In a recent comment to a diary presented by Duke1676 I used some very inflammatory name calling in combating what is a significant amount distortion in the actual economics of illegal immigration. While those calling themselves "progressives" are obviously quite kind and forgiving folk who have a certain sentimentality "caring" about the less fortunate, it is never a good thing to ignore economic realities; not good to ignore and the price of these sentiments being paid by those who may not be quite so altruistic. The problem is that a great many of these "less than generous" common folks will soon crowd into the voting booths and register their dismay at the flood of illegal labor that continues to enter our country from the south and contribute to the increasing wealth disparity and to adversely effect their prosperity. We are all acutely aware of the jingoistic bigotry of the Republican party and their feigned fascination with law enforcement for their own political purposes. This diary seeks to expand on the actual economics of immigration (legal and illegal) without all the heat, emotion, misdirection, and political posturing.
Going directly to the core of the issue it is important to understand that physical realities are not overcome by sentiment or caring or fancy economic posturing. I become quite vexed when I see otherwise intelligent human beings indulging in flights of fancy that are disputed by objective reality. Even more do I become angered when I start to believe that people intentionally distort the economic facts so as to finance an idea or object whether that object is wholesome or not. When I see it happening I think of using 9/11 to legitimize an invasion of Iraq. For me, distortion is bad regardless of the objective. And then there is the fine line between "spin" (presenting the facts in a way that is favorable to your argument) and actual misleading and incorrect claims. I often take the liberty of referring to the latter as "lies".
I will tell you all flat out that illegal immigration has an adverse effect on jobs and wages for the "working class" of America and I intend to defend that point of objective reality using all classical economics and logic and reason necessary to refute those who would claim otherwise. I do not normally argue by citing supposed "authorities" other than classical economists. I will warn you all that I take a very dim view of latter day neoclassical economics and find it to be a glorified school of "finance" as opposed to any true pursuit of political economy. And with the exception of Marx, and Henry George, most all of the various "schools of economics" have biased themselves in favor of the wealthy and the powerful at all times. The latter day neoclassicals are just a little more blatant about this bias.
In true Physiocratic, classical, Marxian form I will always separate the divisions of economic humanity into "classes" and even "subclasses" so as to deal with the realities as opposed to making false generalizations. The "working class" are the less educated and less resourceful members of the society who are not especially talented, and who own no capital of significance (no trucks, backhoes, laundry or restaurant equipment, an inventory of direct sales items, etc) and who strictly work for wages. The "Working class" is a subclass of the "Producing class" which is the entire sector of the economy that actually produces or delivers goods and services and the return to this class can include neoclassical "profit" which is the return from the USE of "capital" (trucks, small convenience stores, bulldozers, lawn maintenance equipment, even fleets of trucks and similar equipment). Then there is the "ownership class" which are the individuals that invest their money in the ownership of land and real capital so as to derive neoclassical "rent" and "interest" respectively. Examples of this are the ownership if common stock or the ownership of a tool rental business that derives income form renting out the tools, car rental, structures such as office buildings and apartments. If the income is "passive" (the owner of the land or real capital does not actually participate in the USE of the equipment or land) then the income is rightfully called "interest" or "rent" depending upon whether the income is from the provisioning of real capital or the "letting" of land.. Then there is the "financial class" who derive their income solely from the lending of money or the extension of credit. Assuming hard money such as gold or silver the income would be termed interest. But in the case of credit the income is more appropriately styled as "economic rent".
Now having defined the proper relationships within the economy/society it is possible to actually speak to the effects of legal and illegal immigration on the various classes or economic groups. And in this discussion I will address various proclamations of the latter day school of neoclassical economics to illustrate why the classifications are necessary in truthfully dealing with the real economics. The neoclassical school has been refuted utterly by the "Cambridge Capital Controversy" in which it is shown that the aggregations of land and capital or even the various forms of capital are not mathematically defensible. This same irrefutable refutation (primarily of marginalism calculus) holds true for most of what the neoclassical school presents as economics. By aggregating classifications that should not be aggregated the neoclassical nincompoops are able to claim that certain economic effects derive where they truly do not. This misrepresentation goes hand in hand with the claims of the more altruistic and caring individuals who wish to help the migrant Mexicans. By aggregating "illegal immigration" with "green card immigrants" and then also by mixing macroeconomic effects with the more pointed and direct adverse micro effects they present a false picture of the reality that harms working class Americans. There are ways to mitigate the harm by properly addressing the problems of immigration and foreign policy. But we do ourselves a disservice by pretending that the wage problems do not exist.
