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Low-Skilled Workers Flee the Minimum Wage – Article by Corey Iacono

Low-Skilled Workers Flee the Minimum Wage – Article by Corey Iacono

The New Renaissance HatCorey Iacono
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What happens when, in a country where workers are free to move, a region raises its minimum wage? Do those with the fewest skills seek out the regions with the highest wage floors?

New minimum wage research by economist Joan Monras of the Paris Institute of Political Studies (Sciences Po) attempts to answer that question. Monras theoretically shows that there should be a close relationship between the employment effects of raising the minimum wage and the migration of low-skilled workers.

When the demand for local low-skilled labor is relatively unresponsive (or inelastic) to wage changes, raising the minimum wage should lead to an influx of low-skilled workers from other states in search of better-paying jobs. On the other hand, if the demand for low-skilled labor is relatively responsive (or elastic), raising the minimum wage will lead low-skilled workers to flee to states where they will more easily find employment.

To test the model empirically, Monras examined data from all the changes in effective state minimum wages over the period 1985 to 2012. Looking at time frames of three years before and after each minimum wage increase, Monras found that

  1. As depicted in the graph below on the left, those who kept their jobs earned more under the minimum wage. No surprise there.
  2. As depicted in the graph below on the right, workers with the fewest skills were having an easier time finding full-time employment prior to the minimum wage increase. But this trend completely reversed as soon as the minimum wage was increased.
  3. A control group of high-skilled workers didn’t experience either of these effects. Those affected by the changing laws were the least skilled and the most vulnerable.

monrasp17a

These results show that the timing of minimum wage increases is not random.

Instead, policy makers tend to raise minimum wages when low-skilled workers’ real wages are declining and employment is rising. Many studies, misled by the assumption that the timing of minimum wage increases is not influenced by local labor demand, have interpreted the lack of falling low-skilled employment following a minimum wage increase as evidence that minimum wage increases have no effect on employment.

When Monras applied this same false assumption to his model, he got the same result. However, to observe the true effect of minimum wage increases on employment, he assumed a counterfactual scenario where, had the minimum wages not been raised, the trend in low-skilled employment growth would have continued as it was.

By making this comparison, Monras was able to estimate that wages increased considerably following a minimum wage hike, but employment also fell considerably. In fact, employment fell more than wages rose. For every 1 percent increase in wages, the share of a state’s population of low-skilled workers in full-time employment fell by 1.2 percent. (The same empirical approach showed that minimum wage increases had no effect on the wages or employment of a control group of high-skilled workers.)

Monras’s model predicts that if labor demand is sensitive to wage changes, low-skilled workers should leave states that increase their minimum wages — and that’s exactly what his empirical evidence shows.

According to Monras,

A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.

These new and important findings reinforce the view that minimum wage increases come at a cost to the employment rates of low-skilled workers.

They also pose a difficult question for minimum wage proponents: If minimum wage increases benefit low-skilled workers, why do these workers leave the states that raise their minimum wage?

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Mises on Protectionism and Immigration – Article by Matt McCaffrey

Mises on Protectionism and Immigration – Article by Matt McCaffrey

The New Renaissance HatMatt McCaffrey
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The economic causes and consequences of immigration are among the most important issues facing the world today. Both pro- and anti-immigration advocates are digging in their heels, and both sides look increasingly unlikely to relent. Despite the bleak outlook, however, there is still hope for a peaceful and charitable discussion of the economics of immigration.

With that in mind, I want to consider Mises’s thoughts on the topic. For Mises, emigration and immigration are motivated by a simple economic fact: the conditions of production are not the same in all places. Natural and human conditions change constantly, and as a result, the productivity of land, labor, and capital do so as well. Therefore in order to take advantage of changing conditions and produce in the most productive ways possible, people must constantly migrate to those places where their contributions are most valuable (1919, pp. 84–85).

