(What’s Left of) Our Economy: And the Labor Shortage/Immigration Beat Goes On

Tags

CNN.com, fake news, illegal immigrants, illegal immigration, Immigration, labor shortages, productivity, wages, {What's Left of) Our Economy

Here’s yet another Open Borders- and amnesty-friendly article from the Mainstream Media that simply doesn’t add up – this time from CNN.com. In this story about a small San Francisco-area manufacturer who claims that he lost a tenth of his employees due to a 2011 government raid in search of illegal immigrant workers, one whopping inconsistency in particular stands out. It concerns the wages paid by the employer Emerald Packaging of Union City, California.

Emerald’s owner, claims that the company is still suffering from the personnel losses because he can’t find adequate replacements. And the CNN reporters’ sympathy for his supposed plight – and the obvious difficulties encountered by his illegal workers – was made clear by the article’s melodramatic headline: “RAIDED: Immigration agents showed up at Kevin Kelly’s factory and he lost his star workers.”

RealityChek regulars know by now that such claims of labor shortages due to restrictive immigration policies are usually open and shut tip-offs that the business in question is paying inadequate wages, or has refused to automate and become more productive. As I’ve noted repeatedly, mainstream economic theory teaches that when the demand for anything – including labor – exceeds the supply, the price of that commodity (in this case the wage and/or non-wage benefits) tends to rise until a new equilibrium is restored. Alternatively, businesses tend to substitute capital (typically in the form of technology) for what they view as overly expensive labor.

Kelly emphatically denied to the CNN reporter that he’s been skimping on wages by using illegal workers: “When people say these companies are hiring illegal labor because they want to keep their costs down… in our case that argument is complete bulls–t.”

In fact, according to Kelly, the jobs that illegals were filling – and that in some cases have remained unfilled – “aren’t cheap positions.” He added that “They range from $15 an hour entry-level jobs to $35 an hour for experienced mechanics. ‘With overtime of $27 to $35 an hour, you can make pretty good money of $75,000 to over $100,000 a year.’”

But his claims started to fall apart – not that CNN picked up on this – the instant he started discussing in detail the employee whose departure he felt most keenly – an assistant foreman named Miguel Gonzalez.

As the CNN article tells it, “Gonzalez had worked for Emerald Packaging for over 20 years. He started as a box handler, moving and storing product pallets and factory supplies, and worked his way up to assistant foreman. He was a gifted mechanic and Kelly relied on him to help keep the factory running.” Further, he could:

>”walk into my office and tell me what’s going on in the facility.”

>Gonzales was “Keen to learn and move up the ranks [and] routinely took on extra work and hours. He also rarely missed work, even returning to the factory floor just two days after his first child, Casandra, was born.”

>Soon after Gonzalez’ hiring, “he showed initiative by tinkering with and fixing up the machines on the factory floor on his own time to help them operate better. Two years into the job, he was promoted into a role where he learned to set up, repair and maintain the factory equipment.”

>”Over time, [he] taught himself every aspect of the business, including payments and shipping.”

>In Kelly’s words, “He was the single best machine mechanic we had.”

>”Losing him had an immediate impact on production because there just wasn’t anybody of Miguel’s caliber to replace him. There just wasn’t,” said Kelly.

And what was this supremely talented “star worker” making in 2011, after twenty years of superlative performance? Twenty-two dollars per hour. (He also received healthcare and retirement benefits.) According to the Labor Department’s data, that wage is somewhat ($2.50 per hour) more than the average hourly wage (before inflation) for all workers in the plastics packaging manufacturing sector that year, and a little over six dollars an hour more than non-supervisory workers alone make. (It’s not clear whether an assistant foreman qualifies in the Labor Department’s eyes as a supervisory or a non-supervisory worker.) But that $22 per hour is also about $13 dollars an hour less than what Kelly said he pays “experienced mechanics” nowadays (five years later).

There’s no doubt that some businesses that hire illegal immigrants need every body they can get, and there’s no doubt that some illegal immigrants are earning good wages largely as a result. But when a news organization plainly convinced of the desperate need for illegal workers touts a single alleged example of this dire situation that’s so full of gaping holes, Americans are more than entitled to start wondering whether this narrative as a whole is fake news.

(What’s Left of) Our Economy: U.S. Productivity Remains in the Doldrums

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China, Labor Department, labor productivity, living standards, manufacturing, multi-factor productivity, offshoring, productivity, reshoring, World Trade Organization, WTO, {What's Left of) Our Economy

The Labor Department reported earlier this week that America’s labor productivity flat-lined at an annual rate between the last quarter of last year and the first quarter of this year. And relatively speaking, that was good news. The initial study of this measure of economic efficiency – and key determinant of the nation’s living standards – estimated that business labor productivity in the non-farm business sector (the government’s main proxy for the entire economy) fell at an annualized 0.6 percent.

