National Review Online, January 7, 2004
Today the president announces his plan for a vast new guestworker system, which would grant amnesty to millions of illegals currently in the United States, as well as import millions of new workers from abroad. (The president will also call for an increase in permanent legal immigration beyond the current rate of one million a year.)
I make the argument against amnesty in the cover story for the upcoming print version of NR, but here I want to look at the basic assumption underlying the whole Bush plan: that there are jobs Americans simply won't do, so that the importation of foreigners is essential. Whether these foreign workers are illegal aliens, guestworkers, or permanent legal immigrants is a detail to be worked out by us, the argument goes, but our need for them is unchanged.
Even many opponents of the proposed Bush Amnesty assume this to be true, leading them to propose new and improved guestworker programs, with provisions for stricter controls against permanent settlement, greater incentives to return, tighter enforcement against unscrupulous employers, etc.
As well-meaning as such efforts may be, the basic assumption is false - there is simply no economic reason to import foreign workers.
If the supply of foreign workers were to dry up (say, through actually enforcing the immigration law, for starters), employers would respond to this new, tighter, labor market in two ways. One, they would offer higher wages, increased benefits, and improved working conditions, so as to recruit and retain people from the remaining pool of workers. At the same time, the same employers would look for ways to eliminate some of the jobs they now are having trouble filling. The result would be a new equilibrium, with blue-collar workers making somewhat better money, but each one of those workers being more productive.
Many people fear the first part of such a response, claiming that prices for fruits and vegetables would skyrocket, fueling inflation. But since all unskilled labor - from Americans and foreigners, in all industries - accounts for such a small part of our economy, perhaps four percent of GDP, we can tighten the labor market without any fear of sparking meaningful inflation. Agricultural economist Philip Martin has pointed out that labor accounts for only about ten percent of the retail price of a head of lettuce, for instance, so even doubling the wages of pickers would have little noticeable effect on consumers.
But it's the second part of the response to a tighter labor market that people just don't get. By holding down natural wage growth in labor-intensive industries, immigration serves as a subsidy for low-wage, low-productivity ways of doing business, retarding technological progress and productivity growth.
That this is so should not be a surprise. Julian Simon, in his 1981 classic, The Ultimate Resource, wrote about how scarcity leads to innovation:
It is important to recognize that discoveries of improved methods and of substitute products are not just luck. They happen in response to "scarcity" - an increase in cost. Even after a discovery is made, there is a good chance that it will not be put into operation until there is need for it due to rising cost. This point is important: Scarcity and technological advance are not two unrelated competitors in a race; rather, each influences the other.
As it is for copper or oil, this fact is true also for labor; as wages have risen over time, innovators have devised ways of substituting capital for labor, increasing productivity to the benefit of all. The converse, of course, is also true; the artificial superabundance of a resource will tend to remove much of the incentive for innovation.
Stagnating innovation caused by excessive immigration is perhaps most apparent in the most immigrant-dependent activity - the harvest of fresh fruit and vegetables. The period from 1960 to 1975 (roughly from the end of the "Bracero" program, which imported Mexican farmworkers, to the beginning of the mass illegal immigration we are still experiencing today) was a period of considerable agricultural mechanization. But a continuing increase in the acreage and number of crops harvested mechanically did not materialize as expected, in large part because the supply of workers remained artificially large due to the growing illegal immigration we were politically unwilling to stop.
An example of a productivity improvement that "will not be put into operation until there is need for it due to rising cost," as Simon said, is in raisin grapes]. The production of raisins in California's Central Valley is one of the most labor-intensive activities in North America. Conventional methods require bunches of grapes to be cut by hand, manually placed in a tray for drying, manually turned, manually collected.
But starting in the 1950s in Australia (where there was no large supply of foreign farm labor), farmers were compelled by circumstances to develop a laborsaving method called "dried-on-the-vine" (DOV) production. This involves growing the grapevines on trellises, then, when the grapes are ready, cutting the base of the vine instead of cutting each bunch of grapes individually. This new method radically reduces labor demand at harvest time and increases yield per acre by up to 200 percent. But this high-productivity, innovative method of production has spread very slowly in the United States because the mass availability of foreign workers has served as a disincentive to farmers to make the necessary capital investment.
But perhaps immigration's role in retarding economic modernization is confined to agriculture, which, after all, is very different from the rest of the economy. Nope. Manufacturing sees the same phenomenon of a scarcity of low-skilled labor yielding innovation while a surfeit yields stagnation. An example of the latter: A 1995 report on southern California's apparel industry, prepared by Southern California Edison, warned of the danger to the industry of reliance on low-cost foreign labor:
In southern California, apparel productivity gains have been made through slow-growth in wages. While a large, low-cost labor pool has been a boon to apparel production in the past, overreliance on relatively low-cost sources of labor may now cost the industry dearly. The fact is, southern California has fallen behind both domestic and international competitors, even some of its lowest-labor-cost competitors, in applying the array of production and communications technologies available to the industry (such as computer aided design and electronic data interchange)." (Emphasis in original)
Conversely, home builders, who are still less reliant on foreign workers than some other industries, have begun to modernize construction techniques. The higher cost of labor means that "In the long run, we'll see a move toward homes built in factories," as Gopal Ahluwalia, director of research at the National Association of Home Builders, told the Washington Post several years ago. But as immigrants increasingly move into this industry, we can expect such innovation to spread much more slowly than it would otherwise.
But surely immigration is needed fill jobs in the service industry? After all, without immigrants, who will pump our gas? Oh, wait - we never imported immigrants for that and so now we pump our own gas, aided by technology that lets us pay at the pump - thus we have fewer attendants but more gas stations and get in and out faster than we used to when we trusted our car to the man who wore the Texaco star.
Other innovations suggest how, despite the protestations of employers, a tight low-skilled labor market can spur modernization even in the service sector: Automated switches have replaced most telephone operators, continuous-batch washing machines reduce labor demand for hotels, buffet-style restaurants need much less staff that full-service ones. As unlikely as it might seem, many VA hospitals are now using mobile robots to ferry medicines from their pharmacies to various nurse's stations, eliminating the need for a worker to perform that task. And devices like automatic vacuum cleaners, lawn mowers, and pool cleaners are increasingly available to consumers. Keeping down low-skilled labor costs through the president's vast new guestworker plan would stifle this ongoing modernization process.
The idea that a modern society like ours requires the ministrations of foreign workers, because there is no other way to do get these jobs done, smacks of the apocryphal quote from a 19th-century patent commissioner: "Everything that can be invented has been invented."