So reads the headline of a long news story in the March 3 Wall Street Journal by Tom Fairless.
We generally think of addictions being bad. But workers aren’t cocaine. What’s wrong with being “addicted” to cheap labor?
In a word, nothing.
The headline is true to the content of the article and Fairless isn’t simply asserting his own views. He actually quotes economists who claim that there’s something wrong with hiring cheap labor when instead you could pay for more-mechanized production methods. Economists often point out that one of the downsides of an increase in the minimum wage is that it would cause employers to adopt labor-saving production methods sooner than otherwise. If the economists quoted in this news story were consistent–and maybe they are–the would see that downside as a feature, not a bug.
Here’s one excerpt that references a prominent Canadian economist named David Dodge:
In Canada, economists say the government has cast aside a carefully managed immigration system that gave priority to highly skilled workers, and ramped up significantly the intake of foreign students and other low-skilled temporary workers. By flooding the market with cheap labor, Ottawa may be propping up uncompetitive businesses and ultimately damaging productivity, according to a December report co-written by former Canadian central-bank governor David Dodge.
Notice the strange use of the word “uncompetitive.” If those businesses are able to do well and maybe even thrive, how are they uncompetitive? In fact, they are quite competitive.
And how would hiring more workers reduce productivity? Are the employers stupid? Do they want to pay people who not only don’t produce but also reduce production?
Of course not. It ‘s clear what Dodge means. He means that hiring low-skilled workers could easily reduce average productivity.
Indeed, the very next paragraph of the news story makes my point:
Economic output per capita is lower than it was in 2018 following years of record immigration, notes Mikal Skuterud, an economist at Waterloo University in Ontario. Canada has been bringing in so many low-skilled workers that it lowers the country’s productivity overall, he says.
Skuterud is pointing to average productivity even though he blows it at the end by equating that to the “country’s productivity overall.”
But in this context average productivity is not a good measure. The employers have found a cheaper way to produce and the workers, many of them from poor countries, as the news story points out, are better off. Also, with cheaper production, consumers are better off.
What other objections, according to Fairless, do economists have to cheap labor? Fairless writes:
“Once industry is organized in a certain way and the structure encourages employers to recruit migrants, it can be very hard to turn back,” said Martin Ruhs, a professor of migration studies in Florence, Italy. “In some cases, policymakers should ask, does it make sense?” said Ruhs, who is also a former member of the U.K. Migration Advisory Committee, which advises the British government on migration policy.
It might be hard to turn back. But who has the better incentive to look ahead and estimate whether they will need to turn back: economists at universities and think tanks or employers with a whole lot of skin in the game?
And while I don’t know how quickly employers would adjust if they found labor becoming cheaper, we do know that the history of the U.S. and other rich economies in the 20th century is that production methods became more and more capital-intensive as labor became more and more expensive.
Relative prices matter.
The pic above is of a car dealership that has a number of workers from India serving as apprentices. The horror!
HT2 to Marian Tupy.
