Tag Archives: Minimum Wage

Open Borders or Racism: a False Dichotomy

27 Thursday Jun 2019

Posted by in Immigration, racism

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What are you, a racist? To avoid that charge, apparently you must support fully open borders with absolutely no restrictions on crossings. The basis of that bizarre claim is that most immigrants are not of the ethnic majority, or rather most illegal immigrants are not of the ethnic majority. Thus, if you favor border controls of any kind, you must hate ethnic minorities. You are a racist! This hasty generalization is commonly made by reactionary minions of the Left, and it is standard rhetoric of leftist propaganda.

As many have noted, the U.S. benefitted for many years from a relatively liberal immigration regime, but policy became increasingly restrictive over a period of six or seven decades starting in the 1870s, sometimes in ways that were racially motivated. A few reforms began to take place in the 1940s, though various quotas remained a fixture. More recently, the threat of terrorism prompted restrictions, and the large population of illegal immigrants in the country, including immigrant children, stimulated debate over deportation vs. a path to citizenship.

Disparate Impacts

A real outcome of border controls takes the form of a “disparate impact”, a phenomenon prominent in areas of the law such as employment, fair lending, and fair housing. For example, standards like degree requirements or minimum credit scores tend to disqualify minority or “protected class” applicants disproportionately. Those standards, however, are not targeted explicitly at any class of individuals. Likewise, minorities represent a disproportionate share of those disqualified under immigration quotas. And minorities represent a vastly disproportionate share of illegal entrants apprehended by ICE because, as a practical matter, most border controls are targeted at country of origin, but not at specific minorities. Almost all illegal U.S. immigrants are members of populations that are ethnic minorities within the U.S. The top 10 countries of birth for all U.S. immigrants also have predominantly Hispanic or Asian population. These countries accounted for roughly 57% of legal immigrants in 2017.

The courts have generally ruled that business standards having a disparate impact are defensible based on business necessity and the absence of effective alternatives having less disparate impact. So the issue here is whether border controls meet a compelling need having nothing to do with racial or ethnic preferences, and whether any adverse impact on protected classes can be minimized.

The simple fact is that most Americans opposing illegal immigration simply want those entrants to go through a liberalized legal process, which would of course reduce the disparate impact of tight border controls. So the worst that can be said about a preference for legal over illegal immigration is that it might have a disparate impact on prospective minority entrants, and that is uncertain under a liberalized regime of legal immigration. This preference is not racist, and it is not racist to demand that all entrants be vetted and identified, whether you believe it is economically sensible or that immigrants are more or less likely to engage in criminal or even terrorist activity.

Public Resources

Again, there are strong rationales for controlling immigration and enforcing the border that have nothing to do with racial preference. Borders are a critical aspect of national sovereignty, of course, including taxpayer sovereignty. There is no question that large numbers of immigrants strain scarce public resources in a variety of ways including public aid, education, law enforcement, housing, and other public services. In fact, the mere existence of aid programs provides incentives that encourage immigration, especially as activists push for broader accessibility of program benefits. The consequent strain on public resources escalates costs to taxpayers and compromises the quality of public programs for the qualified citizen-beneficiaries for whom they are intended. There is nothing racist about asserting that those strains should be minimized for the benefit of taxpayers and beneficiaries. Indeed, a recent poll found that a majority of Hispanics favor controls on immigration, including a border wall.

A further consequence is that citizens might perceive an unhealthy opportunism or exploitation by illegal immigrants availing themselves of what might seem like very generous public benefits. Rightly or wrongly, that perception tends to encourage forms of “otherism”. This is an example of how public policy can undermine social cohesion and the successful assimilation of immigrants.

The Labor Force

In general, immigration is a positive economic force. At a macro level, it supplements the growth of the labor force, traditionally a major driver of output gains. At the more fundamental micro level, it represents a movement of productive resources in response to incentives guiding them to higher-valued uses. The most productive workers tend to migrate away from low-wage economies toward high-wage economies. Again, however, low-productivity workers are attracted by the bundle of public benefits available, including our minimum wage laws. Those immigrants do not contribute to output gains at all if their productivity is less than the minimum wage. They will, however, attempt to compete for jobs at the minimum wage or even below that wage if their employers are willing to cheat.

Obviously, the legal minimum wage does not adjust to market conditions such as excess supplies of labor. The development of such a surplus would mean unemployment, including job losses among low-skilled legal residents. That is unfortunate not just for those losing jobs, but because these effects create more fertile ground for racism among both groups. This is another example of how public policy can create barriers to social cohesion.

So Who’s a Racist, Anyway?

Those casting aspersions of racism are often guilty of of losing historical perspective, and sometimes worse. A recent example is the refusal of democrats to deal with “the racist” Trump on the DACA bill he proposed in early 2018. That bill would have offered amnesty and a path to citizenship for 1.8 million Dreamers, individuals who arrived in the U.S. as undocumented child immigrants. How easy it is for progressives to forget that President Obama dithered away four years during which he could have proposed legislation to end the prosecution of Dreamers.

A more cogent example of selective memory among progressives is the history of the Democrat Party as one of racism, Jim Crow, and eugenics. The contention that the Republican Party has a history of racism is categorically false. We constantly hear that Republicans are guilty of using “dog whistles” to appeal to racist sentiment, but Mark Steyn provides a marvelous quote of James Taranto in which he gets at the truth of these divisive claims: “… if you can hear the whistle, you’re the dog.” There is great truth in that statement.

No one should forget that immigrants attempting to enter the country illegally are exposed to real dangers, and it should be discouraged. Natural conditions are harsh along the southern U.S. border, and many of those wishing to cross must contract for the services of guides who are often dangerous and untrustworthy. The risks for families and children should not be trivialized by those who would encourage massive flows of illegal entrants as a tool of policy change.

Border security is important to Americans because of the risks inherent in an uncontrolled border. These risks span national security, drug policy, taxpayer sovereignty, and other economic concerns. While racists might hate most immigrants, opposition to illegal immigration is often paired with support for liberalized legal immigration. That fact does not square with accusations of racism. Perhaps most importantly, encouraging an uncontrolled flow of immigrants in defiance of existing law creates harsh risks for the immigrants themselves, and especially the children who become innocent human collateral in the process. That the same shortsighted individuals who encourage such flows make a blanket charge of racism against those who demand a more rational and even liberalized process is grotesque and an affront to decency.