Labor productivity, you may recall, is the narrowest of two measures of productivity. It gauges how much in the way of stuff or services Americans produce per hour of work from each worker. So the resulting picture isn’t as complete as that provided by multi-factor productivity – which as the name suggests looks at production per man or woman hour generated by many different inputs. But the labor numbers come out on a much timelier basis (each quarter), and for all the unusual amount of uncertainty that economists admit when they analyze productivity, they’re viewed as being reasonably reliable.

One small consolation, especially if you value manufacturing highly (as you should): Industry’s labor productivity not only grew quarter-to-quarter during the first three months of 2017 (by 0.50 percent annualized). It grew faster than the original estimate of 0.40 percent.

Manufacturing’s role as the economy’s productivity leader is also crystal clear upon reviewing the longer-term trends. During the 1990s expansion (as known by RealityChek regulars, comparing similar phases of the business cycle produces the most informative data), non-farm business labor productivity increased by 23.25 percent, while manufacturing labor productivity improved by 46.18 percent.

That recovery was America’s longest on record – just under ten years. The next expansion, during the bubble decade that preceded the financial crisis, lasted only six years. Non-farm business labor productivity rose by about the same annual pace as during the 1990s – 16.03 percent. But manufacturing labor productivity grew even faster year-by-year, advancing by 41.22 percent during the entire period.

The story is as different during this recovery as it is depressing. Although it’s so far been nearly as long as the 1990s recovery (having started nine years ago), the improvement in non-farm business labor productivity has been just 8.05 percent overall. For manufacturing, it’s been much higher – 21.55 percent – but relatively speaking, it’s a big fall-off.

Incidentally, undoubtedly one big reason for manufacturing’s excellent productivity performance during that bubble decade has to do with production offshoring. As I’ve written repeatedly, the way labor productivity is calculated results in productivity gains being recorded when businesses send jobs overseas, as well as when they use other techniques for saving labor or using their employees more effectively. And because the United States helped China enter the World Trade Organization at the start of that decade, and thus assured multinational companies that they’d remain overwhelmingly free to supply the American market from Chinese factories, that bubble decade was a major manufacturing offshoring decade.

The fall in productivity growth could indicate that, as widely claimed, manufacturing offshoring has dropped off significantly. But the evidence is mixed at best. What’s much more apparent is that, if Americans want their country’s productivity performance to rebound, they’ll press their leaders to make robust growth in domestic manufacturing a much higher priority.

(What’s Left of) Our Economy: JOLTS of Confusing News About the U.S. Jobs Market

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government jobs, job openings, JOLTS, Labor Department, labor shortage, living standards, manufacturing, private sector, productivity, recovery, retail, wages, {What's Left of) Our Economy

Since the U.S. economy has settled at its current level of near-full employment (at least by the official figures), the monthly JOLTS reports issued by the Labor Department have been attracting much less attention – including from me! After all, with so many Americans working, it’s been less important (though not totally unimportant) to learn about one of the key findings in each such survey of labor market turnover – how many new job opportunities business and government say they’ve been creating. 

So it’s not surprising that today’s JOLTS report (for April) hasn’t had much impact on the financial markets this morning. But it still contained more than its share of noteworthy results that reinforce what we think we already know about the economy’s current biggest problems, and that raise major questions about other portions of the conventional wisdom.

The overall job openings number, for example, was quite the stunner: At 6.044 million, it was an all-time high in absolute terms. (The JOLTS series dates from December, 2000.) And the 4.48 percent increase over May’s 5.785 million level represented the biggest monthly jump since last July’s 7.91 percent.

Openings in the private sector hit a new record in April, too (5.464 million). And that 4.20 percent monthly rise was the great sequential increase since last July (8.46 percent).

But as RealityChek regulars know, the economy’s growth has been sluggish even by the meager standards of the current economic recovery. In the first quarter of this year, real growth came in at a paltry 1.15 percent annual rate. So the JOLTS figures indicate that employers feel they need record numbers of new employees even though as a group their output is historically lousy.

That adds up to more evidence that American business boosting its productivity only sluggishly at best – which is awful news given that productivity growth is the nation’s best hope for improving living standards in a sustainable, not bubble-ized, way. And as I’ll be reporting on shortly, the latest government labor productivity numbers once more confirm that the economy is stuck in a productivity crisis.

Yet these JOLTS results carry more complicated implications for another broadly accepted feature of the American economy. They support the idea that U.S. businesses are struggling to overcome almost unprecedented labor shortages. How else to explain the enormous number of reported job openings? But companies that desperate to find workers should be raising wages at rapid and indeed accelerating rates. Everything that we know about hourly pay, though, tells us that nothing of the kind is happening. If anything, wage growth, which has underwhelmed throughout the current recovery, is showing signs of slowing.

