Ezra Klein: In Which I Fret

« Dude! You Gotta Get a Dell! | Main | Dangerous, Rather Than Annoying, Arguments »

August 27, 2007

In Which I Fret

The estimable Chris Hayes writes:

There are few things that irk me more than when conservatives advocate for increased immigration for low wage workers by saying that immigrants do jobs that Americans don’t want. I don’t want to buy a slice of pizza for $45. It doesn’t mean I don’t like pizza! I’m not particularly interested in writing a book for the total payment of $9. It doesn’t mean I don’t want to write a book!

Raise. The. Wages. You’ll find plenty of workers. I promise.

That's true so far as it goes. The problem is the other end of it: Nobody wants to buy your book for $60, or eat your pizza for $45, or purchase your strawberries for $7.99 a pound. So the issue, in almost all these cases, is how much you can raise wages without decimating the industry in question. In some industries, that's no problem. People pay a lot to go to the doctor. In some industries, it is a problem. If we weren't importing strawberry-pickers, we'd be importing strawberries. If it cost $500 to get your house cleaned, people would just clean their own homes.

Global competition makes all this harder, particularly when you're not talking about service industries. Raise wages here, and we'll often import the good rather than the labor. The forces and incentives that drive a company to make their goods in China -- cheaper labor, mainly -- are the very same ones that drive them to hire immigrant labor domestically. The two strategies are different sides of the same coin.

Sadly, I have no answers to the issues these issues -- nor the empirical data to know how much can be done to raise wages, and where. We're not closing our borders to goods, and I don't think we should close them to people, either. In some of these industries, we can simply lift the wages because the employers can't run their companies from China -- think construction, some sectors of agriculture, much meatpacking -- and in some we simply don't know how to handle the forces of global competition, the Wal-Martization of prices, etc. But raising the wages isn't as broad an answer as it used to be. Back before inter- and intra-continental transport was essentially trivial, you paid higher wages or you closed. Now, in most industries, there's this third option -- you get cheaper labor elsewhere -- and it's just not clear how you restore worker bargaining power so long as that exists.

August 27, 2007 in Immigration | Permalink

Comments

Also, working conditions matter.

This issue is notable in agriculture, where there lots of work in one area, but only for a few months. This schedule works poorly with any kind of settled labor--it works fine for migrants. Whether those migrants are international (Mexicans) or national (Okies), they will be poor, and not part of the community.

Posted by: SamChevre | Aug 27, 2007 1:28:38 PM

Mandated localized living wages. (I.E. the living wage in California would be much more than the living wage in Alabama, for example.)

The argument given here is a bit weak sauce, to be honest. Nobody wants to buy a slice of pizza for 45...but that's not what we're talking about here. There are certain points, to be sure that this may result in rising prices or even lost jobs.

To be precise, if the increased costs of labor rose the cost of a good above the amount that it's selling for, then yes. Something has to give.

But I've seen no evidence or proof that this situation is widespread. In fact, rising profits would indicate against this. Rising wages due to a strong labor market does reduce profits per unit, yes, but it also means that more units are sold (theoretically). Which side that comes down on, or if it's a wash, depends from business to buiesness.

Prices are kept low through competition, and through what the market is willing to pay not through the goodness of the hearts of businessmen. Cultural inflation, where people are willing to pay more JUST TO CLAIM THAT THEY PAID MORE, is a completely different can of worms. But being a cultural issue, talking about this policy wise makes no sense..outside of distributing WIN buttons..and we all know how THAT worked.

Posted by: Karmakin | Aug 27, 2007 1:37:01 PM

You have forgotten a very important third choice--make workers more productive and raise their wages. If the low wage worker's output is X, you can't raise wages without increasing X. Make the worker more productive and you can pay them more.

A couple of examples from one of the industries you said can not raise wages. After the end of the Bracero program in the 60s California ag said it would lose the process tomato industry. Instead it mechanized a large part of the harvest and thrived. Something similar happened in Florida sugar cane. Until the 90s it relied on low paid guestworkers, largely imported from Jamaica. When they were forced to raise wages, they mechanized the harvest and, again, thrived.

It is not zero sum in virtually any industry. Of course they will claim they can not raise wages and survive. They always say that. What they don't say is that if forced to raise wages other means are available to make workers more productive, and better paid, but they would rather not.

