Posted on 03/28/2006 12:45:30 AM PST by Exton1
Importing Poverty: The Cheap Labor Trap AmericanEconomicAlert.org ^ | Monday, September 05, 2005 | William R. Hawkins
http://www.americaneconomicalert.org/view_art.asp?Prod_ID=2074
Even with the economy adding jobs last year, the number of Americans who fell into poverty in 2004 rose to 37 million, up 1.1 million from 2003, according to Census Bureau figures released August 29. It marks the fourth straight increase in the government's annual poverty measure, indicating that the recovery from the 2000 recession has not "trickled down" to everyone. Indeed, the Census Bureau also reported that "2004 marked the second consecutive year in which real median household income showed no change."
These new statistics put a damper on the statement made by Commerce Secretary earlier in the month: "President Bush has created the healthy economic environment that is encouraging businesses to hire, and is raising the standard of living in America . President Bush's ambitious economic agenda has helped nearly four million Americans find employment since May 2003." However, the kind of jobs being created makes a difference as to whether living standards are being raised and whether the country is really moving forward.
One of the factors "encouraging business to hire" is the availability of cheap labor, much of it from illegal immigrants. According to an article in the November/December 2003 issue of Southwest Economy published by the Federal Reserve Bank of Dallas, "Immigrants overwhelmingly filled blue-collar jobs (operators, fabricators, and laborers) but also accounted for as much as half the growth in categories such as administrative support and services....It also means that as immigrants entered these occupations, native workers exited." This was particularly true in the blue collar category where immigrants accounted for nearly 700% of the new jobs! That means they pushed tens of thousands of Americans out of those jobs, by underbidding their wages.
As the Dallas FRB stated, "the foreign-born share of growth has risen, and it reached 51 percent of the total between 1996 and 2002." The report writers tried to put a positive spin on the situation, claiming "natives typically have more options, and during periods of weak job growth, they can exit the labor force and pursue other alternatives, such as going back to school." Of course, many Americans have no viable alternatives to working, but even those who do go back to school may not be able to find jobs when they finish their studies.
The great success story of the United States is that it raised the working class into the middle class, the real path to higher standards of living for the population as a whole. But there are those in the business community who seem to think the American achievement has been overdone. In their view, we need more poverty, not less. Open borders and a new "guest workers" program to legalize millions of illegal aliens is what groups like the Chamber of Commerce desire, in effect creating a proletariat.
To many businessmen, cutting labor costs by reducing wage levels seems expedient. And in an economy where the laws against illegal immigration have collapsed, there is even competitive pressure on firms to match what rivals may be doing, even if owners and managers may personally find the practice distasteful. But the proper way to cut labor costs per unit of output is to increase productivity, a process that boosts worker incomes and company profits at the same time, and that is the only way to elevate the living standards of an entire society. The unregulated availability of cheap labor leads away from innovation. Technological progress is promoted by the pursuit of "labor saving" methods in markets where labor supplies are tight and expensive.
Last May, a report from the Federal Reserve Bank of Philadelphia looked at whether the availability of cheap, unskilled workers with limited educations slowed the adoption of new technology. The paper, "Immigration, Skill Mix, and the Choice of Technique" by FRB economist Ethan Lewis, concluded, "Using detailed plant-level data from the 1988 and 1993 Surveys of Manufacturing Technology, we found in both 1988 and 1993, in markets with a higher relative availability of less skilled labor, comparable plants – even plants in the same narrow (4-digit SIC) industries – used systematically less automation. Moreover, between 1988 and 1993 plants in areas experiencing faster less-skilled relative labor supply growth adopted automation technology more slowly, both overall and relative to expectations, and even de-adoption was not uncommon." De-adoption! There is no positive spin for a retreat from technological progress.
Dr. Evans continued, "Manufacturing automation is particularly suited to evaluating the impact of immigration because less-skilled workers in SMT-covered industries, especially immigrants, are concentrated in labor-intensive assembly, welding, and other tasks that these technologies replace....The combined data show that, in two separate cross sections, the higher the relative number of workers who were high school dropouts in a metropolitan area, the less automated the plants in the area were. In addition, between 1988 and 1993, plants' use of technology grew more slowly, both overall and relative to forecasts, where the relative number of dropouts in the local work force grew more quickly."
The FRB studies from Philadelphia and Dallas mesh. A third of immigrants have less than a high school education, and these are heavily concentrated among illegal immigrants. The legal immigration system puts a priority on those who are educated and possess needed skills. The poverty rate among Hispanics was 21.9% in 2004, reflecting the fact that so many in this community, though hard working, are unable to make a living because they lack the skills to operate in an advanced economy. So to accommodate them, should we make out economy less advanced?
If one looks around the world at those foreign societies with the worst living standards, their problem is clearly not a lack of cheap labor. Indeed, their problem is that cheap labor is all they have. What they need is capital investment in advanced methods. Economic theory, however, argues that managers will use the least-cost method of production, and when labor is the abundant factor, labor-intensive methods will be chosen over capital-intensive methods that use relatively expensive technology. This can restructure an entire economy in the wrong direction. America's shift from a manufacturing economy where scientific progress is most fruitful, to a service economy dominated by cheap labor fits the model of a country in long-term decline.
The United States needs to choose which path it wants to follow. America has historically been an economy short on labor. Though a "nation of immigrants," there was an entire continent to fill up. Until the frontier closed a century ago, there were never enough people to utilize all the land, resources, and business opportunities available. The emphasis was thus on boosting productivity, substituting capital for labor in both field and factory, to make the best use of the working population.