Missouri Prop B: the Unintended Consequences of Wishful Thinking

04 Sunday Nov 2018

Posted by in Labor Markets, Living Wage, Minimum Wage, Uncategorized

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Proposition B sounds really good to many Missouri voters: all we have to do to help low-wage workers is declare that they must be paid a higher wage. That’s the pitch, of course. But voters should hear the cruel truth about the unintended consequences of this well-intentioned and ill-considered proposition on the ballot this week:

  1. Businesses are likely to increase prices to compensate for a higher mandated wage, which hurts all consumers, but especially the poor.
  2. Some low-skilled job losses or lost hours are assured, and they will hit the very least-skilled the hardest. No matter the legal minimum, the real minimum wage is always zero.
  3. Such job losses have long-term consequences: lost job experience that the least-skilled desperately need to get ahead.
  4. The harms will have a disparate impact on minorities.
  5. Large employers can substitute capital for low-skilled labor: automated kiosks to take orders and increasingly sophisticated robots to perform tasks. Again, the real minimum wage is always zero. As I’ve said before on this blog, automate no job before its time. But that’s what Prop B will encourage.
  6. Employers can make other compensatory changes. That includes reduced fringe benefits and break times, increased production quotas, and less desirable shifts for minimum wage workers.
  7. A large share of the presumed beneficiaries of a higher minimum wage are not impoverished. Many are teenagers or young adults living with their parents.
  8. All of the preceding points argue that an increase in the minimum wage is not an effective method of targeting poverty reduction. In fact, the harm it inflicts is targeted at the most needy. 
  9. Small employers have less flexibility than large employers, and Prop B would place them at a competitive disadvantage. To that extent, a higher wage floor is most damaging to “mom & pop”, locally-owned businesses, and their employees. Again, the real minimum wage is always zero.

At least 24 earlier posts appear on this blog covering the topic of minimum wages. You can see most of them here. The points above are explored in more detail in those posts.

William Evan and David MacPherson of the Show-Me Institute have estimated the magnitude of the harms that are likely to result if Prop B is approved by voters on November 6, and they are significant. The voters of Missouri should not be seeking ways to make the state’s business environment less competitive.

Voters should keep in mind that wages in an unfettered market reflect the realities of labor demand and labor supply. Wages and other forms of compensation reflect the actual quantity, quality and productivity of available labor supplies. And for unskilled labor, which is often supplied by those who lack experience, a wage that matches their marginal productivity is one that provides that valuable experience. The last thing they need is for tasks requiring little skill to be performed by more experienced employees, or by machines. We cannot wish away these realities, and we cannot declare them suspended by law. Such efforts will have winners and losers, of course, though the former might not ever recognize the ephemeral nature of their gains. And as long as there is freedom of private decision-making, the consequences of such legal efforts will cause harm to those least able to withstand it.

Bernie’s Backdoor Minimum Wage Hike

30 Monday Apr 2018

Posted by in Labor Markets, Minimum Wage, Welfare State

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Bernie Sanders’ latest jobs plan is a political fantasy, but also a fantasy insofar as he imagines such a program could improve job market outcomes and the U.S. economy. Sanders wants the government to guarantee a job to anyone who is unemployed and pay them a wage of $15 an hour. But what job roles will be identified and by whom? Will the unemployed be required to accept these jobs or else lose other benefits? Which unemployed workers will come forward voluntarily for “workfare”? What will qualify them for particular roles? How many public-sector workers will be diverted from their existing responsibilities to administer the program and manage these new workers? How much will the program cost? How will the above-market wages and administration of the program be funded? These questions deal only with the first-order mechanics of the Sanders proposal. What will be the second-order effects on the private economy?

Scott Shackford delves into these and other gory consequences that are likely under the Sanders plan, most of which should be obvious to anyone with a modicum of economic literacy. Apparently, that does not include the so-called economists at the Levy Economics Institute at Bard College, who produced a “study” on guarantees of public sector jobs that manages to prove their ignorance of basic economic principles.

The headline for this proposal is about jobs, but the real motive is to impose wage controls through the backdoor. The plan is announced at a time of full employment (now 4.1%), traditionally defined as an unemployment rate of roughly 4%. That level accounts for “frictional unemployment”, which recognizes that job transitions and the normal market process of matching worker skills with jobs are not instantaneous. It’s true that certain segments of the labor force typically experience higher than average unemployment. So Perhaps i should give Bernie the benefit of the doubt by stipulating that the program is geared toward addressing cyclical and structural unemployment, or that it’s intended to benefit minorities. But if the goal is to keep everyone working all the time, it is impossible in view of the informational frictions, skill mismatches, and mobility issues that characterize the labor market. Workers would have difficulty conducting a job search were they employed in Sanders workfare program, and that sacrifice would be particularly costly for skilled workers seeking employment at wages greater than $15/hour.

Again, all “guaranteed” jobs under the Sanders plan are to pay a wage of at least $15/hour. Low-skilled workers whose productivity is not consistent with such a wage can thumb their noses at private employers. Either pay your low-skilled workers $15 or lose them. This is Sanders’ way of implementing a de facto federal minimum wage without actually requiring employers to pay that rate by diktat. Of course, under the plan, the taxpayer is on the hook for the excess of wage payments over and above the value of these workers’ productive contributions. The bulk of those workers lack the skills and job experience to contribute value commensurate with that wage rate, and sometimes they lack even the temperament and comportment necessary to make a sufficient contribution to output, or to keep steady work absent the gift of a wage from government.

But that’s not the worst of it: Sanders’ program is cloaked in terms suggesting that it would have countercyclical effects: government hiring would increase in association with increases in the unemployment rate, and vice versa, or so we are told. But “vice versa” is a stretch: government programs have a tendency to be self-perpetuating. And this program creates instability by allowing government to compete for workers on a distorted basis. The private sector will lose workers as the government gains workers. The tax bill and its burden on the private sector will lead to business failures, still fewer private workers, and still more public-sector workfare. And as the government displaces private activity, good luck to consumers finding the plentiful goods and services to which they are accustomed. The Sanders program is a prescription for economic and social decline.

Public sector competition for workers under Sander’s plan would be distorted because work would be assigned by special interests, not by market demand. Bob Bryan of The Business Insider has the following details:

“Sanders’ plan would create 12 districts within the US that would approve jobs plans from municipalities, states, and American Indian tribal governments and then pass those plans along to the Labor Department for final approval.”

Thus, a new administrative layer of government, 12 districts, would be created wielding the authority to winnow the pool of projects for a new category of spending. In the parlance of public budgeting, this spending would be called an “entitlement” because the spending would be programmatic rather than discretionary. State and local governments would create wish lists, and their wishes would then be constrained by the decisions of district authorities and the Labor Department. Those decisions, however, would very likely be responsive to special interests. Like most administrative decisions, the spending allocations would be guided by politics, not economics.