I am all for immigrants and immigrant labor, but we should not premise that policy choice on the basis of their willingness to work for below market rates. We should support it for other reasons and create the conditions under which all workers, immigrant and nonimmigrant alike, work at better, higher paying jobs, not artificially wage stagnated jobs.

Posted by: dmh | Aug 27, 2007 1:42:38 PM

The "fair trade" arguments I've heard have always sounded fairly reasonable to my non-economist ear, that is, that a condition of lowering protectionist tariffs be the mutual imposition of some level of protections for workers/the environment. Now, like I say, I'm not an expert, and I'm sure it's more complicated than that rather simple tit for tat, but it does seem reasonable enough.

Posted by: Ben | Aug 27, 2007 1:47:15 PM

Ezra's argument assumes that most jobs are exportable. That isn't true any more--most of the jobs we can offshore we already have offshored. The remaining jobs are either high-pay (psychic or pecuniary, take your choice), or personal service McJobs. If you raise the wages on the latter, most of what you are doing is redistributing wealth from the former. And that is a Good Thing.

Posted by: Joe S. | Aug 27, 2007 1:55:13 PM

Ezra's comments, like many of the ignorant masses assumes that a significant portion of a product's price is wages...it's amazing that people can remain so woefully ignorant.

For example:

A product I sell, the total labor content including packaging is 2.6% of the total price, with new packaging I should be able to lower that to 0.74%. Now I could move production to China to avoid the packaging labor cost and save myself the effort of redesigning the packaging, or I could get off my lazy ass and come up with a more efficient packaging system that looks better and costs less. One methodology requires only greed, the other thought and hard work.

Cheap labor is the refuge of the lazy and stupid.

>>>>>>>>>>>>>>>>>><<<<<<<<<<<<<<<<<<<<<<<<<

Posted by: S Brennan | Aug 27, 2007 2:59:36 PM

In addition to "fair trade" agreements, i.e. not actually subsidizing countries to beat up and kill workers who demand decent wages and working conditions, we could stop subsidizing the transportation of goods from low-wage to high-wage regions. (Oh, and demand reasonable environmental and health-and-safety standards rather than going, "oops, where did that lead paint come from?")

On the constructive side, we should reform the social safety net and fringe benefit payments made by businesses so that they encourage rather than discourage hiring people (right now, almost everything is on a per-worker basis).

Posted by: paul | Aug 27, 2007 3:12:36 PM

Huh, weren't you plugging Dani Rodrik just the other day?

Try reading him next time, instead of just raising your cred by mentioning him.

Posted by: jerry | Aug 27, 2007 3:24:29 PM

If supermarket vegetable prices were too high, then people would also start growing their own vegetable gardens. It doesn't take that much effort to do.

Posted by: stm177 | Aug 27, 2007 4:22:39 PM

Thanks S Brennan for making that point. I first heard Ezra's argument on the Rush Limbaugh program-- if we raise minimum wage, hamburgers will cost $20. Labor costs are such a small percentage of restaurant costs that to get Rush's $20 burgers or Ezra's $45 pizzas would require a wage hike that even Hugo Chavez would balk at.

"Within three months of a wage hike, Aaronson finds that a 10 percent increase in the minimum wage resulted in a 0.4–0.7 percent increase in restaurant prices. Much of the increase occurred within the first month of the wage hike. In the fast food sector, prices rise 1.5 percent in response to a 10 percent increase."
http://www.epionline.org/study_detail.cfm?sid=100

Posted by: beowulf | Aug 27, 2007 5:12:42 PM

Just a few points:

1. ChrisHayes was last seen by me apologizing for something that even his fellow lefties took him to task for: thenation.com/bletters/20070827/hayes

His fellow lefties to the north would probably also disagree with him: youtube.com/watch?v=gAfzUOx53Rg

2. If China is using slave labor to lower their prices, should "liberals", for instance, support strawberry pickers living in caves (theatlantic.com/doc/199511/guest-workers) just so we can protect the strawberry "industry"?

3. Instead of whining for ever cheaper labor, wouldn't a nice sticker saying, "not made with slave labor and does not contain anti-freeze" be a good way for U.S. manufacturers to compete against China?

