Is Obama pushing a new living wage to try and force the issue of undocumented workers?
- By Daniel AltmanDaniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business.
Immigration reform is dead in the Congress, or so says almost everyone. It was the iceberg that caused Marco Rubio’s presidential ambitions to founder and just one more crunching disappointment of Barack Obama’s second term. But another change in economic policy may give immigration reform new life: raising the minimum wage.
Rationalizing the nation’s immigration rules was always going to be a hard sell. American citizens benefit handily from immigration through lower prices for goods and services, decreased uncertainty in the supply of labor, contributions by future generations of immigrant families to national income, and the arrival of new ideas in the market. Yet these benefits are not always well understood — even pro-immigration activists do a poor job of assessing the full value of immigrants and their progeny — and their advocates are not well organized. By contrast, opponents of immigration can rely on visceral prejudices and keenly focused interest groups.
For many employers, a longstanding attraction of immigrant workers has been their willingness to accept lower wages. An increase in the minimum wage for the formal labor force, the subject of Obama’s campaigning in early March, may only intensify that attraction. Minimum wages were already rising around the country thanks to legislation by states. Last week, Connecticut’s governor signed a bill lifting the wage to $10.10 an hour from $8.70. At the federal level, Obama has asked Congress to increase the rate to $9 from $7.25. In an era in which workers have lost bargaining power through a variety of channels, government has stepped in to bargain for them.
What happens when the minimum wage rises? If the new wage is above the rate set by a given labor market, economic theory suggests that demand for workers will fall, that more workers will enter the labor force, and unemployment will grow. In practice, this does not always happen, and some economists believe that higher wages and incomes will actually boost employment in the long term.
Either way, these macroeconomic predictions obscure the decisions of individual households and businesses. In the short term, a higher minimum wage would undoubtedly cause some of them to seek substitutes for higher-priced workers. And for many, the answer may be undocumented migrants.
Imagine a small business owner who has paid the minimum wage of $7.25 to workers since the last increase in 2009. The owner knows that undocumented migrants will do the same job for $5, but so far has preferred to stick with the formal labor force. A jump to $9 would almost double the gap between the two hourly rates, and that’s without considering the taxes and benefits that must be paid on behalf of regular workers. It’s hard to believe that no one would make the switch, even cognizant of the penalties that could be incurred for such behavior.
But were this to happen on a widespread basis, there would be no change in the number of jobs in the economy. The production of goods and services might not change much, either. The only difference would be who held the jobs.
As the demand for undocumented workers grew, so would the supply. Evidence from the Great Recession suggests that foreign-born workers — documented or otherwise — are very responsive to changes in the demand for labor, despite the best efforts of U.S. Customs and Border Protection. In fact, foreign-born workers even help to smooth out the bumps in the economic cycle, insulating native-born workers from dips in demand. If more employers sought the lower costs associated with undocumented workers, they would probably have no trouble finding them.
In markets where undocumented workers were prominent, a higher minimum wage might actually leave some of the people it was intended to help out of work — though not for the traditional reasons. But the solution would be simple: Get the undocumented workers into the formal labor force.
Doing this would give the minimum wage the effects it was supposed to have. But it’s worth asking whether, by greatly expanding the formal labor force, the combination of a higher minimum wage and immigration reform would also increase the rolls of the unemployed.
Fortunately, that seems unlikely. The reason why foreign-born workers are so responsive to the demand for labor is that many don’t want to stay in the United States when there are no jobs. It’s not as though the risk of deportation is so severe; in fiscal year 2013, only about 3 percent were sent home. Rather, a significant share of migrants come when work is available and prefer to go back to their families and friends when the job is done. This is especially true as the economic climate improves in their home countries.
Of course, as documented migrants they’ll be free to compete on level terms with native-born workers. But they wouldn’t have the usual advantage of a lower wage rate. Employers would be choosing between native-born workers who speak English well and are likely to stay in the country for the long term and foreign-born workers who might not.
Immigration reform would be a boon to the United States for many reasons, but it has never had sufficient urgency to overcome the inertia of timid and bigoted politicians. Raising the minimum wage might finally give it the push it needs.