Shackford quotes the Levy Institute:

“A local artist collective employs painters, actors, musicians, and stage hands to run year-round productions for the community. They organize school outreach programs, run summer camps, and offer free art, music, and literacy classes for disadvantaged/special needs youths. They collaborate with local schools in offering art enrichment programs.”

Those aren’t Sanders words, but he might well entertain such notions. Should we all just agree that the government ought to tax us more heavily and spend the proceeds on supporting local, “unemployed” artists (I use quotes because many artists are not fully employed at their art for lack of demand, and they often work at other jobs from which they would quickly separate given a flow of government funds for their art). Usually those who insist on such things belong to the very interests who would benefit from the programs. One can argue that the “external benefits” of the arts justify public expenditure, but there is no objective measure of those benefits, and those who benefit directly will always want more. Therefore, the Sanders program, like so many other public initiatives, would violate standards of governmental fiduciary duty to taxpayers.

What about construction and repair of public infrastructure? Those projects should be chosen and initiated on their merits and on taxpayers’ willingness to fund them, not because there are people unemployed at the moment. What’s more, construction and maintenance of infrastructure requires various levels of skills that might not be readily available in a pool of unemployed workers.

Regardless of the specifics, the jobs program promoted by Sanders substitutes a wholly unrelated goal, jobs, for the underlying rationale of particular projects. As such, Sanders’ proposal would provide opportunities for special interests to collect rents without a programatic justification for the expense to taxpayers. Shackford says:

“… the examples in the Levy study seem like descriptions of programs that certain types of local government-connected people with very particular ideas would like to see the government doing. Their plan leans heavily on the assumption that all these unemployed or underemployed people would happily do the grunt work that aligns with left-leaning environmental and public policy project goals. The report openly uses the Works Progress Administration of the New Deal as a model to support it. …

But how does one determine what a community needs while ignoring market responses? Why should taxpayers fund community plays if they have no interest in actually sitting through them? This report makes it very clear that the task falls to local public institutions and job centers, not market demands. That necessarily means it will be driven, much like this report is, by the interests of the people who are in charge of the programs or have the most influence over the programs. That these programs could end up as a corrupt breeding ground for government cronyism and nepotism in who gets assigned for which jobs is utterly absent from the study.“

Here is more from Bryan:

“The plan would also utilize job training centers to train and connect workers with jobs on the new projects.”

This is either another new agency or a demand on private job training organizations. Presumably the training would be free to the trainee, in addition to the $15/hour paid during the training period. I would have fewer objections to an explicit job training program than to the sprawling job-making and wage-paying authority called for in Sanders’ plan. Unfortunately, the absence of apprentice wage levels in the U.S. often eliminates the best training of all: on-the-job training.

Shackford wonders whether workers hired under the program could ever be fired for cause:

“I mean, given how hard it is to fire bad teachers or dangerous cops, it’s worth wondering whether people who get these jobs will continue to get paid if they fail to show up for their job trimming the hedges of their community skate park or surveying people about their food insecurities. (According to the Post, Sanders’ plan calls for something sinisterly called the Division of Progress Investigation to handle discipline.)“

The program could employ as many as 15 million people if the Levy Institute study can be taken as a guide. That would represent a huge increase in government employment. Presumably, the burden would be spread across federal, state and local governments, all of which are facing degrees of fiscal crisis.

Bernie Sanders’ jobs program is ill-defined, but we know enough about it to safely conclude that it is economically preposterous. It will compete with job search activity that is necessary to the function of the labor market; lure low-skill workers away from their current employers, or indeed from their highest valued uses; require massive public borrowing and ultimately higher taxes; compromise other functions of government by diluting fundamental program goals and diverting human and other resources; place further strain on government budgets at all levels; lead to business failures; and lead to a permanently larger role for government in the economy. Governments, of course, do not operate under market discipline, so the program would degrade the overall productive potential of the U.S. economy. 

As David Byrge, aka Iowahawk, says about Sanders:

“Who better to get America back to work than a guy who was actually fired from a Vermont hippie commune for being too lazy.”

For a fairly thorough compendium of Sanders’ policy proposals over the years, here is Matt Welch on “Bernie’s Bad Ideas“.

The Comparative Human Advantage

10 Thursday Aug 2017

Posted by in Automation, Technology, Tradeoffs

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There are so many talented individuals in this world, people who can do many things well. In fact, they can probably do everything better than most other people in an absolute sense. In other words, they can produce more of everything at a given cost than most others. Yet amazingly, they still find it advantageous to trade with others. How can that be?

It is due to the law of comparative advantage, one of the most important lessons in economics. It’s why we specialize and trade with others for almost all of ours needs and wants, even if we are capable of doing all things better than them. Here’s a simple numerical example… don’t bail out on me (!):

  • Let’s say that you can produce either 1,000 bushels of barley or 500 bushels of hops in a year, or any combination of the two in those proportions. Each extra bushel of hops you produce involves the sacrifice of two bushels of barley.
  • Suppose that I can produce only 500 bushels of barley and 400 bushels of hops in a year, or any combination in those proportions. It costs me only 1.25 bushels of barley to produce an extra bushel of hops.
  • You can produce more hops than I can, but hops are costlier for you at the margin: 2 bushels of barley to get an extra bushel of hops, more than the 1.25 bushels it costs me.
  • That means you can probably obtain a better combination (for you) of barley and hops by specializing in barley and trading some of it to me for hops. You don’t have to do everything yourself. It’s just not in your self-interest even if you have an absolute advantage over me in everything!

This is not a coincidental outcome. Exploiting opportunities for trade with those who face lower marginal costs effectively increases our real income. In production, we tend to specialize — to do what we do — because we have a comparative advantage. We specialize because our costs are lower at the margin in those activities. And that’s also what motivates trade with others. That’s why nations should trade with others. And, as I mentioned about one week ago here, that’s why we have less to fear from automation than many assume.

Certain tasks will be automated as increasingly productive “robots” (or their equivalents) justify the costs of the resources required to produce and deploy them. This process will be accelerated to the extent that government makes it appear as if robots have a comparative advantage over humans via minimum wage laws and other labor market regulations. As a general rule, employment will be less vulnerable to automation if wages are flexible. 

What if one day, as Elon Musk has asserted, robots can do everything better than us? Will humans have anywhere to work? Yes, if human labor is less costly at the margin. Once deployed, a robot in any application has other potential uses, and even a robot has just 24 hours in a day. Diverting a robot into another line of production involves the sacrifice of its original purpose. There will always be uses in which human labor is less costly at the margin, even with lower absolute productivity, than repurposing a robot or the resources needed to produce a new robot. That’s comparative advantage! That will be true for many of the familiar roles we have today, to say nothing of the unimagined new roles for humans that more advanced technology will bring.

