The Washington Post had another editorial in which it argued that without immigration, we would face “a critical shortage of low-skilled labor in construction, landscaping, hospitality and other industries.” While I have pointed out the flaws in this reasoning before, clearly the Post’s editorial board is not going to listen to me. So, Beat the Press has arranged for Thomas Friedman, the New York Times columnist and best-selling author on globalization, to write one of his famous open letters to the Washington Post editorial board, explaining the basic economics at work here.* Dear Washington Post Editorial Board: Your lead editorial on the proposed immigration reform (“Trigger-Happy,” 4-19-07;A16) has a serious error in economic reasoning. It notes that the bill contains a set of conditions that must be met before the new guest worker program can be put in place. It then warns that if the flow of undocumented workers is effectively cut off by tightened border measures and other aspects of the legislation, and the guest worker program is not implemented, that there will be “a critical shortage of low-skilled labor in construction, landscaping, hospitality and other industries.” There is no basis for a concern about shortages in these sectors of the economy. In a market economy like the United States, an inadequate supply of an item (in this case low-skilled labor) leads to an increase in its price. That eliminates the shortage by both increasing the supply and reducing the demand. In other words, if wages for workers in construction, landscaping, and hospitality rose, more people would be willing to take jobs in these sectors. Of course, higher wages would be passed on in higher prices for the goods and services produced by these workers, which would lead to a reduction in demand in these sectors, but there would be no worker shortages. The logic is the exact same as in any other professional. If we doubled the supply of doctors or journalists though immigration, then we would expect to see the wages in these occupations fall. That would lead to a fall in the price of newspapers and physicians’ services. This in turn would lead to increase in number of newspapers sold and the number of visits to doctors. As a factual matter, the evidence suggests that there has actually been a glut, not a shortage, of workers in these sectors over the last quarter century. According to data from the Bureau of Labor Statistics the average hourly wage for production workers in construction has fallen by more than 20 percent since 1980, after adjusting for inflation. For retail trade the fall in real wages is more than 19 percent, and for workers in the leisure and hospitality sector the decline has been just under 8 percent. It does not make sense to talk about shortages in sectors in which wages are declining. I hope that you will be more careful in discussing economic issues in the future. Sincerely, Thomas Friedman Pundit-in-Chief * Not really.
--Dean Baker