The desire to move from low-productivity to high-productivity regions is for Mises the fundamental explanation for the migration of peoples, and limits overpopulation (1919, p. 85). We can say a country is relatively overpopulated when the same amount of capital and labor is less productive there than in another nation. Reducing overpopulation means reducing this “disproportion” by allowing for the mobility of persons and goods (1919, p. 86). In Mises’s view, mobility was an achievement of liberalism:

The principles of freedom, which have gradually been gaining ground everywhere since the eighteenth century, gave people freedom of movement. … Now, however — as a result of a historical process of the past — the earth is divided up among nations. Each nation possesses definite territories that are inhabited exclusively or predominantly by its own members. Only a part of these territories has just that population which … it would also have under complete freedom of movement, so that neither an inflow or an outflow of people would take place. The remaining territories are settled in such a way that under complete freedom of movement they would have either to give up or to gain population. Migrations thus bring members of some nations into the territories of other nations. That gives rise to particularly characteristic conflicts between peoples. (1919, pp. 86–87)

Mises has two types of conflict in mind: economic and social. Economic conflict occurs because domestic workers resent that fact that immigration bids down their wages:

[I]n territories of immigration, immigration depresses the wage rate. That is a necessary side effect of migration of workers and not, say, as Social Democratic doctrine wants to have believed, an accidental consequence of the fact that the emigrants stem from territories of low culture and low wages. (1919, p. 87)

Social conflict can also arise. Mises emphasized, however, that in most cases immigrants are obliged to give up their national identity and adapt themselves to the culture of their new home. Only in relatively extreme cases, such as European imperialism, was it historically possible for immigrants to replace original inhabitants and their cultures (1919, p. 89). In fact, according to Mises, strong cultures need not resort to government in order to protect themselves:

A nation that believes in itself and its future, a nation that means to stress the sure feeling that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them, would necessarily be able to remain unperturbed when it saw individual persons shift to other nations. A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their own free will. To let the attractive force of its own culture prove itself in free competition with other peoples — that alone is worthy of a proud nation, that alone would be true national and cultural policy. The means of power and of political rule were in no way necessary for that. (1919, pp. 103–04)

However, for Mises, cultural considerations are mainly an aside. In general, he saw conflicts over immigration as being driven mostly by protectionism rather than insurmountable differences in human beings or cultures (1935). In particular, domestic unions support government policies to restrict immigration and thus keep low-wage competition out of the labor market:

Public opinion has been led astray by the smoke-screen laid down by Marxist ideology which would have people believe that the union-organized “proletariat of all lands” have the same interests and that only entrepreneurs and capitalists are nationalistic. The hard fact of the matter — namely that the unions in all those countries which have more favorable conditions of production, relatively fewer workers and thus higher wages, seek to prevent an influx of workers from less favored lands—has been passed over in silence. (1935)

As Per Bylund notes, this is precisely what is happening in Sweden, where unions prevent the integration of immigrants so as to keep wages high. Protectionism at home also breeds protectionism abroad, as foreign nations try to cope with lower productivity through their own regulations designed to counter “unfair” competition on the world market. As economic conditions worsen in those countries where migration is prevented by the state, conflict becomes inevitable:

[People in these countries] will certainly still have just as much cause to complain as before — not over the unequal distribution of raw materials, but over the erection of migration barriers around the lands with more favorable conditions of production. And it may be that one day they will reach the conclusion that only weapons can change this unsatisfactory situation. Thus, we may face a great coalition of the lands of would-be emigrants standing in opposition to the lands that erect barricades to shut out would-be immigrants. … Without the reestablishment of freedom of migration throughout the world, there can be no lasting peace. (1935)

In this way, protectionist policies inevitably lead to conflict and the destruction of human life and welfare. In fact, Mises even hints that government policies aiming to control the movement and employment of individuals suffer from the same problems socialist central planning does (1919, p. 85). At the same time, entrepreneurship and the division of labor are the foundations of a rational social order, and neither is possible without free labor markets.

The main threat facing society then is illiberal ideology, and the only solution to this “principle of violence” is to develop a consistent liberal philosophy to serve as the basis for a peaceful society (1951, p. 49).

Mises believed that any society that rejected the values of liberalism was doomed. In an age of nationalism, protectionism, and war, it’s easy to see what he meant.

Matt McCaffrey is assistant professor of enterprise at the University of Manchester.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Review of Mark Krikorian’s “The New Case Against Immigration: Both Legal and Illegal” – Article by Daniel Griswold

Review of Mark Krikorian’s “The New Case Against Immigration: Both Legal and Illegal” – Article by Daniel Griswold

The New Renaissance Hat
Daniel Griswold
August 3, 2012
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Published by: Sentinel • Year: 2008 • Price: $25.95 hardcover and e-book • Pages: 304
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In his new book Mark Krikorian of the Center for Immigration Studies argues that immigration may have been good for America a century ago but not today—not because the immigrants have changed but because our nation has changed.