Some have convinced themselves that a fully-automated economy will bring an end to scarcity itself. Were that to occur, there would be no tradeoffs except one kind: how you use your time (barring immortality). Superabundance would cause the prices of goods and services to fall to zero; real incomes would approach infinity. In fact, income as a concept would become meaningless. Of course, you will still be free to perform whatever “work” you enjoy, physical or mental, as long as you assign it a greater value than leisure at the margin.

Do I believe that superabundance is realistic? Not at all. To appreciate the contradictions inherent in the last paragraph, think only of the scarcity of talented human performers and their creativity. Perhaps people will actually enjoy watching other humans “perform” work. They always have! If the worker’s time has any other value (and it is scarce to them), what can they collect in return for their “performance”? Adulation and pure enjoyment of their “work”? Some other form of payment? Not everything can be free, even in an age of superabundance.

Scarcity will always exist to one extent or another as long as our wants are insatiable and our time is limited. As technology solves essential problems, we turn our attention to higher-order needs and desires, including various forms of risk reduction. These pursuits are likely to be increasingly resource intensive. For example, interplanetary or interstellar travel will be massively expensive, but they are viewed as desirable pursuits precisely because resources are, and will be, scarce. Discussions of the transition of civilizations across the Kardashev scale, from “Type 0” (today’s Earth) up to “Type III” civilizations, capable of harnessing the energy equivalent of the luminosity of its home galaxy, are fundamentally based on presumed efforts to overcome scarcity. Type III is a long way off, at best. The upshot of ongoing scarcity is that opportunity costs of lines of employment will remain positive for both robots and humans, and humans will often have a comparative advantage.

Sell the Interstates and Poof — Get a Universal Basic Income

11 Tuesday Jul 2017

Posted by in Automation, Universal Basic Income

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Proposals for a universal basic income (UBI) seem to come up again and again. Many observers uncritically accept the notion that robots and automation will eliminate labor as a factor of production in the not-too-distant future. As a result, they cannot imagine how traditional wage earners, and even many salary earners, will get along in life without the helping hand of government. Those who own capital assets — machines, buildings and land — will have to be taxed to support UBI payments, according to this logic.

Even with artificial intelligence added to the mix, I view robot anxiety as overblown, but it makes for great headlines. The threat is likely no greater than the substitution of capital for labor that’s been ongoing since the start of the industrial revolution, and which ultimately led to the creation of more jobs in occupations that were never before imagined. See below for more on my skepticism for robot dystopia. For now, I’ll stipulate that human obsolescence will happen someday, or that a great many workers will be displaced by automation over an extended period. How will society manage with minimal rewards for labor? The question of distributing goods and services will depend more exclusively on the ownership of capital, or else it will be charity and/or government redistribution.

The UBI, as typically framed, is an example of the latter. However, a UBI needn’t require government to tax and redistribute income on an ongoing basis. Nobel Prize winner Vernon Smith suggests that the government owns salable assets sufficient to fund a permanent UBI. He suggests privatizing the interstate highway system and selling off federal lands in the West. The proceeds could then be invested in a variety of assets to generate growth and income. Every American would receive a dividend check each year, under this plan.

Why a UBI?

Given the stipulation that human labor will become obsolete, the UBI is predicated on the presumption that the ownership of earning capital cannot diffuse through society to the working class in time to provide for them adequately. Working people who save are quite capable of accumulating assets, though government does them no favors via tax policy and manipulation of interest rates. But accumulating assets takes time, and it is fair to say that today’s distribution of capital would not support the current distribution of living standards without opportunities to earn labor income.

Still, a UBI might not be a good reason to auction public assets. That question depends more critically on the implicit return earned by those assets via government ownership relative to the gains from privatization, including the returns to alternative uses of the proceeds from a sale.

Objections to the UBI often center on the generally poor performance of government in managing programs, the danger of entrusting resources to the political process, and the corrosive effect of individual dependency. However, if government can do anything well at all, one might think it could at least cut checks. But even if we lay aside the simple issue of mismanagement, politics is a different matter. Over time, there is every chance that a UBI program will be modified as the political winds shift, that exceptions will be carved out, and that complex rules will be established. And that brings us back to the possibility of mismanagement. Even worse, it creates opportunities for rent seekers to skim funds or benefit indirectly from the program. In the end, these considerations might mean that the UBI will yield a poor return for society on the funds placed into the program, much as returns on major entitlements like Social Security are lousy.

Another area of concern is that policy should not discourage work effort while jobs still exist for humans. After all, working and saving is traditionally the most effective route to accumulating capital. Recipients of a UBI would not face the negative marginal work incentives associated with means-tested transfer payments because the UBI would not (should not) be dependent on income. It would go to the rich and poor alike. A UBI could still have a negative impact on labor supply via an income effect, however, depending on how individuals value incremental leisure versus consumption at a higher level of money income. On the whole, the UBI does not impart terrible incentive effects, but that is hardly a rationale for a UBI, let alone a reason to sell public assets.

Funding the UBI

We usually think of funding a UBI via taxes, and it’s well known that taxes harm productive incentives. If the trend toward automation is a natural response to a high return on capital, taxes on capital will retard the transition and might well inhibit the diffusion of capital ownership into lower economic strata. If your rationale for a UBI is truly related to automation and the obsolescence of labor, then funding a UBI should somehow take advantage of the returns to private capital short of taxing those returns away. This makes Smith’s idea more appealing as a funding mechanism.

Will there be a private investment appetite for highways and western land? Selling these assets would take time, of course, and it is difficult to know what bids they could attract. There is no question that toll roads can be profitable. Robert P. Murphy provides an informative discussion of private roads and takes issue with arguments against privatization, such as the presumptions of monopoly pricing and increased risk to drivers. Actually, privatization holds promise as a way of improving the efficiency of infrastructure use and upkeep. In fact, government mispricing of roads is a primary cause of congestion, and private operators have incentives to maintain and improve road safety and quality. Public land sales in the West are complex to the extent that existing mineral and grazing rights could be subject to dispute, and those sales might be unpopular with other landowners.

Once the assets are sold to investors, who will manage the UBI fund? Whether managed publicly or privately, the best arrangement would be no active trading management. Nevertheless, the appropriate mix of investments would be the subject of endless political debate. Every market downturn would bring new calls for conservatism. The level of distributions would also be a politically contentious issue. Dividend yields and price appreciation are not constant, and so it is necessary to determine a sustainable payout rate as well as if and when adjustments are needed. Furthermore, there must be some allowance to assure fund growth over time so that population growth, whatever the source, will not diminish the per capita payout.