One other new record revealed by today’s JOLTS report – total government job openings (540,000) have never been higher except in April, 2010, when the call went out for temporary Census workers. Even more interesting, most of the openings were in state and local governments outside the schools.

Also somewhat surprising: The “retail-pocalypse” so commonly bemoaned or hailed (depending on your viewpoint) is nowhere to be seen in this JOLTS report. Sure, retail job openings fell between March and April from 593,000 to 577,000. Moreover, that’s the lowest level since December, 2015, and the numbers now are generally, though unevenly, trending down. But for the first more than seven years of this nearly eight-year old recovery, they were trending solidly up. With overall economic growth down and consumers still cautious, the reported retail openings numbers are far from screaming “disaster!” – or even “serious trouble!”

Finally, although manufacturing output has been modestly recovering lately from its most recent recession, its job openings fell from 404,000 in March (the second highest record and best since January, 2001’a 496,000) to 359,000 in April. Still, the decline followed a major increase in March (from 364,000), and the manufacturing numbers have been pretty volatile for more than two years.

Maybe the safest conclusion to draw from the JOLTS numbers is that, for now, the economy is heading for more of the same. Whether that’s the safest result for incumbent American politicians is another matter entirely.

(What’s Left of) Our Economy: Where Trump Deserves High, Low, and “Incomplete” Marks on Germany Trade

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advanced manufacturing, automotive, commodities, comparative advantage, Financial Crisis, Germany, Global Imbalances, Great Recession, innovation, manufacturing, productivity, Trade, Trade Deficits, trade surpluses, Trump, {What's Left of) Our Economy

As I’ve suggested, President Trump has big, valid points to make about Germany’s auto trade with the United States. Not only does America run an enormous deficit with Germany in vehicles and parts, but claims that Germany deserves great praise from Washington because it makes so many vehicles in the United States are completely unjustified. For they overlook its companies’ very low levels of U.S. content and only very modest improvement on this score. That is, German vehicles are overwhelmingly screwed together in the United States, and therefore add much much less value to the American economy than autos made with domestic parts.

The trouble is that America’s troubles with German trade policies greatly transcend the automotive industry and, to a great extent, Germany. I’ve previously written that there’s a fundamental problem that both the administration and it’s critics are missing:  Germany’s economy, like China’s and many others around the world, is simply not structured in such a way as to make mutually beneficial trade with the United States possible.

But there’s another big U.S.-Germany trade issue that needs highlighting, along with a major danger that Bonn’s approach to trade is creating for the entire world – at least in the medium or long-term.

That other U.S. Germany trade problem has to do with the makeup of bilateral commerce. If you look at the nature of what the United States trades most successfully with Germany and vice versa, you find that the former category contains a mix of high value manufactures and commodities, while the latter is dominated by advanced industrial goods. Here are lists of the sectors in which America last year ran its biggest trade surpluses and deficits with Germany. (To the surplus list should be added – prominently – aircraft, which are not counted accurately in the U.S. International Trade Commission database I’m relying on.)

Top ten U.S. trade surpluses with Germany: 

glass products 

tree nuts 

soybeans 

computers 

non-costume jewelry 

non-anthracite coal & petroleum gases 

fin-fish products

computer parts 

surgical appliances and supplies 

pulp mill products 

 

Top ten US deficits with Germany

autos and light trucks 

pharmaceuticals

goods returned from Canada 

motor vehicle transmissions and transmission parts

aircraft engines and engine parts

construction machinery

miscellaneous general purpose machinery 

miscellaneous basic org chemicals 

miscellaneous engine equipment 

motor vehicle parts

These results are disturbing because, contrary to the superficial conventional wisdom, if you take seriously standard trade theory and its core concept of comparative advantage, sectoral trade balances matter tremendously. For the main idea behind the freest possible international trade is structuring the world economy so as to enable those countries most proficient at producing various goods and services to dominate their output. So surpluses and deficits in different industries show which countries are passing and failing this test – and thus which countries look likely eventually to control worldwide supplies of the sophisticated goods that create so many high wage jobs and foster so much innovation and productivity growth.

Since the U.S.-Germany data aren’t U.S.-global data, in theory they could be anomalies. In other words, Americans could be doing better with the world as a whole, and therefore, the nation’s prospects in high value industries could be a lot brighter. Unfortunately, that’s not the case at all. The makeup of U.S.-Germany trade isn’t terribly different from the makeup of U.S. global trade, in that America’s trade winners are, again, a mix of commodities and high value goods (again, including aircraft), and its losers are nearly all advanced sectors.