The following neoclassical proclamations/cites (taken from an attempted rebuttal some of my comments) will serve as examples of the "false economics" used to claim that "illegal Immigration" is not harmful to "working class" wages. These false aggregations are the love child of a profession supported by the "owner class".
Its about wages but the following assertion has wage effects:
# JOB LOSS:
Comparative Advantages and Gains from Immigration
by Giovanni Peri (University of California, Davis and NBER), Chad Sparber (Colgate University) April, 2007, (Immigrants have little effect on jobs of US high school dropouts. Foreign and native-born workers with similarly low educational attainment in fact compliment each other in the workforce rather than compete. Using forty years of data the study looked at the actual tasks performed by each class of workers to see what jobs were being done by native-born workers as opposed to foreign born workers.The study found that foreign born workers perform more manual and physical tasks, while native-born workers do tasks that are more language-intensive and interactive, and that native-born workers benefit from this specialization)
This supposed "refutation" of micro economic reality is typical neoclassical pig manure. The neoconomists would have you believe that the prosperity of "working class" persons is unaffected by immigration because the people that would have been disadvantaged will now specialize in supervising the immigrants. But simply assume that undocumented people would not have shown up and ask yourself what would have been the result. Assuming the same demand for whatever was being produced, there would have been some combination of less production, or higher prices and, higher wages for the "working class". The false claim that "native-born workers benefit" is actually contradicted below by the exact same same bloviating nimrod neoconomist that makes this preposterous assertion here.
But the primary "snake oil" in this one is the trumpeted gain from "comparative advantage".
Attend:
Comparative advantage is a macro economic effect that engenders no return to wages. The gains of "comparative advantage" are bestowed as interest, profits, and rents. I wonder if it is even remotely possible that normal people understand this or have any real clue. This FACT is one of the primary reasons that rising GDP has not been a boon to the working class (or even the producing class) and this is quite evident from observing the current Republican "economy". "Comparative advantage" is observed between NATIONS, And it is NOT a positive wage effect. And as we will see later, the adverse rent effects act as a wage deflator even if nominal wages remain flat. There are more jobs but there are more people looking for jobs.
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Again we are specifically addressing workin class wages but the following assrtion has wage implications:
# JOB LOSS: (we were speaking of wages but again this includes a wage assertion)
The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts
by David Card, Ethan G. Lewis, NBER Working Paper No. 11552, Issued in August 2005 (low-skilled Mexican immigrants are readily absorbed into the workforce and have little effect on low-skilled native workers.)
The wage data and employment data for the 90's is very compelling as it was the only period in the last 40 years where wages actually rose. However, to use this data as support of preposterous claims concerning effects of immigration on working class wages is disingenuous at best. The demand for labor increased in the 90's due to the actions of the Democratic Congress in 1990 and then again in 1993 restoring a rational tax policy. These alterations in tax policy caused a shift from bonds to equities creating a very prosperous and growing economy throughout the 90's. The Republican Congress created an actual demand bubble with their ridiculous capital gains tax cuts of 1997. In such a robust economy it is possible to "absorb more workers" without clobbering wages. But that is not the point, however. What would the wages gains have been WITHOUT the arrival of the undocumented workers? HMMMMMMMMMMM? Or what would have been the effects of increased illegal immigration if the 90's would have been a period of economic downturn like that which is currently manifesting itself here in 2008?
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Again the following assertion has wage impliations:
# JOB LOSS: (we were speaking of wages but again this has a wage assertion)
Growth in the Foreign-Born Workforce and Employment of the Native Born
by Rakesh Kochhar, Associate Director for Research, Pew Hispanic Center, August 2006, (no relationship between the growth in the foreign-born population and employment outcomes for native-born workers)
And what the hell would you expect from the "Pew Hispanic Center". This is simply a proclamation from a supposed "authoritative source" that cannot be relied upon to be unbiased. Why anyone would cite such a source in defense of a claim concerning adverse effects of illegal immigration is to me, unfathomable.