Jesse Walker has a good retrospective on the history of “basic income” proposals and programs over time. He demonstrate that economic windfalls have frequently been the impetus for establishment of “rainy day” programs. Alaska, enabled by oil revenue, is unique in establishing a fund paying dividends to residents:

“From time to time a state will find itself awash in riches from natural resources. Some voices will suggest that the government not spend the new money at once but put some away for a rainy day. Some fraction of those voices will suggest it create a sovereign wealth fund to invest the windfall. And some fraction of that fraction will want the fund to pay dividends.

Now, there are all sorts of potential problems with government-run investment portfolios, as anyone who has followed California’s pension troubles can tell you. If you’re wary about mismanagement, you’ll be wary about states playing the market; they won’t all invest as conservatively as Alaska has.

Still, several states have such funds already—the most recent additions to the list are North Dakota and West Virginia—and the number may well grow. None has followed Juneau’s example and started paying dividends, but it is hardly unimaginable that someone else will eventually adopt an Alaska-style system.”

Human-Machine Collaboration

A world without human labor is unlikely to evolve. Automation, for the foreseeable future, can improve existing processes such as line tasks in manufacturing, order taking in fast food outlets, and even burger flipping. Declines in retail employment can also be viewed in this context, as internet sales have grown as a share of consumer spending. However, innovation itself cannot be automated. In today’s applications, the deployment and ongoing use of robots often requires human collaboration. Like earlier increases in capital intensity, automation today spurs the creation of new kinds of jobs. Operational technology now exists alongside information technology as an employment category.

I have addressed concerns about human obsolescence several times in the past (most recently here, and also here). Government must avoid policies that hasten automation, like drastic hikes in the minimum wage (see here and here). U.S. employment is at historic highs even though the process of automation has been underway in industry for a very long time. Today there are almost 6.4 million job vacancies in the U.S., so plenty of work is available. Again, new technologies certainly destroy some jobs, but they tend to create new jobs that were never before imagined and that often pay more than the jobs lost. Human augmentation will also provide an important means through which workers can add to their value in the future. And beyond the new technical opportunities, there will always be roles available in personal service. The human touch is often desired by consumers, and it might even be desirable on a social-psychological level.

Opportunity Costs

Finally, is a UBI the best use of the proceeds of public asset sales? That’s doubtful unless you truly believe that human labor will be obsolete. It might be far more beneficial to pay down the public debt. Doing so would reduce interest costs and allow taxpayer funds to flow to other programs (or allow tax reductions), and it would give the government greater borrowing capacity going forward. Another attractive alternative is to spend the the proceeds of asset sales on educational opportunities, especially vocational instruction that would enhance worker value in the new world of operational technology. Then again, the public assets in question have been funded by taxpayers over many years. Some would therefore argue that the proceeds of any asset sale should be returned to taxpayers immediately and, to the extent possible, in proportion to past taxes paid. The UBI just might rank last.

The Real Minimum Wage Is Always Zero

30 Friday Jun 2017

Posted by in Living Wage, Minimum Wage

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Min Wage Denmark

A minimum wage study from Denmark reinforces the findings of the Seattle study released this week by economists at the University of Washington. Both studies conclude that increases in the minimum wage have negative effects on low-earners, at least for large increases in wage floors of the type advocated by “living wage” proponents. Alex Tabarrok provided commentary of both studies this week on the Marginal Revolution blog.

The Seattle study found that both employment and hours worked declined substantially among low-wage workers following the city’s minimum wage hikes. This became particularly clear after the most recent increase from $11 to $13 per hour. The average low-wage worker in Seattle lost $125 per month, according to the findings. The study has generally been praised for its detailed data and careful methodology.

The Danish study took advantage of the fact that the minimum wage rises by 40% on a worker’s 18th birthday. The chart above pretty much boils down the results. Employment drops by a third at age 18. Even worse, Tabarrok notes that after one year, 40% of workers who lose their jobs at age 18 are still unemployed, while 75% of those who keep their jobs at 18 are still employed. The fate of these two groups is likely driven by a gap in talent and skills, and that gap can only expand as the least-skilled are idled.

The minimum wage is a misguided policy that hurts those who can least afford it: low-wage, low-skilled workers. Firms forced to adjust to the higher mandated wage are worse off as well, not to mention their customers, who are likely to face higher prices and degraded service levels. Even those who remain employed at the minimum wage might suffer under less generous job perks and working conditions. Today, large increases in the wage floor can be expected to bring premature automation of jobs.

In the real world, workers of low skill vary tremendously in their actual ability, prior training and discipline to perform in a structured environment. Many of these individuals simply cannot add value over and above the legal wage. Some are simply incapable of understanding the demands of arriving on time and delivering effort over the course of a work day. Hiring firms cannot easily discern these differences up-front from social cues. They might try, however, which could lead to decisions that are unfair to some individuals. An even higher minimum wage makes these decisions all the more difficult and risky, and forecloses opportunities to a broader swath of low-skilled workers, consigning them to dependency on family or the state.

The minimum wage has always had appeal as an exclusionary tactic by higher-paid union workers. Cowed by its ostensible first-order effects on worker incomes, the left latched onto it as a fundamentally just policy. The negative second-order effects are predictable however. The economic evidence has been piling up, while methodological flaws in an earlier, prominent study finding the opposite in the 1990s have been exposed. As a policy, the minimum wage is unjust in its effects on the incomes of low-skilled workers and on their ability to gain valuable work experience, and on businesses attempting to deliver value to their customers.

Note: I believe Don Boudreaux should be credited with the phrase used in the title of this post, which I’m sure I’ve quoted before. For more background on minimum wage effects, see these earlier posts on Sacred Cow Chips. There are 20 posts with that tag, and some are more focused on the minimum wage than others, so keep scrolling!

Markets and Mobility

25 Thursday May 2017

Posted by in Markets, Poverty

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Government aid programs tend to perform poorly, especially in developmental terms. In the U.S., anti-poverty programs keep the poor running in place, at best. Yes, they provide minimal income, but they seldom offer a way out and usually discourage it. Moreover, the administration of such programs diverts a significant share of funds to well-heeled civil servants and away from the intended recipients. Foreign aid programs are probably even worse, functioning as catch basins for funding corrupt officials. Progressives, in particular, persist in taking the paternalistic view that we must rely on government action to “care for” and “protect” the poor, able or not. Markets, on the other hand, are held to offer no promise in fighting poverty. In fact, the general assumption made by the progressive left is that markets exploit them.