Top ten US surpluses globally

petroleum refinery prods

soybeans

special classification goods

plastics materials andcresins

waste and scrap

corn

liquid natural gas

semicaonductor manufacturing equipment

non-poultry meat products

turbines and turbine generator sets

 

Top ten US deficits globally

autos and light trucks

crude oil and natural gas

goods returned from Canada

broadcast and wireless communications equipment

computers

pharmaceutical products

telecommunications equipment

audio and video equipment

aircraft engines and engine parts

games, toys, and children’s vehicles

Yet Germany also is contributing significantly to a major trade-related threat that threatens the entire world, not just the United States. I’ve repeatedly spotlighted blue chip academic research concluding that unprecedented global imbalances centered on American trade shortfalls were instrumental in setting the stage for the last global financial crisis and the painful recession that followed. Worse, evidence keeps accumulating that international commerce is becoming worrisomely lopsided again, and that Germany’s overall international surpluses – currently the world’s largest – have generated much of the problem.

Indeed, a valuable reminder came in this morning’s Washington Post:

“[G]ermany is one of a number of countries, including China, Japan, and South Korea that are now saving far more than they are either consuming or investing….At some point, the world will be unable to absorb the capital surpluses of Germany, China and others, leading to another painful correction that might undermine the liberal order.”

Interestingly, Germany itself has indirectly acknowledged these risks, and hinted that it recognizes some responsibility to get the surpluses down. Unfortunately, Berlin has demonstrated few signs of following through. So although some of President Trump’s focus on the German trade issue seems off target, it’s also clear that the sense of urgency he’s brought to the issue, from both an American and global standpoint, is not only appropriate, but necessary.

(What’s Left of) Our Economy: New Peterson Pro-Globalization Study Only Deserves a “Nice Try”

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China, Financial Crisis, Gary C. Hufbauer, Global Imbalances, globalization, Great Recession, Larry Summers, manufacturing, Peterson Institute for International Economics, productivity, secular stagnation, technology, Trade, trade agreements, trade liberalization, trade policy, World Trade Organization, {What's Left of) Our Economy

The Peterson Institute’s new study of the benefits to Americans of globalization apparently leaves no doubt that the nation should promptly forget about any retreat from conventional trade liberalization policies and resume its aggressive pursuit of new trade agreements like the Trans-Pacific Partnership (TPP). Or does it? A close reading of the report reveals gaping holes in these claims.

According to authors Gary C. Hufbauer and Zhiyao Lu, between 1950 and 2016, “trade expansion” has enriched the overall U.S. economy by $2.1 trillion, and boosted America’s output per head and per household by just over $7,000 and $18,000, respectively. Even better, lower-income households probably gained the most (since the greatest trade liberalization progress has been made in the goods that comprise so much of their consumption).

Yet the phrase quoted in that previous paragraph points to the first big hole in the Peterson findings. “Trade expansion’s” benefits, the authors specify, entails much more than either signing new trade deals or otherwise reducing trade barriers. It also includes “technological advances in transportation and communications [that] have drastically slashed the economic distance between countries.”

Of course, there’s been a lot of the latter over the last 66 years. What share of expanded trade’s benefits has come from trade liberalization policy decisions and what share from that technological progress? Darned if the authors know.

The long time frame, in turn, reveals a second major problem with the central argument. Obviously over that last two-thirds of a century, the world economy, and America’s position in it, have changed in numerous and fundamental ways. One prominent example: For the first roughly three post-World War II decades, the United States was the only fully intact developed country. How could trade liberalization not have been a major net benefit? America produced countless products that the rest of the world desperately needed. And none of its important industries faced significant import competition until the 1970s. That doesn’t sound much like current circumstances.

And in fact, Hufbauer and Lu acknowledge this problem, noting, for example, that “compared to previous decades, increased trade since 2003 has not delivered substantial gains.” At this point, however, their analysis gets dicey. For example, they speculate that that low recent payoff resulted partly from “the lack of fresh policy liberalization on a large scale (the failure of the Doha Round)….” But that period actually saw a hugely important liberalization initiative completed – China’s accession to the World Trade Organization. And don’t forget the numerous free trade deals signed by the George W. Bush and Obama administrations, including with South Korea’s very large economy.

Moreover, although Hufbauer and Lu rightly note that the financial crisis and Great Recession also have marked the post-2003 period, they claim that “The decade that experienced the greatest gains from increased trade was 1970 to 1980.” That decade witnessed no less than two recessions (three if you count the 1980 downturn).

Undaunted, the authors contend that returning to the trade liberalization policy course will result in even more American wealth creation. But here’s where their discussion of the post-2003 period fails badly – and unmistakably. They never mention that, thanks largely to that aforementioned boost to incredibly lopsided U.S.-China the first decade of this century produced the greatest U.S. trade deficits and associated global economic imbalances in world history. They ended in the financial crisis and the nation’s worst economic downturn since the Great Recession.

