Immigration-Trade Link Can No Longer Be Ignored

Unemployment rates for high-tech workers are still above the national average. Pay in these fields has gone nowhere for 20 years. As a result, national anxiety about job flight overseas has hit levels not seen since the 1980s.

Yet Congress is considering a bill to make it easier for high-tech companies to bring cheap foreign workers into the United States. Worse, this bill is being sponsored by a Congressman – Texas Republican Lamar Smith – who´s been an immigration control advocate for years. What in blazes is going on here?

Very simply, we´re starting to pay the price for failing to recognize that our immigration and outsourcing problems are closely connected. By treating these policies in isolation, even many champions of urgently needed immigration reduction policies have painted themselves into corners and left themselves – and Americans as a whole – few good choices.

The case for creating and maintaining high-tech jobs and industries in the United States can´t be made often enough. These jobs are critical for our nation´s future prosperity, not to mention national security. High-tech industries pay excellent wages, contribute mightily to U.S. innovation and productivity, and help ensure our global technology leadership. And of course, high-tech jobs are the jobs our leaders have told us to re-train and re-educate ourselves for in the wake of mounting competition for so-called old-line manufacturing jobs from third world countries.

For more than a decade, however, these high-tech jobs and industries have been turned into much lower paying jobs and industries by two developments: First, greatly loosened immigration laws and second, NAFTA-style trade deals whose purpose is really to encourage U.S. multinational companies to supply U.S. markets from low-cost third world countries.

Throughout the 1990s boom, these looser trade and immigration policies gained powerful momentum, as the bubble economy undercut worker opposition, and multinationals literally bought Congress and the Executive Branch with lavish campaign contributions.

Yet critics of these policies sabotaged themselves, too. Trade policy critics tended to ignore immigration issues. Indeed, organized labor in America has recently completed an historic transformation and become a powerful pro-immigration force. Meanwhile, immigration policy critics, like Rep. Smith, tended to ignore trade issues. With the critics divided and incoherent, the outsourcers and globalizers did a pretty good job of conquering. As a result, the globalization cheerleaders were able to create powerful new economic realities on the ground that threw the critics on the defensive and narrowed their room for maneuver.

Rep. Smith´s latest bill, which would permit high-tech companies to import 20,000 more H-1B specialized foreign workers, is a great example. Rep. Smith portrays his legislation as a compromise that has fended off even greater quota increases. And he claims it will ultimately help American workers by reducing many abuses associated with these immigration programs – like the common practice of paying immigrants much lower wages than comparable domestic workers earn.

But the Smith bill is simply rearranging the deck chairs on the Titanic at the last minute. Ten years of NAFTA-like outsourcing-focused trade deals have opened the low-wage road to success for American companies and turned this strategy into the way business is done in industry after industry. With so many firms routinely supplying the U.S. market from abroad, their counterparts that have remained at home have felt that much more pressure to cut costs. Hiring cheap immigrants understandably is one very appealing option. In addition, the flight of manufacturing production abroad has encouraged the flight of much high-tech service work associated with manufacturing – research, development, design, engineering. Hence, the cost-cutting heat has been rising in career fields once thought immune.

Immigrants´ numbers, as a result, are growing so fast that the government´s enforcement capabilities are swamped. The abundance of this labor, in turn, has lowered the wages of domestic high-tech workers even though the regulations are supposed to prevent this. Indeed, a reverse Catch-22 situation has been created. Employers are simply obligated to pay H-1B immigrants prevailing wages. Yet Washington´s failure to enforce this requirement has naturally driven the prevailing wages in high-tech industry ever lower.

Surging immigrant flows have also discouraged many young Americans from pursuing high tech schooling and careers. Consequently, continuing credence is lent to claims of high tech labor shortages and more pressure mounts for even looser immigration policies to meet the alleged needs. In other words, the free-immigration interests Rep. Smith forestalled this time will be back again and again.

If Rep. Smith and his colleagues in Washington are serious about bringing U.S. immigration under control and genuinely helping U.S. workers, they´ll realize that a comprehensive strategy is needed. The very idea that multinational companies can pay Chinese or Indian or Mexican wages for the creation of their products, yet charge American prices for the sales, has to be challenged frontally as a dangerous economic fantasy that is sinking our nation deeper and deeper into foreign debt. The need to maintain America´s world technology leadership by developing new innovative capabilities at home and keeping them here has to be championed. And if genuine labor shortages do emerge in high tech industries – as they do from time to time in every industry – U.S. companies have to be told to attract workers the old-fashioned way – by raising wages or developing new labor-saving technologies.