The truth is that markets offer great promise for encouraging economic mobility. Arnold Kling offers a good conceptual construct in a recent post: while humans are often subject to irrational tendencies in their assessment of choices, their interactions in markets offer a way of smoothing irregularities and disparate bits of information, providing useful signals about the availability of resources and demands for their use. The result is a flow of information that best signals opportunity. Kling calls the process of market interactions the “collective mind”. Rather than encouraging individuals to fully participate in effective markets, free of intervention, we instead deny them the best opportunities for gain. The notion that the poor must be “protected” from markets is embedded in policies like wage and price controls, benefit mandates, overtime rules, drug laws, occupational licensing, and innumerable other harmful regulations. The poor should have the unfettered ability to avail themselves of the social efficiencies of Kling’s collective mind.

Last Thursday, Don Beaudroux’s “Quotation of the Day” was taken from an essay by Ludwig von Mises in which he characterized private property in a market economy as “property by consumer consensus”. In other words, consumers reward sellers who create value, and those rewards accumulate in the form of private property. Likewise, consumers punish poor performance, which has a cumulative negative impact on one’s ability to accumulate or hold onto private property. The benefits conferred by consumer preference do not stop with the owners of the firm. Others productively affiliated with the firm also reap gains in rewards, allowing them to accumulate private property. And of course, consumers are the beneficiaries in the first place: in their judgement the firm delivers value in excess of price. The key here is that free market rewards and penalties are deserved and based on productivity in meeting desires, and only the market can distribute property so efficiently. The able poor can certainly add value and thereby accumulate property, if only given the opportunity.

Jeffrey Tucker has stated that “Only Markets Can Win the War on Poverty” (ellipses are my edits):

“The default state of the world is grueling poverty, universal insecurity, and short lives. When governments do come along, they nearly always serve themselves first. … Capitalism made huge progress toward the conquest of poverty. For the first time in history, the productive resources of society turned from serving mainly the elites toward serving the common person. This change alone began to flip the power narrative of social evolution.

And this revolution continued for two some two-hundred years, during which time the average life span expanded dramatically, infant mortality collapsed, incomes rose, and the great project of universal ennoblement achieved an unprecedented boost. And this trend continues today wherever markets are given freedom to function, property rights are secure, and people can associate and trade without molestation by the elites. … In short, capitalism made huge progress toward the conquest of poverty.“

Markets are not harmful to the poor. To the contrary, as Tucker says, they have helped lift billions out of poverty around the globe. But government increasingly plays the role of big provider and arbiter of what can and can’t be traded, by whom, and at what price. The suspension of the market mechanism by this process denies the poor the opportunities made possible via participation in free markets, whereby Kling’s “collective mind” processes massive quantities of information and acts upon it spontaneously. But the “collective mind” concept, as a description of market interactions, is too simple: we know that individuals act on the signals provided by the market and are rewarded based on how effectively they do so. There is no doubt that the poor can do that too. It’s time to cast aside the paternalistic and destructive notion that the able poor must be insulated from markets.

The Looting Wage and Its Ultimate Victims

15 Wednesday Feb 2017

Posted by in Living Wage, Markets, Minimum Wage

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Like children asking their peers to exchange quarters for nickels, advocates of a “living wage” hope that the government and voters will agree that workers should be paid by private employers at a rate the activists deem appropriate, regardless of skills. (The “living wage” is left-speak for a very high minimum wage.) Even worse, those advocates actually believe that such a trade can be justified. Or do they? The simple economics of the claim is undermined by assertions that a living wage is simply a matter of social justice. But social justice cannot be served in this way unless one’s definition is so bound up in virtue signaling that you don’t know the difference. It’s even too charitable to say that the left’s definition of social justice is simply bound up in the present and the short-term interests of specific groups. The unfortunate truth is that the “living wage” sacrifices the very well-being of a large number of individuals in those groups, now and in the future. Here’s why:

Suppose the government mandates a “living wage” as well as a series of measures intended to neutralize all of its unintended consequences. These measures would include a complete prohibition of involuntary terminations, investments in automation, price hikes, movement of capital abroad, and immigration. The measures must also include subsidies for failing employers. Just imagine the burden of compliance costs related to these measures, and the complex task of carving out exceptions, such as the allowable price hike in the wake of an increase in the cost of raw materials. What about the additional workers who would enter the labor force to seek employment at the higher wage? Should they be prohibited from doing so, or should employers be required to hire them, or should they be subsidized to hire them? And how will taxpayers afford all of these government subsidies?

Clearly, the situation described thus far is not sustainable. Both the initial wage hike and many of the other steps, ostensibly intended to cushion the blow on various parties, represent flagrant abridgments of private property rights, or rather, property takings! Of course, the real intent is for private parties to pay for the “living wage”. Presumably, employers are to pay the costs, especially large employers and their wealthy investors, like you when the value of those shares in your IRA, pension or 401k plan begins to tank. The reality is, however, that the unintended consequences will spread the cost in a variety of unpleasant ways.

Those in the coalition for living-wage legislation have not given much thought to the reverberations of such a change. At the most basic level, some people cannot command a high wage because they lack higher-order skills. Some have not learned the importance of reliability, of making sure they arrive at work by a specific time every day. Some have not learned the importance of concentrated work effort, of demonstrating that effort and avoiding excessive slack time. Some communicate poorly, or fail to comport themselves in a manner that commands trust. Some have a sketchy work record, presenting a risk to prospective employers. Living wage advocates assert that all of this is irrelevant, but it means everything to an employer.

How would employers attempt to to survive under a living wage? One doesn’t have to think too deeply to realize that wage floors lead to a loss of jobs for several reasons. Those lacking the skills to justify the higher wage will be out the door. Some employers will fail, finding it impossible to pay the hike in their labor costs or to pass it along to their cost-conscious clientele. The living wage is likely to lead to premature automation of many tasks otherwise requiring unskilled to more moderately-skilled workers. The capital investment needed to automate any manual process may well become worthwhile given such a shock to wage rates. Moreover, while some in the living wage movement complain that U.S. employers seek-out lower wage rates abroad, the living wage itself would lead to more of this substitution. The living wage also creates opportunities for those willing to work illegally at sub-minimum wages, including many undocumented immigrants. By driving a larger wedge between the wages of other home countries and the U.S., the living wage creates an incentive migrate In pursuit of the enlarged set of black-market opportunities for labor.

So just imagine having the government mandate a wage that is nearly double the market-clearing level. The quanity of labor demanded declines and the quantity supplied increases, leaving a surplus of workers at the mandated wage. The demand for labor declines still more as the weakest firms close shop. And it declines still more over horizons long enough to enable investment in automation and relocation of production to foreign shores. Add to the mix an expanded flow of workers from abroad. Not all of these surplus workers, native and immigrant, would be willing to take “underground” work at a rate below the living wage, but some will.