Since America’s main trade partners – including China – seem either just as export-dependent, and/or just as import-and consumption-phobic as ever, it’s difficult to understand why a return to conventional trade diplomacy, combined with the cumulative and often lagged impact of past deals (as noted by Hufbauer and Zu) wouldn’t end in near-catastrophe again.

Another big problem: Former Treasury Secretary and chief Obama economic adviser Larry Summers, along with many others, worry that the United States has fallen into an economic trap they call “secular stagnation.” They speculate that the nation has become so incapable of generating healthy growth that it’s grown dependent on blowing up credit and consumption bubbles to at least produce (misleading) signs of economic life – and that these bubble’s inevitable bursting keeps creating financial crises and serious slumps. Do Hufbauer and Zu believe that the sandbagging of domestic manufacturing (which hasn’t grown in real terms since 2006) due to import competition and offshoring isn’t partly to blame? 

Finally, and similarly, American leaders have finally recognized that the economy is experiencing a major productivity growth slowdown. Can trade liberalization’s real economic impact be measured without considering the effect on productivity of allowing all that trade damage to manufacturing, which historically has led the nation in productivity growth?  

It’s definitely encouraging that a major think tank like the Peterson Institute is looking in detail at globalization’s impact on America’s economy.  Let’s hope that its next effort reflects some actual thinking.  

Following Up: Healthcare’s Outsized Job Creation Reported in The New York Times

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Affordable Care Act, Chad Terhune, Employment, Following Up, healthcare, healthcare services, Jobs, Obamacare, private sector, productivity, subsidized private sector, The New York Times, Trump

Well this is pretty cool! A new New York Times op-ed piece has spotlighted a trend that RealityChek has long covered: how strongly the creation of healthcare services employment has dominated recent American job creation, and how this trend has been especially noteworthy since the financial crisis and Great Recession broke out nearly a decade ago.

At the same time, author Chad Terhune, who reports on the healthcare industry for Kaiser Health News and the California Health Care Foundation, explains a major dilemma being created by outsized healthcare job creation for the Trump administration: Because so many of the new jobs in the sector have been driven by the build-out of Obamacare, the president’ promise to abolish this vast new structure could endanger his broader promise to jump-start feeble U.S. economic growth and stagnating incomes.

Even worse, according to Terhune, any effort to make healthcare more affordable, or even keep it at its current affordability levels, will significantly weaken the healthcare job-creation engine.

As the author sees it, healthcare hiring got a major boost “as coverage expanded in 2014 under the [Affordable Care Act] and new federal dollars flowed in. The law gave hospitals, universities and companies even more reason to invest in new facilities and staff. Training programs sprang up to fill the growing job pool. Cities welcomed the development — and the revenue.”

Sharpening the healthcare jobs conundrum faced by the president: “rising health spending has been good for some economically distressed parts of the country, many of which voted for Mr. Trump last year.” And Terhune cites specific examples from West Virginia to Pennsylvania to Ohio and Missouri.

Just as important, the author convincingly shows that American healthcare’s success in creating employment – which clearly predates Obamacare’s passage – also largely explains its inefficiency. In Terhune’s words, because of the system’s

“redundancy, inefficiency and a growing number of jobs far removed from patient care….[l]abor accounts for more than half of the $3.4 trillion spent on American health care, and medical professionals like health aides and nurse practitioners are in high demand. But the sheer complexity of the system has also spawned jobs for legions of data-entry clerks, revenue-cycle analysts and medical billing coders who must decipher arcane rules to mine money from human ills.”

And although Terhune doesn’t make the point explicitly, this labor-intensivity means that the sector of the economy fueling so much of its output and hiring is pathetically unproductive. In other words, the more outsized growth and employment healthcare creates, the less able the entire economy will be to raise living standards on a sustainable basis.

Moreover, one big reason for this low productivity is a feature of the healthcare system – both under Obamacare and before it – not mentioned by Terhune, either, but that’s vital to recognize: As I’ve observed, although this gigantic industry is officially (and no doubt popularly) considered a part of the private sector, its scale owes largely to subsidies from the public sector, which is renowned for low productivity.

As always, RealityChek readers – and others – need to understand that placing healthcare (and similar industries, like the for-profit educational system and social assistance agencies) outside the “real private sector” is not the same as questioning its fundamental value. After all, no truly civilized society would ever reduce public policy to a quest for productivity to the exclusion of all other goals, whether economic or non-economic. Moreover, as some readers have alertly pointed out, the steady aging of the American population is bound to mean continued healthcare sector growth.

But Terhune’s article is a badly needed reminder that the economy’s heavy reliance on the current healthcare system’s employment power has major downsides. As its title indicates, it’s a “costly addiction,” and its price is bound to rise without a major overhaul of some kind.