The latter, by the way, historically has been a great engine of progress – as research from the respected Center for Immigration Studies has made clear. But with the crutch of low-wage labor available, many American companies have lacked the requisite kick in the pants.

Rep. Smith and others view his 20,000 H-1B quota increase as American workers´ best hope to get back into the high-tech game. But he and others concerned about immigration need to understand that this isn´t policy and it isn´t tactical brilliance. It´s nothing more than defeatism.

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

U.S. wages losing ground: Inflation likely to outpace raises next 5 to 10 years

Companies are beginning to raise prices as demand for their products strengthens, but that isn't trickling down to U.S. workers in the form of pay increases.

A 2.2 percent rise in wages in the 12 months through May has been more than offset by a 3.1 percent gain in consumer prices.

It's unlikely that employees will get raises that outpace inflation over the next five to 10 years, said William A. Niskanen, former acting chairman of the President's Council of Economic Advisors during the Ronald Reagan administration.

"I don't see any substantial increase in average real wages for some time," said Niskanen, who is now chairman of the Cato Institute, a Washington research group. Niskanen and other economists cite global competition, which forces companies to keep costs down, shrinking union clout and continuing slack in a labor market with an unemployment rate of 5.6 percent, up from 4.2 percent when the last recession began in March 2001.

The disparity between pay and prices may keep President Bush from fully capitalizing on the economy's addition of 1.2 million jobs this year, the best five months of job growth since 2000, as he runs for re-election, said political analysts including Thomas Mann of the Brookings Institution in Washington.

"The stagnation in wages leaves open a big target" for Democratic challenger John Kerry, Mann said. In terms of pay, "a lot of Americans have been left behind," he said. "Kerry now has an opportunity to ask, 'Are you better off now than you were four years ago?' "

After accounting for inflation, wages and salaries have been growing less than a third as fast as they did after previous recessions, Stephen Roach, chief economist for Morgan Stanley & Co. in New York, said in a note to clients this week. The rise in pay this time is "far short of the nearly 10 percent gains that occurred in the first 29 months of the preceding six cyclical recoveries," Roach wrote. "This translates into a shortfall of $280 billion in 'missing' real personal income."

In a Gallup Organization survey of 1,000 adults on June 3-6, 40 percent said the economy was their biggest concern, topping the Iraq war and all other issues. Fifty-eight percent of those questioned said they disapproved of the way Bush was handling the economy, up from 56 percent in May. The poll had a margin of error of 3 percentage points.

A June 3-13 poll by the Pew Research Center, a Washington polling organization, found the president and Kerry in a statistical tie in voter support. Of the 1,426 registered voters surveyed, 48 percent said they would vote for Bush if the election were held today and 46 percent said Kerry. The difference is less than the poll's 2.5 percent margin of error.

In the Pew survey, 50 percent said they disapproved of Bush's handling of the economy vs. 51 percent in Pew's previous poll in late April.

Kerry, a four-term senator from Massachusetts, took aim at the "wage recession" as he began what his campaign aides said was a two-week attack on Bush's handling of the economy Tuesday.

"A rising tide is supposed to lift all boats," Kerry, 60, told the AFL-CIO's annual convention in Atlantic City, N.J. "The middle-class boat is taking on water. I believe we can do better than rising costs and shrinking incomes."

Last week, Kerry proposed raising the minimum wage to $7 an hour from $5.15, a move that he said would benefit more than 7 million low-income workers. Opponents of higher minimum wages, such as the U.S. Chamber of Commerce, the National Association of Convenience Stores and the National Federation of Independent Businesses, say the proposal may prompt employers to hire fewer low-wage workers and lead to higher unemployment.

Even with the recent surge in jobs, the economy has had a net loss of 1.5 million jobs during Bush's term, including 2.9 million manufacturing jobs, which typically pay more than the service jobs that account for most of the positions being added.

In a recent weekly radio address, the 57-year-old Bush said the U.S. economy has "defied gloomy predictions of pessimists" and was "healthy, vibrant and growing." The president said many of the jobs being added are "in industries that pay above-average wages, such as construction and education and manufacturing."

The nation's gross domestic product, the value of all goods and services, expanded 5 percent in the 12 months ended in March, the most since 1984. GDP grew by 4.4 percent in the first quarter, up from 4.1 percent in last year's fourth quarter.

As the economy grows, some companies are finding it easier to boost the money coming in than workers are. Caterpillar Inc., the world's biggest maker of earthmoving equipment, and consumer products maker Procter & Gamble are among the companies that have announced U.S. price increases in recent weeks.