The one exception was the pre-Civil War South, which used slave labor. The slave-owners prospered on their plantations, but the South as a whole stagnated. To defend their reactionary system, their political leaders even tried to undermine the policies that promoted the much more productive development of Northern industry and Midwest agriculture. The Civil War was as much a contest of economic systems as soldiers, and the Confederacy lost that audit in decisive fashion.
Economic progress needs to be U.S. policy. But to keep on that path, the flood of unskilled and impoverished aliens needs to be halted before they further drag down American living standards. National legislation, and its enforcement, must overrule the short-sighted inclinations of business. Maximizing output per worker, rather than the number of workers; and building up the skills and incomes of workers, not undermining them with the poor and the uneducated, is the right way to advance American civilization.
Who is this fool? Who buys his bread?
What they need is to not scare capital away by confiscatory govt. policies. If one looks around the world at those foreign societies with the worst living standards, their problem is clearly not a lack of cheap labor. Indeed, their problem is a corrupt and unrestrained govt./dictatorship.
The worker is damned if you do and damned if you don't. With cheap labor, you have a lot of low paying jobs, with expensive labor, you have a few higher paying jobs and a lot of machines.
Just heard Senator Bill Frist say it on NBC.
Amen to that!
Are American's ready to kill for their quality of life or accept third world living standards? Those are the choices. The hundreds of thousands who went to the streets aren't going back peacefully.
"One of the factors "encouraging business to hire" is the availability of cheap labor, much of it from illegal immigrants."
Cheap labor certainly ain't cheap to us taxpayers!!!!!
What makes 'cheap labor' even more taxing on this country is the fact they send most of their earnings back to their homelands.
This is how illegal immigration costs the U.S.
1. The illegal immigrants have robbed from our taxing system.
2. The illegal immigrants have robbed from our Social Security System.
3. The illegal immigrants have robbed from our Health Care System.
4. The illigal immigrants have robbed from our School Systems.
Ah, hold on a second. There are winners and losers to this. The consumer gets cheaper landscaping, cheaper vegetables, and can afford a better house because the labor to build it is cheaper. That translates to an increase in living standards for many.
How many consumer goods are people able to afford now because they are cheaply made in China? Compare to 50 years ago when they weren't?
As far as national living standards being dragged down by illegals, show me some hard data. After Luxumbourg, the US citizen makes the highest salary in the world. I don't feel that my living standards have decreased in the least because of all the illegals here.
Lest the emotional interpret this as advocating illegal immigration - I'M NOT.
It's a myth that the U.S. economy "needs" more poor immigrants. The illegal immigrants already here represent only about 4.9 percent of the labor force, the Pew Hispanic Center reports. In no major occupation are they a majority. They're 36 percent of insulation workers, 28 percent of drywall installers and 20 percent of cooks. They're drawn here by wage differences, not labor "shortages." Guest workers would mainly legalize today's vast inflows of illegal immigrants, with the same consequence: We'd be importing poverty. This isn't because these immigrants aren't hardworking; many are. Nor is it because they don't assimilate; many do. But they generally don't go home, assimilation is slow and the ranks of the poor are constantly replenished. Since 1980 the number of Hispanics with incomes below the government's poverty line (about $19,300 in 2004 for a family of four) has risen 162 percent. Over the same period, the number of non-Hispanic whites in poverty rose 3 percent and the number of blacks, 9.5 percent. What we have now -- and would with guest workers -- is a conscious policy of creating poverty in the United States while relieving it in Mexico. By and large, this is a bad bargain for the United States. It stresses local schools, hospitals and housing; it feeds social tensions (witness the Minutemen). To be sure, some Americans get cheap housecleaning or landscaping services. But if more mowed their own lawns or did their own laundry, it wouldn't be a tragedy.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/21/AR2006032101146_pf.html
Data from one state. Californi http://www.nctimes.com/articles/2004/12/06/news/top_stories/19_56_5812_5_04.prt
That is the point. Import the government program dependent.
ANY paying of dollars is a total joke.
People will come to the USA knowing they can raise the PENUTS to pay a joke fine.
(I have seen it myself with legal consultations. The money is treated as a mere minor point. You want it you will get in.)
This law actually makes the 10 year wait now FIVE.
Thanx for the info. I do agree that illegals are a very real stress in California and border states, where they comprise a good size minority. How they affect the overall economy of the US is probably much less. We are a powerful economy of 300 million people, and I haven't really seen anything that says the illegals are whacking it significantly.
Cheap labor bump
I strongly suspect that the primary impetus for our nation's open borders policy is not the desire for cheap labor, but for new consumers. The Mexican who enters this country illegally is not "valued" by our government and corporate interests in this country because he works for low pay, but because he may find himself in an aisle at Wal-Mart next month or in a Ford dealership five years from now.
But if the low wages mean less consumption, not more. Otherwise cheap labor countries in Latin American would be better markets than USA.
It's America's future. Better get used to it.
Having said that, I agree with the article completely. We are in a race to the bottom, sold out by politicians on both sides of the aisle.
Our schools don't teach.
Our borders are all-but open and essentially non-existent.
Our manufacturing base is vanishing.
And, due to changes in legal immigration policy, our nation is losing the cultural cohesiveness that "makes a nation".
Wish I could be more optimistic, but - nearing retirement and having seen too much - I'm not.
- John
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