Im-Politic: A Surprising Source (Unwittingly) Explains Need to Keep Tight Immigration Curbs

Tags

Im-Politic, immigrants, Immigration, labor costs, labor shortages, productivity, Ryan Avent, technology, The Economist

I’ve long argued that one of the main reasons for Americans to oppose mass immigration policies (including sweeping forms of amnesty for the current illegal population) is the devastating impact such labor inflows are likely to have on productivity growth. (Just FYI, here’s my latest take.) One of my main reasons? The relative scarcity of labor throughout American history deserves considerable credit for the nation’s emergence as a global productivity and technology leader. And since robustly improving productivity is a major key to boosting national living standards on a sustainable basis, that’s always struck me as a pretty strong argument to keep labor in short supply by limiting immigration – which of course brings in more workers. 

As a result, imagine my surprise to see that this view has just been supported by a leading writer for the British magazine The Economist – which has long loudly advocated for wider Open Borders.

The case for immigration as a productivity growth killer is solidly grounded in conventional economics. In that 2006 Congressional testimony linked above, I noted “When businesses conclude that the price of scarce labor has become excessive, powerful incentives emerge for them to substitute capital and technology for labor. And that means innovation.”

I then pointed out that “Our country owes much of its longstanding world leadership in most technology areas to this genuinely chronic scarcity and thus relatively high price of labor. Preventing shortages with immigration policy could weaken this proven spur to technological progress and all the benefits it brings.”

If you’re skeptical, here’s a link to the leading scholarly work connecting outstanding U.S. productivity performance and a chronically inadequate American labor supply. In fairness, not everyone agrees. Here’s a link to the most prominent rebuttal.

But I was understandably heartened to see the importance of scarce labor to productivity growth supported in this post by Ryan Avent, a senior editor and economics columnist for The Economist. According to Avent:

“Economic historians often explain divergences in patterns of industrialisation by pointing to differences in labour costs. British workers were expensive relative to workers on the continent and relative to British energy. British firms therefore had an incentive to develop and deploy new technologies that economised on labour and used a lot of energy: industrialisation! There’s more to the story than that, but that’s a pretty big component. Later something similar happened in America, where workers were even more expensive and resources even more abundant, and where the phenomenally productive ‘American system’ of manufacturing therefore emerged.”

Avent doesn’t explicitly make the immigration policy connection. But it’s glaringly obvious to all except the ideologically blinkered (or the hired guns of the American cheap labor lobby). Needless to say, I’ll be awaiting his next offering on the immigration policy debate with more than the usual interest. You should, too.

(What’s Left of) Our Economy: Wages Data Still Belie Amnesty Advocates’ Labor Shortage Claims

Tags

illegal immigrants, Immigration, Jobs, labor shortages, productivity, wages, {What's Left of) Our Economy

The Pew Research Center is out with its latest estimates of the role played by both immigrants and illegal immigrants in the American job market. So that has enabled me to crunch some reasonably reliable numbers to find out whether illegals-friendly immigration policies like some form of amnesty are, as often claimed, desperately needed if the nation is to avoid a crippling labor shortage.

When I performed this exercise roughly a decade ago, I found that similar claims being made in that period were wildly overblown at best. Why? Because the data showed that real wages in the industries employing the most illegal immigrants were generally stagnant or going down. That’s exactly the opposite of what should happen if economists (and common sense) are right in contending that when anything – including workers – is scarce relative to demand, the price of that thing should go up.

And the verdict for 2014 – the year for which Pew’s latest statistics come? Labor shortage claims are still mainly hokum.

According to Pew, the sectors where illegal aliens make up the greatest share of workers are (in order of the total immigrant share of their workforces: private households; textile and apparel manufacturing; agriculture; accommodation; food manufacturing; computer and electronics manufacturing; personal and laundry services; administrative and support services; construction, and miscellaneous manufacturing.

Are there many signs of the kinds of labor market tightness that should be sending pay soaring out of sight? I couldn’t find data for domestic workers, but here are the current-dollar wage figures for the other sectors during the current recovery so far. That means from June, 2009 through February, 2016, except where noted. They cover non-supervisory workers, on the assumption that few illegal aliens are finding managerial jobs in these parts of the economy:

Private sector overall: +17.78 percent

Construction: +15.93 percent

Computer and electronic manufacturing: +12.55 percent

Miscellaneous manufacturing: +16.55 percent

Food manufacturing: +17.31 percent

Textile mill manufacturing: +14.93 percent

Textile products mill manufacturing: +24.76 percent

Apparel manufacturing: +18.05 percent

Administrative and support services (through January): +14.33 percent

Accommodation (through January): +7.56 percent

Personal and laundry services: +21.61 percent

Farm workers: +24.53 percent

I sure don’t see any broad-based wage explosion in these statistics. In only four of the eleven illegal alien-heavy sectors have wages even been rising faster than those in the overall private sector – which hasn’t been terribly fast given that the current recovery is more than seven years old. Two of them, moreover, are in labor-intensive manufacturing industries that have been so decimated by foreign competition for so long that what’s left of them might indeed be facing labor shortages. The reason? Who in his or her right mind would assume they have much of a future in this country?

