Missing the Elephant in the Room

By Mark Krikorian on March 8, 2010

I was disappointed with Reihan Salam's Forbes column on "what we can and can't do to raise wages":

The truth is that we need to take action on wages sooner rather than later, particularly for less-skilled workers. Edmund Phelps' call for wage subsidies, which he outlines in Rewarding Work, could prove a very effective tool for fighting crime, alleviating poverty and inculcating the habits essential to long-term success. In contrast to living wage laws, wage subsidies don't punish employers for creating low-wage job opportunities.

Rather, the Phelps approach recognizes that the welfare of the less-skilled, ex-offenders and others on the margin of the economic mainstream is a collective responsibility. But again, wage subsidies aren't a permanent solution. They will, after all, require tax hikes. Redistribution has its place, but we can't rely on redistribution alone.

Well, that much is obviously true. Unfortunately, he doesn't even mention the one step that would cost nothing and use the market in "fighting crime, alleviating poverty and inculcating the habits essential to long-term success." Namely, tightening the labor market by reducing immigration, both permanent and "temporary," legal and illegal, something Congress can do any time it feels like. Despite the recession, the federal immigration program continues to legally import something like 100,000 working-age people from abroad each month, disproportionately less-skilled, who will compete directly with the very less-skilled Americans (and earlier immigrants) that Salam is rightly concerned about. Just since 2000, immigration (legal and illegal combined) has increased the supply of high school dropouts by something like 15 percent.

There are many reasons for the stagnant or declining prospects of poor workers, immigration being only one of them. But it's simply absurd to talk about wage subsidies or minimum-wage increases or any similar government initiative to improve opportunity for the working poor until we stop subverting their job prospects through another discretionary government initiative.