Procter & Gamble, the largest U.S. household-products maker, has said it would raise the prices of its Folgers coffee sold to restaurants, businesses and wholesale clubs by as much as 6 percent because of the rising cost of raw beans.

FedEx Corp. has succeeded in imposing surcharges - temporary price increases - in a market where passenger airlines, including Continental Airlines Inc., have run into buyer resistance. FedEx's freight division increased its rates 5.9 percent May 24 because of higher costs to expand and operate its fleet.

After-tax profits of U.S. corporations soared by 36.7 percent last quarter from the year-earlier quarter, the Commerce Department said last month. The Federal Reserve Bank's latest beige book, a report on current regional economies, indicated that wages, by contrast, remain little changed.

"Companies have pricing power, but workers don't," Barry P. Bosworth, a Brookings Institution economist in Washington who helped administer the Nixon administration's wage- price controls in 1971 and 1972, said in an interview.

Surveys of consumer sentiment in April and May by the University of Michigan showed that Americans expect consumer prices to be rising at a 3.2 percent rate a year from now, more than enough to offset predicted gains in wages.

As the Fed's beige book suggested, soaring medical insurance costs are eating up some of the money that otherwise might have been available for wage increases. Employers' costs for providing health care coverage for their workers probably increased by 13.9 percent in 2003 and may rise by 14 percent to 15 percent in 2004, according to the Kaiser Family Foundation's annual survey of businesses published last September.

Company spending on employee medical insurance has risen to 7.4 percent of total compensation in 2002, from 6.3 percent in 1990, 4.4 percent in 1980 and 2.4 percent in 1970, according to the Employee Benefit Research Institute in Washington, which tracks such statistics.

Shrinking union power also has hurt workers' ability to extract wage gains. According to the Labor Department, unions represent about 9 percent of the private sector work force in the U.S., down from 16.5 percent 20 years ago. Employment in manufacturing industries, a mainstay of union membership, has been falling steadily since the mid-1950s.

Joel Popkin, a former senior Bureau of Labor Statistics economist now working as a private consultant, predicts that wage increases will remain at 3 percent or less in nominal terms - before accounting for inflation - for the remainder of this year and into early 2005. A "Wage Trend Indicator" index that Popkin compiled for BNA Inc., a Washington-based publishing company, fell to 98.26 in the second quarter from 98.37 in the first quarter.

The 2.2 percent rise in average hourly earnings for the 12 months through May, up from a 1.6 percent rise for the same period ended in February, has some economists predicting that wages will have a more significant impact on the economy. With a 2.6 percent rise in the cost of employee benefits, businesses had to pay 0.8 percent more in labor costs for each unit of production in the year through May.

"Wage pressure continues to rise," International Strategy and Investment Group. Inc., a Wall Street consulting firm headed by economist Edward Hyman, said in a June 15 report.

Economists including Morgan Stanley's Roach say they fret that continuing increases in overall labor costs, including fringe benefits, may contribute to rising inflation. Over the past three years, falling unit labor costs "have helped check inflation," Roach wrote in a June 1 letter to clients.

The recent wage increases are still small by historical standards, and after inflation they disappear entirely, Labor Department figures show.

"The pickup in wages doesn't look very decisive," Lyle E. Gramley, a former Federal Reserve governor now a senior economic adviser at Schwab Soundview Capital Markets in Washington, said in an interview. "If we didn't have evidence that labor markets were improving, you'd have to dismiss this as unimportant."

The rise in wages still isn't steep enough to push unit labor costs to "an inflationary plateau," Federal Reserve Chairman Alan Greenspan said in testimony before Congress last week.

Workers comment on the economy

Tom McKeever, a 40-year-old computer specialist at the University of Michigan in Ann Arbor: Doesn't expect to see his pay grow much over the next few months, even in the face of accelerating inflation. "At least not where I work," he said.

Karen Kenny, a 44-year-old secretary from Moon Township, Pa.: She and her husband don't feel the same optimism about the economy that Bush and companies do. "Even though we have jobs, the price for gas and other things is going up, and it's taking a toll on our budget. We're not looking to do anything extravagant - just make ends meet."

• Chad Maurer, a 31-year-old Rockton, Ill., machinist: "We're trimming our discretionary spending - eating out less often, for example." He said he asked managers at the machine-tool company where he works for a raise and was told the company couldn't afford it. "I'm not expecting one, but if I don't get a raise soon, I'm going to have to start looking for something else."

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