So, which of the measures listed in the second paragraph would mitigate the costs imposed by the living wage? In reality, none of them would succeed without spreading the cost more widely. Prohibiting involuntary terminations? Businesses will fail and/or prices will rise. Prohibiting investment in automation? The same. Prohibiting price hikes? Business failures, terminations, and premature automation. Prohibiting movement of capital abroad? An outright revocation of property rights and a distortion of incentives for productive investment, which would also discourage the movement of capital into the country, not just out.

Are there measures that could make the “living wage” a sustainable outcome? Yes, but they cannot be accomplished immediately by decree. Indeed, doing so would thwart the achievement of the objective. In short, productivity must increase. While productivity is multi-dimensional, education, training and work experience all foster improvement in a worker’s ability to add value. Unfortunately, our system of public primary and secondary education has been unsuccessful in producing graduates who can compete in the labor market, even at today’s minimum wage. Wholesale reforms are needed, but even the best educational reforms will take time to come to fruition. In the workplace itself, apprenticeship programs could provide under-skilled workers an avenue toward greater competitiveness at higher wages. Again, apprenticeships may only make economic sense to employers at a legalized sub-minimum wage, as Australia allows.

Second, productivity is dependent on the quality and quality of the capital invested in a business. The key to improving this capital is profitability. It’s ironic that living-wage advocates fail to see that their proposal runs directly counter to steps that would contribute to  productivity and wages. Instead, they seem intent on killing the geese that lay golden eggs! Far better to allow those eggs to be transformed into new capital assets that can enhance worker productivity and justify higher wages. Some jobs will be replaced by automation, but capital and new technology tend to create new kinds of jobs and inevitably boost worker productivity. (See “Will Automation Make Us Poor?” by Aaron Bailey.) Employers will still have an interest in seeking out, if not developing, new talent. The automation should take place as part of a more natural evolution, not one prematurely hastened by unrealistically high wage mandates.

The living wage is a prescription for failure and a death-knell for the private economy. It will fail the least-skilled workers and even some semi-skilled workers who cannot compete for jobs at the living wage. It will automate jobs before the natural time dictated by the market-driven process of technical evolution. It will lead to higher prices, which drive down the real value of any wage gains that workers manage to capture. It will lead to business failures, especially among small businesses. It will offer false hope to unskilled immigrants. It will reduce capital investment among smaller firms struggling to meet the higher wage bill. It may well lead to a slew of even more destructive public policies, such as business subsidies and other price controls. And it will create dependency on the state. The living wage is a destructive policy and ultimately a prescription for the death of self-sufficiency. It  cannot foster real social justice.

Hillaryeconomics: Swelling the State

30 Sunday Oct 2016

Posted by in statism

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Who cares about Hillary Clinton’s economic plan while her campaign quivers in the shadow of Weiner’s hard drive? Despite all the hubbub over Mrs. Clinton’s sloppy security practices, and her lies and destruction of evidence regarding those practices, it’s a good idea to remind ourselves of some of the frontrunner’s policy proposals and the general philosophy that informs them. Daniel J. Mitchell must have been feeling jovial when he took a crack at deciphering Hillary Clinton’s economic plan. He offered translations of each of 42 Hillary catch-phrases, but the translations were identical:

“Notwithstanding all the previous failures of government, both in America and elsewhere in the world, I’m going to make American more like Greece and Venezuela by using coercion to impose more spending, taxes, and regulation.“

Mitchell highlights two general themes at the start: one is the left’s constant misuse of the term “investment’ to describe spending on almost any government initiative; the other is the still fashionable Keynesian theory that a low-productivity government can make the economy grow by a multiple of any claim on resources it deigns to make.

I’ll try to do Mitchell one better. Here’s a run-down of the catch-phrases he cites along with my own interpretations:

  • “…support advanced manufacturing” — because the government is adept at picking winners with taxpayer money, like Solyndra. Does “advanced manufacturing” involve politically-favored outputs, as opposed to market-favored outputs? Does it involve robots, or workers? Is it somehow preferable to “advanced services”?
  • “a lot of urgent and important work to do” — there oughtta’ be more laws;
  • “go out and make that happen” — we must impose the heavy hand of the state;
  • “enormous capacity for clean energy production” — …if only we can provide our cronies with enough subsidies on your dime;
  • “if we do it together” — …kumbaya; we’ll wreck the private economy together;
  • “things that your government could do” — like, wreck everything;
  • “I will have your back every single day” — …with a sharp knife, in case it’s in my interest to betray you;
  • “make our economy work for everyone” — we’ll redistribute your wealth;
  • “restore fairness to our economy” — be prepared to share your success;
  • “go to bat for working families” — …by punishing your employer; but look, we have freebies!
  • “pass the biggest investment” — mandatory campaign promise;
  • “modernizing our roads, our bridges” — shovel-ready” projects;
  • “help cities like Detroit and Flint” — redistribute resources to poorly-governed communities and impose federal oversight;
  • “repair schools and failing water systems” — because local needs and the federal government are a perfect match;
  • “we should be ambitious” — about government domination;
  • “connect every household in America to broadband” — even if they don’t want it, and even if they’ve chosen to live in the badlands; at your cost, of course;
  • “build a cleaner, more resilient power grid” — reduce carbon emissions by inflating your utility bill; dismantle markets and direct energy resources centrally;
  • “creating an infrastructure bank” — we need another big federal agency, extending control and conjuring opportunities for cronyism and graft;
  • “we’re going to invest $10 billion” — Whew! I thought you were going to say $100 billion. But… can you define “investment”?
  • “bring business, government, and communities together” — …we’ll be as one at the federal level;
  • “fight to make college tuition-free” — so that even the least qualified have a strong incentive to enroll, on your dime;
  • “liberate millions of people who already have student debt” — because meeting the terms of a contract is a form of enslavement;
  • “support high-quality union training programs” — with federal subsidies on your dime; non-union training programs would be so …exploitative;
  • “We will do more” — …cause we’re from the government, and we’re here to help!
  • “Investments at home” — Invest? Can you define that? Do you mean “spend”?
  • “we need to make it fairer” — … by redistributing your income to others;
  • “we will fight for a more progressive…tax code” — reduce those ugly private work incentives and quash the bourgeois tendency to save and invest in physical capital;
  • “pay a new exit tax” — don’t get the idea it’s YOUR company; you didn’t build that;
  • “Wall Street, corporations, and the super-rich, should finally pay their fair share” –because the highest corporate tax rate in the industrialized world is not high enough, and besides, we can pass the booty back to elites in myriad ways, as long as they give to the Clinton Foundation;
  • “I support the so-called ‘Buffett Rule'” — …to quench the thirst of class warriors;
  • “add a new tax on multi-millionaires” — we must tax wealth because a high income tax rate just isn’t enough to encourage capital flight;
  • “close the carried interest loophole” — cause we think that loophole actually exists, and hey, it sounds good to class warriors;
  • “I want to invest” — Invest? Can you define that? Do you mean “spend”?
  • “affordable childcare available to all Americans” — …so that no parent need pay any attention to price; but your tax credit will diminish if you earn extra income, so don’t earn too much, for God’s sake!
  • “Paid family leave” — …because it isn’t expensive enough to hire you already;
  • “Raising the federal minimum wage” — … so the least skilled will be jobless and dependent on the state;
  • “expanding Social Security” — …so what if it’s already insolvent? Oh, you must mean “expanding” payroll taxes!!
  • “strengthening unions” — …because we mean to kill the sharing economy, and it isn’t expensive enough to hire you already;
  • “improve the Affordable Care Act” — if it’s broke, break it more thoroughly;
  • “a public option health insurance plan” — …shhh… don’t say single payer!
  • “build a new future with clean energy” — in our judgement, your inflated utility bills will help all mankind; besides, we want to take control, and wreck something.
  • Bonus: “wage equality once and for all” — because it should be illegal for employers to pay based on occupational risk, demands for paid leave and flexible hours, skill differentials and available supplies.

