Let’s now talk about creating an immigration policy that works in the best interest of immigrants AND the working class at the same time, rather than to both of their detriments.
There are two general truths about immigrants when it comes to wage increases and economic growth.
1.) Every immigrant that comes here causes an economic contribution that allows for economic growth, and improvements to our nation’s GDP.
For example:
• If you increase our workforce by 1 percent, such as by allowing immigrants to come and enter the workforce, thus contributing to producing products and services of value, it should cause an increase in our nation’s GDP by about 1 percent.
• Each person needs food for sustenance, so they’ll be buying the food they need to live. This is just one example among many that each new immigrant contributes to the market economically, and the market in this case will respond by growing more food.
• Each person, or family, needs housing, so each immigrant that represents a new household equals the need for one more house or apartment. By either paying rent or a mortgage, they’re contributing to the economy, and the market will respond to that increased demand by building more houses and apartments, which positively effects many trades, including lumber, forestry, construction, shipping, the electrician and plumbing trades, etc.
• Each immigrant represents another person that needs transportation. Sometimes it means public transportation, but most of the time, and throughout most of the country, it means another automobile is needed to meet that need. Each automobile produced means more business for the automobile assembly plants, the suppliers, and shipping – in other words, this need causes even more economic growth and activity.
• Each immigrant represents another person who has their own needs and wants. They purchase things at stores. They go to restaurants. They use services. All of this adds up to even more economic transactions happening, thus contributing to the economy as a whole.
All of these things cause an increase in our GDP, and the level of wealth produced nationwide, allowing us to be even more prosperous as a nation than we already are. In other words, every immigrant into this country of ours has a benefit to our economy, and its growth.
Now with this standpoint, let’s present the other side.
In my articles about minimum wage, I talk about how natural market mechanisms can be used to cause wages increases in the working class. You need to have a healthy businesses climate that allows for a robust and growing economy, because that allows job creation to take place, and this job creation causes a situation where there are less workers than the need for workers – in other words, demand for workers is higher than the supply of workers. In this kind of environment, it causes businesses to compete with each other for workers, to fill those empty roles as businesses grow throughout that economic growth, and that competition causes employers to offer higher and higher wages to get those empty roles filled by new workers.
2.) In other words, you want the demand for workers to be higher than the supply of workers, because that drives up wages.
This process not only works to cause wages to increase, but also causes a drive by businesses for new technologies that allow workers to produce more with their time. All of this is beneficial because it causes workers to have higher wages, while the cost of living decreases, and the quality of products improves.
The opposite situation, one where there are a lot more workers available than the need for workers causes wages for the working class to stay stagnant, or even go down, which isn’t helpful or beneficial to the well-being of workers; it only makes things worse, or more difficult, for them.
Immigration, if not done right, could create a situation where there are far too many workers available than there are available jobs, which isn’t good for the working class – it causes wages to stay low, or go even lower, and can lead to high unemployment rates which isn’t good for anyone, new immigrants or lifelong Americans alike.
We would need to keep a situation where the demand for workers is higher than the supply of workers, because that works in favor of workers’ best interest AND immigrants’ best interest.
Another Element
Now, let’s add yet another element to all of this. Like I said, you want the demand for labor to be higher than the supply of labor, because that uses natural market mechanisms, and the threat of competition, to drive up workers’ wages, all while motivating businesses to create and develop new technologies to allow less workers to do more, which lowers the costs of products and services, while improving their quality.
But this only works if the demand for labor is moderately higher than the supply. If the difference between the demand and supply becomes significant, because the demand is much, much higher than the supply, it can actually be detrimental to economic growth, and can work to cause the economy to slow down and stagnate. It could even, in worst-case scenarios, lead to recession.
This is where immigration comes into the picture. If the demand for labor is significantly higher than the supply of labor, immigrants can come in, make up some of that difference, so that demand is only moderately higher than supply.
What you don’t want is a situation where so many immigrants are allowed into the country that it causes the supply of labor to be higher than the demand. If that happens, you end up with wages in the working class that are stagnant or decreasing, and higher levels of unemployment.
Take a look at the bell curve in the graph I have provided. What you want is for our immigration rate to be in a place where the economic contributions by immigrants are maximized, all while their benefit to the labor market is maximized and their detriment is minimized. This happens at the top of the bell curve, in the middle between the two sides. On the left half of the bell curve, every immigrant allowed in the country contributes to the economic well-being of the country; on the right half of the bell curve, the economic contributions of those immigrants become negated by causing an over-abundance of workers, leading to stagnant or lower wages and higher unemployment rates. By being in this middle place, both benefits, that is, the immigrants’ effect on the economy, and the well-being of working class people, can be compounded, working together in what I would consider to be a synergistic fashion, where the total benefit to society is more than the sum of the benefits of each.
Putting it All Together
Now let’s ask another question: If we look at immigration in this way, that is, based on the immigrants’ effect on the economy and the working class, and we wanted to increase the immigration rate using this formula, how would we do that?
The answer is really quite simple – you increase the rate of economic growth. The bigger the need for workers, the bigger the hole that needs to be filled in by immigrants.
This answer is quite a bit different than what economists would tell you in the past. They would make sure the economy wasn’t growing too fast, so they would have the Federal Reserve Bank increase interest rates to reduce monetary supply and curb “runaway” economic growth. They didn’t want the economy to “overheat.” They thought this would lead to high inflation rates, perhaps some kind of economic bubble that would then burst, and lead to economic recession or even depression.
What I’m telling you is that you can allow for economic growth rates that are substantially higher than that measly 2-3 percent growth rate. The higher the economic growth rate, the higher the demand for workers, making it much, much higher than the supply. This is okay because the high demand for workers can be filled in with new immigrants, in order to fill that void, and bring the demand for workers down to a place where it’s only moderately higher than the supply. From this standpoint, immigration rates must be controlled, or there will be too many coming at one time, causing too many workers, stagnant wages, and high unemployment rates.
Having a demand for workers that’s moderately higher than the supply will keep the economy going, and growing, and will help drive up workers’ wages while simultaneously motivating businesses and industries to develop new technologies that reduce the need for workers, and reduce workers’ hours, thus lowering their production costs. The end result will be higher wages and lower cost of living, both of which are beneficial to everyone. This approach, if done right, could allow for high immigration rates, while stopping inflation, all while helping to increase workers’ wages and lower their cost of living – a “win” in so many ways.
And the higher the immigration rate, the higher the positive economic impact that community has on our economy as a whole, our GDP, and the level of wealth being created. And it spurs more economic growth, and the need for even more immigrants.
All this begs another question: What is the best way to spur economic growth, the kind that causes jobs to be created, leading to higher wages for the working class, including new immigrants?
The answer, if you read my articles about minimum wage, and in particular the subject of how best to raise wages in the working class, is to help businesses increase their profit margins, because by doing that, you give them more ability to grow and reinvest back into themselves, which is what causes increased demand for workers, and economic growth.
And how do we help businesses increase their profit margins? By lowering their taxes, reducing the cost of regulatory compliance, and reducing the cost of doing business, because those three things, more than anything else, help increase businesses’ profit margins, which stimulates economic growth.
Is there anything else we can do as a nation to spur even more economic growth? Yes, there is. We can focus on developing the untapped Low-ROI and No-ROI sectors of the economy, which are vastly undeveloped, and can have a tremendous positive effect on the economy and national GDP.
That ends my discussion on immigration and workers’ wages.
