Bill Bennett's Morning in America provides background noise for my morning drive to work. I used to listen to Imus, but I finally gave it up. It was hard enough listening to his high school brand of humor, but when combined with his increasingly anti-Administration slant he's gotten to be just unbearable.
So on Bennett yesterday Senator Jeff Sessions talked about the immigration policy in terms of supply and demand. His point was that he expects the emerging immigration policy to lower the earning power of low skill American workers. I think there is some truth to what he says. According to Senator Sessions, immigration policy that allows more unskilled workers than skilled into the country will drive the price of their labor down. It's a reasonable scenario except for one thing he should have mentioned -- the minimum wage.
The increased supply can't reduce the nominal cost of labor because of the minimum wage. We might see a gradual reduction in the effective minimum wage if lawmakers resist raising the legal minimum wage. In that event the effective minimum wage would decline in relation to other prices as inflation drives them up. But that would take some time. Besides, how realistic are we to think lawmakers will hold the line on the minimum wage? Not very.
Arguments over the fairness issue aside, the effect of a price support in microeconomic terms is to create a surplus. High labor prices provide incentive to work but reluctance to hire. The surplus becomes more noticeable as the mandated price soars above the equilibrium price. I think we can count on our lawmakers to try to set it that high. The surplus in this case is called unemployment. So, on top of a minimum-wage-created surplus we can expect to add a big influx of unskilled workers to the labor pool.
Expect unemployment to be a hot button issue a couple of years from now. Should the Democrats fail to make any inroads in the midterm election, unemployment will be the hammer they use to bludgeon Bush Administration "failed economic policies". And while it's usually the Democrats who champion the underdog, then promote policies that make things worse for him, we can expect there will be Republicans in on this too. It will be a bipartisan bonanza.
So in addition to reduced earning power, expect low skill workers to have a harder time getting a job to begin with. This points up the necessity for workers at all levels to be constantly seeking to improve their skills. While I may lean libertarian, education is one area where I would favor effective help from government at all levels. Of course, when it comes to education, "effective help" and "government" might be contradictory terms.
Effective help? Don't we already have student loan programs all over the place, and scholarships all over the place? What more is needed from the Govt?
Best,
Bird Dog
Posted by: bird dog | May 18, 2006 at 03:11 PM
It's true, government offers a lot, Bird Dog. Part of my complaint about effective help stems from the practice (disappearing we hope) where schools have been guilty of graduating students without educating them. Scholarships and loans are helpful, but a kid can pile up huge debt in college.
I think it would be worthwhile to discuss expanding the traditional public school education to include post high school education. But what I was really trying to say was that we should take an educational approach to solving the unemployment and low wage issues rather than fool around trying to impose a minimum wage.
You're right, though. Effective help from government? What was I thinking?
Posted by: Tom Bowler | May 18, 2006 at 04:16 PM
There's a sort of natural equilibrium there, though; as the flow of immigrants and the minimum wage make labor too difficult to find here, demand to be here will lower and the influx will slow down.
If it wouldn't hurt low-skill American workers, as well as costs of production in America, I would think it a natural solution to the immigration problem: jack up minimum wages, so those jobs "Americans won't do" have to be offered for wages that Americans will do them for after all.
Then again -- if employers are already breaking the law by hiring illegals, who's to say they won't just pay them less than minimum wage?
Posted by: Paul | May 18, 2006 at 07:35 PM
Jacking up the minimum wage is not something that will help. The jobs that "Americans won't do" won't get done because employers get pushed towards the decision that some jobs just aren't worth doing. At the same time the higher wage would attract employees who would like to get paid to do them. It could also attract more illegals willing to work under the table.
It would make a great liberal political move. Eliminate a bunch of jobs by raising the minimum wage then complain about the awful unemployment and the immigration problem.
Posted by: Tom Bowler | May 19, 2006 at 05:29 PM