That’s an interesting thesis, but as the book unfolds, the arguments sound more and more familiar. Krikorian argues that immigrants at current numbers can’t be assimilated and that “mass immigration” jeopardizes national sovereignty and security, our quality of life, our jobs, wages, and wallets.

Despite his avowed goodwill toward immigrants, Krikorian’s book is a polemic written to paint immigration in the worst possible light. The word immigration hardly ever appears without the modifier “mass” before it, even though the immigration rate today is far lower than a century ago. He dismisses efforts in Congress to legalize low-skilled immigration as “amnesty” legislation, even though the proposals would have imposed fines, probation, and security checks. He also ignores important findings in the immigration literature for the sake of advancing his argument.

Krikorian’s worries about assimilation are nothing new and carry no more weight today than similar worries about the Italians, Poles, Irish, and Germans in past eras. Government promotion of multiculturalism and bilingual education don’t help assimilation, but they are not the insurmountable hurdles that Krikorian paints: Studies show second- and third-generation immigrants are almost all fluent in English.

The book is at its xenophobic worst in the chapters on sovereignty and security. Krikorian warns that “Mexico City is moving to being, in effect, a second federal government that American mayors and governors must answer to . . . becoming a permanent participant in the day-to-day business of governance, [exercising] joint dominion” over American territory. As evidence for “this assault on American sovereignty” he mostly just musters quotes from Mexican officials urging the U.S. government to reform its immigration system.

That’s only the beginning. While just about everybody recognizes that radical Islam is the most likely source of future terrorist activity against the United States, Krikorian is eager to bring every immigrant group under equal suspicion. In a section titled “Future Wars,” the author manages to slander millions of normal, peaceful, hardworking immigrants from China, Korea, and Colombia. “Though the nearly 700,000 Korean immigrants here came from South Korea, there can be little doubt that the Communist regime in the north has a network of agents already in place among them,” he writes, casting unwarranted suspicion on the corner grocer in Brooklyn and the worshippers at the Korean Central Presbyterian Church down the road from where I live in northern Virginia. In the same vein, Krikorian writes, “War with China is by no means a certainty, but it is clearly possible, and the nearly 1.9 million Chinese immigrants throughout the United States, including a major presence in high-tech industries, represent a deep sea for Beijing’s fish to swim in.” Is this really a valid argument for turning away immigrants such as Taiwan-born Jerry Wang, cofounder of Yahoo!, or Beijing-born Liang Qiao, the Iowa-based coach of the American Olympic gymnast Shawn Johnson?

Turning to jobs and wages, Krikorian sounds like a class-warfare “liberal.” “Mass immigration affects society as a whole by swelling the ranks of the poor, thinning out the middle class, and transferring wealth to the already wealthy,” he asserts. The facts say otherwise. Studies show that immigration benefits the large majority of Americans, not just the wealthy. The middle class has not been thinning out but moving up: The shares of households earning below $35,000 a year and between $35,000 and $100,000 have both declined in the past 20 years as the share earning above $100,000 has grown. Fewer Americans were living under the poverty line in 2006 than in 1994, and the poverty rate has actually been trending down in the past 15 years—a time of robust immigration.

It is true that low-skilled immigrants consume more in government services than they pay in taxes, as Krikorian argues at length. But he dismisses the practicality of limiting access to welfare while glossing over the fact that the average immigrant and his or her descendents generate a sizeable net fiscal surplus for the government.

In the final chapter Krikorian advocates deep cuts in legal immigration and a sweeping crackdown on illegal immigration. Among his preferred coercive tools would be a national database of all U.S. workers, native and immigrant alike; uniform national ID documents; enlisting local law enforcement officers in pursuit of illegal immigrants; and even barring private property owners from renting to people without the right documents.

There are plenty of thoughtful questions to be considered when it comes to the role of immigration in a free, modern, and globally connected society. Unfortunately, this book brings nothing new to the discussion.

Daniel Griswold is director of the Center for Trade Policy Studies at the Cato Institute.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.