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More wage implications:
# JOB LOSS: (we were speaking of wages)
The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts
by David Card, Ethan G. Lewis, NBER Working Paper No. 11552, Issued in August 2005 (low-skilled Mexican immigrants are readily absorbed into the workforce and have little effect on low-skilled native workers.)
MY detractor liked this one so much he had to repeat it. There is no justifiable claim of cause and effect here other than the irrefutable data illustrating the health of the economy during the nineties as THAT contributed to the ability of the economy to "absorb" the immigrants. The cause of the robust economy was not the arrival of the immigrants. The cause of the robust economy (and the Republican overheat) was tax policy.
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At last we have some headings about wages
# WAGES
Task Specialization, Comparative Advantages, and the Effects of Immigration on Wages, by Giovanni Peri (University of California, Davis and NBER), Chad Sparber (Colgate University). August 2007, National Bureau Of Economic Research, Working Paper No. 13389 (Looking at data for the 50 US states (plus the District of Columbia) from 1960 to 2000 the report shows that foreign-born workers specialize in occupations that require manual tasks such as cleaning, cooking, and building. Immigration causes natives — who have a better understanding of local networks, rules, customs, and language — to pursue jobs requiring interactive tasks such as coordinating, organizing, and communicating. Simulations show that this increased specialization mitigated negative wage consequences of immigration for less-educated native-born workers, especially in states with large immigration flows.)
I wonder if folks understand the meaning of the word "mitigated" or if they even bother to account for the context in which it has been used here. This bloviation says that the American workers would have been worse off with the arrival of the additional competition for wages had specialization not taken place. It is tacitly admitted here that the adverse effects of the enlarged labor pool were SOFTENED due to "specialization". I have already informed you that "comparative advantage" is a return to rent and profit and NOT a return to wages. Further, average wages are not a metric that can be employed to assess the micro-economic effects at the low end. As CEO wages increase astronomically the "average" wage will rise even though the wages on the low end are stagnant or slightly falling. There is also the indiscriminate translation of rent into profit and wages by the aggregating neoclassical people that allows them to present wage claims at the top that are actually inflated by economic rent.
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# WAGES & RENTS
The Effects of Immigration on U.S. Wages and Rents: A General Equilibrium Approach, by Gianmarco I.P. Ottaviano, (University of Bologna, FEEM and CEPR), Giovanni Peri, (UC Davis and NBER), Sept, 2007, Centre for Economic Policy Research (This paper documents a strong positive correlation of immigration flows with changes in average wages and average house rents for native residents across U.S. states.. Separating the effects of immigrants on natives of different schooling levels we find positive effects on the wages and rents of highly educated and small effects on the wages (negative) and rents (positive) of less educated. We propose a model where natives and immigrants of three different education levels interact in production in a central district and live in the surrounding region. In equilibrium the inflow of immigrants has a positive productive effect on natives due to complementarieties in production as well as a positive competition effect on rents. The model calibrated and simulated with U.S.-states data matches most of the estimated effects of immigrants on wages and rents of natives in the period 1990-2005.)
There is no way in hell that normal people can come close to understanding what these wonks are saying here. And in no way are they refuting the claim that ILLEGAL IMMIGRANTS contribute to working class wage deterioration. If nothing else we see the magic words "IMMIGRANTS" and "AVERAGE WAGE" used again in this "model" as opposed to any clear distinction between IMMIGRANTS and undocumented workers, and the necessary distinction between "working class" wages and average wages is also missing.
But lets pick the embedded FACT out of the juiced up econobable:
"Separating the effects of immigrants on natives of different schooling levels we find positive effects on the wages and rents of highly educated and small effects on the wages (negative) and rents (positive) of the less educated."
I will now give you a proper interpretation:
It says that the CEO's got higher wages and collected more rent from the land they owned while the working class (defined here as the less educated) paid HIGHER rents while having their wages go negative. And if the "model" shows something other than that, then the "model" is simply based on false assumptions and defective math. Economics is not sorcery. The babble ADMITS to:
"small effects on the wages (negative)"
and
"rents (positive)"
It is the latter that bears examination in that rent is a COST to the "working class" as opposed to an income. As rents move in a "positive" direction then so to does the cost of living for the "working class".