But what about more recent developments? Can signs of widespread labor shortages be seen in the current stage of the recovery? You be the judge, based on these February (or January, where noted above) year-on-year developments:

Private sector overall: +2.48 percent

Construction: +3.38 percent

Computer and electronic manufacturing: +2.73 percent

Miscellaneous manufacturing: +3.13 percent

Food manufacturing: +3.70 percent

Textile mill manufacturing: -1.07 percent

Textile products mill manufacturing: +8.04 percent

Apparel manufacturing: -3.02 percent

Administrative and support services (through January): +4.13 percent

Accommodation (through January): +1.50 percent

Personal and laundry services: +3.88 percent

Farm workers: +3.00 percent

Bottom line: The illegal immigrant-heavy sectors have seen some wage acceleration since last year. But two of the manufacturing sectors where wages had separated themselves from the pack are now experiencing wage decline. And it’s important to keep two other considerations in mind for many of the rest: First, their wages have been boosted artificially during this period by numerous sizable minimum wage increases in major states and localities. That’s not to say that such hikes per se are undesirable in any way. Indeed, I personally don’t see any reason why they shouldn’t be much more tightly linked to inflation nationwide than they’ve been till now.

When it comes to the labor shortage claims, however, they greatly distort the picture – because they represent wage developments based not on the labor supply and demand situation in these parts of the economy, but on political decisions.

Second, if the relatively strong wage increases that have taken place continue much longer, expect the sectors in question to start automating fast — or faster. That’s been a major feature of American economic history. And if economists are right, the resulting technological progress will wind up simply being delayed (perhaps partly accounting for the economy’s recent sluggish productivity growth?), rather than stopped, by the continuing easy availability of illegal immigrant labor.

(What’s Left of) Our Economy: Why Illegal Immigrants Look Like U.S. Productivity Killers

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automation, construction, illegal immigrants, immigrants, Immigration, labor shortage, Marketwatch.com, productivity, restaurants, Steve Goldstein, The Wall Street Journal, wages, {What's Left of) Our Economy

Steve Goldstein of Marketwatch.com (an excellent business and economics site for which I’ve been pleased to write) has just done a good job of indicating why you can’t trust everything you read – even when it comes from a fancy-dan economic consulting firm. Check out how he threw some cold water over a new report contending that illegal immigrants have been partly responsible for America’s recent productivity slowdown. As Goldstein notes, for example, this conclusion seems to proceed at least to some extent on a misunderstanding about whether illegals are counted in certain key government economic data.

At the same time, we’ve just gotten additional evidence from The Wall Street Journal suggesting that the notion that illegals exert a drag on productivity growth is on target after all.

The first comes from a Journal article that spotlights a study from another fancy consultancy. It found that heavy use of illegal immigrants is one factor that’s held back productivity growth in the American construction industry. In the words of the Journal piece:

“The sector’s fragmentation makes it hard to adopt industrywide standards. Much of the construction industry relies on volatile government contracting, which makes it difficult for firms to plan very far ahead. Regulatory requirements can also reduce incentives to invest in productivity-boosting improvements. And much of the construction sector relies on low-skilled workers—including undocumented immigrants—who tend to be lower-paid and less productive than their skilled counterparts.”

To be fair, the article notes that lagging productivity performance is a worldwide, not simply an American, phenomenon. And it’s not obvious that the construction sectors of other countries rely as heavily on illegal workers as does America’s.

Nonetheless, this analysis might also understate the productivity-killing role played by illegal construction workers in one important sense. It fails to mention that the availability of so much cheap labor greatly reduces construction firms’ incentives to buy labor-saving machinery, or figure out other ways to manage their operations more efficiently.

This article does note the sector’s sluggish adoption of automation – and attributes it to its characteristically tight profit margins, which supposedly make such expenditures inordinately risky. But I can’t help but wonder if the article has causation backward. Maybe its low degree of automation – and the resulting inefficiencies explain some of construction’s weak productivity growth.

The second Wall Street Journal example underscoring the connection between illegal immigrant employment and the productivity slowdown came in a report on a new trend in the restaurant industry: offsetting the impact on their bottom lines of mandated minimum wage hikes by adding “labor surcharges” to checks. Evidently, the idea is that customers will be more willing to pay this extra fee than higher prices for menu items.