Lest you think my interpretation of that bonus quotation is unfair, remember: the so-called gender wage gap is almost entirely explained by the factors I’ve listed.

Hillary Clinton’s economic view is straight out of the statist theater of the absurd. Joseph Stiglitz, one of Hillary’s economic advisors, in 2007 endorsed Venezuelan socialism under Hugo Chavez, which proved to be disastrous. Was she forced to the left by Bernie Sanders? To some extent, perhaps. But Peter Suderman notes that Clinton’s current policy agenda constitutes a thorough rejection of Bill Clinton’s economic policies. The irony!

Are The Native-Born Idle By Choice?

21 Wednesday Sep 2016

Posted by in Immigration, Labor Markets, Minimum Wage

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Native-born Americans don’t seem to want low-skilled work, even when they have no skills. Immigrants, on the other hand, seem more than happy to take those jobs. The fact is that hours worked by native high-school dropouts have declined relative to the hours of immigrant dropouts, as noted by Robert Verbruggen in “When Young Men Don’t Work“.

Of course, American men in general are working less, with fewer jobs in occupations and sectors traditionally dominated by men, such as manufacturing. The total demand for manual labor may be decreasing due to automation. Among the youngest cohort, hours spent in educational activities have increased. However, another contributing factor may be that the supply of labor is held down by negative work incentives created by government policy. In any case, the changing composition of the low-skilled work force is a curiosity. Many of the native-born appear to be opting out of work, but not the foreign-born:

“Native high-school dropouts of ‘prime age’ (25–54) work only about 35 weeks per year, on average; comparable immigrant dropouts work 49 weeks. Native dropouts are the outliers. Immigrant dropouts work roughly as much as both native and immigrant men with higher levels of education—and they do 60 percent of the work performed by dropouts in America, despite being less than half of the dropout population.“

Clearly low-skilled work exists , and immigrants are doing a disproportionate share of it. Are some of these low-wage jobs simply inaccessible to the native-born? I doubt it. The argument that immigrants are taking low-wage jobs from Americans implies that immigrants have lower reservation wages. But if that’s so, it confirms the hypothesis that natives are less willing to take low-skilled jobs.

In fact, the native-born might have better leisure alternatives than many of the foreign-born. Verbruggen reviews the work of Erik Hurst of the University of Chicago, who argues that technology such as video games and the internet have increased the value of leisure relative to work. Perhaps natives are better situated than immigrants to draw on other resources to finance an idle, gaming existence. Whatever they do to occupy their time, those resources might include relationships with family having the means to support them, and even a familial tolerance for idleness.

It’s also possible that natives have better access to the bounty of the welfare state. Undocumented foreign workers are at a disadvantage in this regard, but that handicap is eroding. Whatever the reason, it appears that native-born Americans are spared the need to bid aggressively on work they consider undesirable. That decision will often be costly in the longer-run, given the lost opportunity to develop skills on the job.

Another possible explanation for the disparity in average working hours is that more immigrants are willing to work (illegally) in sub-minimum wage jobs. That might well be true for undocumented foreign workers, even in occupations that would otherwise be legal. One could argue that this is unlikely to reduce opportunities for work at or above the minimum wage because wage offers tend to align with skill level. However, sub-minimum wage offers to illegals are probably driven by the risk faced by the employer in making such hires. Just the same, illegal opportunities to work below minimum wage are not the exclusive domain of immigrants. Cash compensation can allow an employer to pay sub-minimum wages to anyone willing to work. Moreover, many natives work in the underground economy in areas such as illicit drug distribution, which might or might not involve sub-minimum wages.

Of course, an individual working at a lower wage must work more hours to earn the same income as one earning a higher wage. Subsistence for the immigrants might require the extra hours. That would explain the disparity in average hours if natives and immigrants truly can be sorted by wage rate, but if that is the case, then the natives must have less interest in low-wage jobs, as postulated, and the natives are content to live at the same subsistence level as the low-wage immigrants by working fewer hours.

Thus, it is difficult to escape the conclusion that native-born Americans are less willing to work in low-wage jobs than the foreign-born. Further increases in the minimum wage would have a tendency to create more idle time among the low-skilled, both native and immigrant. The total legal demand for low-skilled labor would decline. More natives might be willing to supply labor at the higher minimum, but incumbents have an advantage in holding onto jobs that remain after the increase. A higher minimum would certainly convert some formerly legal opportunities into illegal opportunities (at wages below the new minimum), attenuating the total increase in idleness.

Growth in the labor force is a fundamental driver of economic growth, and immigration has always been an important source of labor for the U.S. economy. Low-skilled, native-born Americans seem less willing to offer their services at wages matching their skill levels, but immigrants help to fill that gap and are usually happy for the opportunity. A higher minimum wage will not make their lives easier in the U.S. It should also be noted that greater tolerance for immigration at the low-end of the socioeconomic spectrum need not imply a sacrifice in border security or careful vetting, but it would provide a supply of able and willing workers eager to improve their standard of living.

On a related note, I add the following: James Pethokoukis points to an interesting irony with respect to Donald Trump’s policy positions: “Trump wants 4% (or higher) US growth. Easy. Just massively increase immigration“.