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# WAGES & RENTS
How Immigration Affects U.S. Cities , by David Card, UC Berkeley, June 2007, Centre for Economic Research and Analysis of Migration, Discussion Paper ,CDP No 11/07 (This paper describes the effects of immigration on overall population growth and the skill composition of cities, focusing on the connection between immigrant inflows and the relative number of less-skilled workers in the local population. The labor market impacts of immigrant arrivals can be offset by outflows of natives and earlier generations of immigrants. Empirically, however, these offsetting flows are small, so most cities with higher rates of immigration have experienced overall population growth and a rising share of the less-skilled. These supply shifts are associated with a modest widening of the wage gap between more and less-skilled natives, coupled with a positive effect on average native wages. Beyond the labor market, immigrant arrivals also affect rents and housing prices, government revenues and expenses, and the composition of neighborhoods and schools. The effect on rents is the same magnitude as the effect on average wages, implying that the average "rent burden" (the ratio of rents to incomes) is roughly constant. The local fiscal effects of increased immigration also appear to be relatively small.)
Here again it is repeated that wealth disparity is increased by the influx of unskilled and undocumented labor and that rents increase due to the increasing population. It is plain to most of us that the obscene wages at the top distort the "average wage" to an extent that makes such a metric unusable in discussions of mean wages and the effects below mean. People CLEARLY do not understand what these neoconomists are actually saying and this is the game they play in their support of the "owning class".
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# WAGES:
How Immigrants Affect California Employment and Wages
by Giovanni Peri, University of California- Davis, Public Policy Institute of California, February, 2007 (studying 40 years of data, report finds the flow of immigrants into California has helped increase wages and job opportunities for native-born workers)
My initial reaction was that this was just a blatant lie. But after due consideration of housing costs (rent) in California it is quite possible to get away with this subterfuge. This has to do with the HONEST definition of real wages as opposed to the neoconomist definition. The neoconomist definition of real wages is the wage as adjusted to the cpi (adjusted for inflation). The HONEST definition of "real wages" is what you have left after you pay the $*&%^&$ rent. The mirage is that the workers in California are better off due to the "apparent" rise in wages. But the increased rents caused by the increasing population will eat up all these apparent gains and then some. As usual it is possible for neoconomists to make claims concerning the aggregate that simply do not hold true in the specific.
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# WAGES:
Rethinking the Effects of Immigration on Wages
by Gianmarco Ottaviano and Giovanni Peri, NBER Summer Institute, August 2006 (There is a positive and significant effect of immigration on the average wage of U.S.-born workers)
Here again "average wage" is irrelevant to any discussion of what is happening at the lower end. The previous discussions have already established this.
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# WAGES:
Is the New Immigration Really So Bad?
by David Card, Department of Economics, UC Berkeley, January 2005 (wages of native dropouts are not effected by the supply of less-educated foreign workers)
This is flatly contradicted by: "The Effects of Immigration on U.S. Wages and Rents: A General Equilibrium Approach, by Gianmarco I.P. Ottaviano, (University of Bologna, FEEM and CEPR), Giovanni Peri, (UC Davis and NBER), Sept, 2007, Centre for Economic Policy Research " As presented above.
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# WAGES:
Rethinking the Gains from Immigration: Theory and Evidence from the U.S.
by Gianmarco I.P. Ottaviano, Giovanni Peri, NBER Working Paper No. 11672, Issued in October 2005 (overall immigration generates a large positive effect on the average wages of U.S.-born workers)
Average wage again. Wages earned by CEO's, baseball stars and, insurance salesmen will tend to mask the effects on "working class" wages. The reality is increasing wealth disparity.
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This completes the list of supposed "refutations" of my correct economic analysis of the effects of illegal immmigration on working class wages and working class prosperity. And ecah has been dealt with in turn.
The proper solution to the problem bears repeating: The amnesty for current illegals must include "green cards: that do not limit the job mobility of the new workers. There must be an increase in LEGAL immigration quotas, And there must be enforcement of immigration laws. The increas in immigration will STILL adversely effect the working class, but the advrese effetcs can be offset by increaese in heath care subsidies, education subsidies, FICA tax cuts, and other fiscal policies.