I have no idea whether this is true. But I do know that restaurants rely heavily on illegal immigrant labor, that the abundance of these workers has helped keep the wages they pay very low, and that the sector has a long history of crying “Labor shortage!” to justify keeping the legal immigration floodgates wide open and the border porous – thereby ensuring that its potential workforce will in fact remain in surplus. I also know that restaurateurs like to insist that their sector’s profit margins generally are “razor thin,” which means that containing labor costs is especially important.

Add all of these factors and their influence up, and you have a classic portrait of an industry that’s skimped on productivity-enhancing, labor-saving devices because illegal immigration helped it keep labor costs at rock-bottom levels. Indeed, a senior executive at the National Restaurant Association has all but acknowledged this sorry situation: “Productivity growth in the restaurant industry has really been quite minimal over the past decade. Sales per employee in the industry is still low not only compared to other retailers, but it’s low compared with other industries.”

Finally, here’s more indirect confirmation for an illegal immigrant-productivity connection in these two sectors. For all its illegal immigrant usage, construction is a relatively high wage industry. Its average hourly wage ($28.52 according to the latest government data) exceeds that of the typical private sector job ($26 even). Therefore, it’s not vulnerable to the recent minimum wage hikes – and there’s no reason to think that its productivity-enhancing investments are on the rise.

Restaurants, on the other hand, are not only relatively low paying – with average wages of $13.69. They employ lots of minimum wage workers, and are very worried about the spreading movement in states and localities to raise minimum wages. So even though their major illegal immigrant employers, too, the prospect of higher payrolls is generating considerable new interest in automation.

Imagine how much more such investment would be made by both industries if their illegal immigrant crutch was removed, or greatly shrunk, as well. And since productivity growth is widely viewed as the most important key to raising American living standards on a sustainable (as opposed to bubble-ized) basis, imagine how welcome that development would be for the entire economy.

(What’s Left of) Our Economy: Productivity as the Main Manufacturing Job Killer Debunked Again

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automation, BLS, Bureau of Labor Statistics, Department of Labor, Jobs, labor productivity, manufacturing, offshoring, productivity, Trade, {What's Left of) Our Economy

Here’s a curious phenomenon that America’s political leaders and media need to focus on more: Practitioners of what I call fakeonomics keep prattling on about how the nation’s trade policy has almost nothing to do with the woes of domestic manufacturing and its workers, and that more automation and other forms of productivity gains are almost entirely to blame. At the same time, the official (and most authoritative) data keep proving them wrong. Just look at the latest figures, from this morning’s government report on America’s labor productivity.

These figures – from the Labor Department’s Bureau of Labor Statistics (BLS) – measure how many hours of human work it takes the U.S. economy to produce a given quantity of output. So although they don’t directly gauge the role being played by machines and software of all kinds in American industries (including manufacturing), they’re no doubt an excellent proxy for automation levels and how they’re changing. In other words, if labor productivity is rising at a respectable rate, then it’s reasonable to conclude that at least lots of job loss is indeed attributable to the adoption of labor-saving technologies – as opposed to more net imports or more job offshoring. And the opposite holds logically, too,

As I’ve written, BLS itself admits that its published numbers likely overstate labor productivity growth for the whole economy – and therefore, it would seem, the automation rate. But even leaving aside this flaw, the new numbers once again show that “respectable” is the last adjective that’s appropriate to describe improvement lately in this gauge of efficiency.

BLS’ new figures for the fourth quarter of 2016 and for that full calendar year incorporate comprehensive revisions going back to 2012. Given how many quarterly and annual figures have been updated, the most efficient way to show how miserable productivity growth has been recently, and how weakly it’s correlated with manufacturing employment, is to show how the previous figures for the last three economic recoveries before the new adjustment and after it. (As discussed before, comparing economic performance during similar phases of a business cycle – e.g., recoveries versus recoveries, or recessions versus recessions – is the best way to get apples-to-apples data.)

Here are the manufacturing employment and manufacturing labor productivity changes for the expansion of the 1990s (as presented in this previous post):

manufacturing employment: -0.38 percent

manufacturing labor productivity: +46.78 percent

And here are the results for the shorter expansion of the 2000s (taken from the same post):

manufacturing employment: -12.44 percent

manufacturing labor productivity: +41.08 percent

And here are the results reported in that post for the current expansion – which has been longer than that of the previous decades, but not quite as long as its 1990s predecessor:

manufacturing employment: +4.68 percent

manufacturing labor productivity: +22.88 percent.

Where do the new revisions leave us? Manufacturing employment is now up 5.24 percent. And the sector’s labor productivity is now up 22.70 percent. In other words, it’s productivity growth has been slightly weaker than previously estimated – when it was already historically lousy.

It’s hard to escape the obvious conclusion: It’s high time for globalization cheerleaders to stop letting trade off the hook for major manufacturing job loss – and transition to work that’s actually productive.