Posted by: TLB | Aug 27, 2007 5:51:14 PM

Bennan, it's hard to tell how your example is supposed to overturn Ezra's point. It may help put it in better perspective, but wages do matter. Some products are more labor intensive than your example. An apple, for example, might have a labor cost of around 7% at retail. However, the labor is far greater portion of the cost to the producer, perhaps as much as 20%. (That's with wages way above minimum wage. Minimum wage in the food sector applies in factory processing of food, such as turkey, not to harvest.) If that cost goes up enough to attract citizens, say by half or even 100%--and even that is dicey in some areas--then the price the producer must charge goes up by as much as 20% and the retail price by at least that amount. It's an excellent incentive for apples from New Zealand and other sources to enter the market instead.

That isn't the whole problem either. At the higher price, people buy fewer apples, and apple production declines, with a consequent decline in the jobs involved. The market share will go to cheaper food, more likely to be less labor-intensive, and while that's efficient in one way, it's also a problem (not to mention less healthy!).

Posted by: Sanpete | Aug 27, 2007 6:07:33 PM

A question for the more economically inclined:

Even though prices may rise slightly due to wage increases, won't the extra disposable income cancel that out? Consumption curve and all that?

Posted by: Carlos | Aug 27, 2007 7:36:13 PM

err, its inexpensive to ship things inter nationally/contenentally because of cheap oil and policies that encourage and support cheap oil.

If oil reflected its actual cost (everything from military in the middle east to pollution), shipping stuff would be a lot more expensive. Suddenly producing things far from where they need to be bought becomes much less inviting, especially for things that have to move fairly quickly.

Posted by: dan | Aug 27, 2007 8:13:05 PM

Carlos, we're talking about increasing wages in jobs that are currently filled mostly by immigrants. While raising those wages to the point that they could be filled with non-immigrants would increase consumption by those who got higher wages, it would also probably lead to job losses due to the increased prices for the goods produced. Hard to say which effect would be greatest in the kinds of jobs in question.

Even if wages were raised the work would probably still be more attractive to immigrants than non-immigrants, which would lead to wages going down to whatever level they would accept unless set by law, assuming there is still a supply of immigrants. So you'll probably only get higher wages by choking off the supply of immigrants, which probably isn't in the cards soon.

Posted by: Sanpete | Aug 27, 2007 9:52:22 PM

This is the core of the problem. keep bringing the cheap labor or allow the wages to skyrocket--this second option leads to economic collapse. The first one leads to the problems we are currently having with the creation of a new, poorly educated and poorly paid underclass.

There is no easy solution to this one . . .

Posted by: Tony | Aug 27, 2007 10:37:41 PM

So what if industries go out of business? The capital shouldn't be trapped in marginal industries. Free the capital and you create new, higher paying jobs in industries higher up the value chain. Agriculture is a 19th century industry. Let the Mexicans do it in Mexico so we can sell them CAT tractors.

Posted by: bjk | Aug 28, 2007 6:20:59 AM

EK is subscribing to the pie of work fallacy in which there is a static pie of work which, if you raise wages, shrinks. No.

Posted by: bjk | Aug 28, 2007 6:22:03 AM

Ezra, a couple things here:

1. Many parts of our post-industrial economy can't be outsourced. You need someone physically in the Starbucks to make the coffee, etc. Simply put, we're much less vulnerable to exporting jobs than we were because most of those jobs have already been exported.

2. All empirical evidence, including state-wide studies done in New Jersey, and county/city-wide studies done in California, show that this does not happen. Simply put, employment does not appreciably fall when minimum wages go up. And as has already been mentioned, the same largely holds true for prices.

3. Your argument does ignore the middle ground here. There's a wide difference between buying tubesocks for a dollar and tubesocks for twenty bucks - and in the room in between is where we have space to move.

4. The final thing you're ignoring is something that most conservatives have wanted to ignore since roughly the Gilded Age - the price of labor is not just cost. It's also productivity, and CONSUMPTION. Increasing wages increases consumer demand, and as long as everyone does it, it's a net boon for the employer, who makes the difference in his higher wages from the increased volume of business he does with all the people who other employers pay.

Posted by: Steven Attewell | Aug 28, 2007 10:43:41 AM

托盘
 托盘
 钢托盘
 钢制托盘
 塑料托盘
 木托盘
 木制托盘
 纸托盘
 木塑托盘