ann Coulter last week offering to support Bernie Sanders if he returned to his prior position to limit immigration to raise US wages.  Similarly, our friends at CIS argue that there is no ‘labor shortage’.

Immigrants, and in particular, illegal immigrants can indeed depress wages.  However, their impact depends heavily on the phase of the business cycle.  If there is ample unemployed labor, then an incremental migrant may be doing nothing more than taking the job of a US citizen.  Forget depressing wages, illegal immigrants can deprive US workers of their livelihood entirely during a recession.

Nevertheless, with initial unemployment claims at fifty year lows, and black and Hispanic unemployment at historical lows, it's hard to make the case that low-end jobs are hard to get.  To go by help-wanted signs in New Jersey, one can find an entry level job at just about any retail establishment in the state.


In this world, migrants help increase output and leverage the productivity of natives.  (For the record, 'natives' here means white and black Americans, not just the native, native Americans.)  When migrants are hired, they are often part of a larger organization. Typically, the sales value of the final product to which a migrant contributes is 2.5-3.3 times the migrant's wages.  Take, for example, the poultry processing industry.  In this industry video, natives are doing all sorts of work, some on the line, but also logistics, management, quality control and testing.  Within the same supply chain, native farmers are raising chickens for processing in the plant.

This video, however, reveals that most everyone on the line is Hispanic.  They are doing the work not shown on the industry video: stripping the fat and cutting up the birds.  (It is well worth a watch to consider whether these are 'good American jobs'.)

All hispanics on the line.JPG

In reality, were it not for migrant labor, industries like poultry processing would simply be exported.  We have not assembled TVs or manufactured shoes in large volume in the US for decades.  And those are better jobs than butchering chickens.  The presence of migrants enables the poultry industry -- and the meat processing, dairy, fresh fruit and vegetable sectors -- to sustain themselves domestically.  Those migrant workers are enabling the rest of the business.  

The math looks like this.  A migrant paid $20,000 / year enables output of about $50,000 / year.  About 60% of economic activity in the US ends up as wages.  Thus, $50,000 of economic activity implies about $30,000 of wages, of which $20,000 will go to the migrant and $10,000 to other employees in the firm (or supply chain), including farmers, supervisors, testers, logistics managers and the rest--most of which actually are good American jobs.  Of the migrant's wages, about $5,000 will be remitted back to Mexico and is lost to the US economy.  But the migrant will spend $15,000 locally in the US, principally on housing, food, and utilities, of which about $10,000 will ultimately find its way to native labor.  Thus, the $20,000 of migrant wages creates another $20,000 paid to native labor both inside and outside the company employing the migrant.  Far from lowering wages, in an economy near full employment, hiring a migrant will increase US wages by about as much as the sum paid to the migrant himself.

Migrant impact on wages.png

Now, not all those wages gains will go to unskilled US labor.  But at least some should.  Therefore, although we cannot claim that migrant labor will have no impact on US natives (now including illegal immigrants who arrived years ago), the overall effect is positive, and substantially so, both on US labor and owners of land and physical and financial capital.  

In the interest of completeness, let me close by conceding a few points.  First, labor force participation by lower educated groups, notably of whites, has fallen in recent decades and this is a issue of concern requiring a closer look.  But that's not the fault of hardworking Hispanics.  Second, although migrants add to GDP, they tend to be a fiscal drag, due to the progressive nature of taxation in our system.  Third, under the current black market and H2 visa system, the US government -- and by extension, conservatives -- are grossly under-compensated for providing labor market access, and the current system does tend to reduce native wages across the business cycle by failing to charge a market-rate entry fee to the US.  Finally, the current asylum crisis is not about migrant workers.  By our count, we have perhaps 2 million open migrant-segment jobs.  We could probably let in 100,000 workers per month for well over a year and not even notice the effect on the labor market.  On the other hand, the asylum crisis is a crisis of children, whose education, feeding and healthcare will be significantly provided by US taxpayers.  And they will add nothing to US output for a long time to come.

Migrants, in a down market, can reduce US wages, in significant part by taking jobs.  In a tight labor market as today, however, migrants both increase output and increase US wages.  For every $1 paid to an incremental migrant, an additional $1 will be paid to native labor.  When times are bad, migrants represent just more mouths to feed.  When times are good, though, we need their hands to help with the work.  

And times are good now.