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The Immigration Paradox

Mike Curtis, M.A., IOU Foundation and the Henry George School of Social Science

Are illegal immigrants more profitable than the very same people would be if they entered the country with a green card? Do illegal, low paid immigrants have any effect on the general level of wages throughout the country?

Time and again we are told that illegal workers only take the jobs that no one else wants. They are needed. Without them, restaurants would go out of business, small farmers would go broke and large farmers will move their operations abroad. There is little doubt, if all illegal immigrants were deported, many small employers would shut down. The Gross Domestic Product would fall, and so would overall worker productivity. Illegal immigrants are strong, healthy, hard-working, and they make up more than 5% of the US workforce.

Suppose you’re a US citizen who has to compete in the work force. How do you actually keep your job and get a raise? You have to find some way to limit the competition. That’s what labor unions have done — gotten their members a higher wage by keeping out the competition. Doctors and lawyers benefit from limited competition due to laws requiring degrees, exams and licensing. Highly paid craftsman teach only the apprentice. “Supply and demand is how the world works” — and allowing workers across the border is one sure way to increase the supply — and thus lower the price — the wages — of labor in the US.

Many people think that wages depend on individual productivity. It’s a common belief that there is a level of skill and knowledge that, once attained, will ensure a good job. If that’s so, then 12 million young, ambitious Latinos working for less than the going rate should reduce prices and add jobs to the economy. Employers think they should have a right to hire the best and cheapest person who is willing to work for them — not only because the workers are free and un-coerced, but because it is good for the economy as well.

At the same time the American worker knows that if citizenship is to offer any real advantage, it must, at the very least, grant him exclusive rights to the already-limited number of jobs within the country. Our least healthy, intelligent, skilled, and motivated workers are not expected to compete with the least productive people in Mexico. They are expected to compete with that country’s most productive people, who are leaving because Mexico is in a chronic recession. Moreover, those superior workers are willing to accept far less than the prevailing wage. These are people who would quickly have worked their way up the US pay scale, if they were afforded the rights of a citizen.

The Immigrants’ Perspective

Many Americans are outraged by this. They point out that their parents and grandparents followed the rules and waited in line to come into the country. When more come in illegally, fewer will get a chance to come in legally; we should not reward those who break the law.

It’s understandable that these Americans would not be inclined to see this issue from the Mexican immigrants’ perspective. Nevertheless, that perspective exerts a strong influence on this struggle. The overwhelming majority of illegal immigrants are otherwise honest and law-abiding people who feel no obligation to honor the immigration laws. They see the border as an obstacle like a mountain or an ocean, but feel no moral restraint about entering the United States. They are simply driven by that inherent urge to develop their fullest potential and get the greatest reward for their efforts.

They also know the history of Texas and the six southwestern states. The United States provoked the secession of Texas and then the war with Mexico. It is true that Spain stole the land from the various Indian tribes, and the descendants of those conquering Spanish seceded from Spain and established Mexico. However, most of the illegal immigrants from Mexico are not the descendants of the Spanish, but of the native Americans who crossed the Bering Strait from Asia between 10 and 20 thousand years ago. Do Europeans have a greater right to be in the middle of North America than those who were on this continent for more than 10,000 years? The illegal Mexican immigrants say: if the US had not stolen a million square miles of land, most of us would still be in Mexico. The laws of immigration are based on the right of a country to exist as a country and secure its borders — but that “right” is secured by conquest. Virtually every country that exists today came about by force.

Always and everywhere, labor is drawn to the employer offering the highest wage. Not only is a large portion of the Mexican population underemployed, but most Mexican workers would enjoy a higher standard of living if they lived and worked in the United States. If they work in the United States and support a family that lives in Mexico, the difference in the cost of living between the two countries makes a profound difference in their ability to accumulate wealth. There is a great incentive for the young, strong and ambitious to sneak across the border, work for a few years, and save up for a new house, or to start a little business, when they return home.

America is the land of opportunity. If the US devotes more resources to stopping illegal immigration, it simply means that the guy who shows up for an illegal job can not only walk across fifty miles of desert, but then climb a 50 foot fence in the dark. And he is willing to work for a whole lot less than anyone else with his level of strength and perseverance. The better the workers, and the less you have to pay them, the more tempted you are to hire them. Twelve million illegal workers are highly productive, extremely profitable, and — because wages are so low in their own country — very plentiful. Without a serious commitment to seal the border or prosecute employers, the US will likely end up with many more illegal immigrants than it has now.

The US could seal the border if it were willing to spend the money. Then, it could send millions of Mexicans back to Mexico — a difficult campaign that would also demand lots of labor and money. What would be the economic effect of all this investment? It would be to diminish overall productivity! Many of those who had been unable to compete with illegal immigrants might then be employed, but they would be less productive. Ten or twelve million fewer workers would mean fewer divisions and specializations of labor — that too would diminish productivity. The increased cost of production would tend to increase the price of everything — and remember, taxpayers would still be paying for that border wall, and the nationwide roundup of illegal workers.

Most Americans are consumers, in varying degrees, of the products or services of illegal workers. Whether you buy hand-picked beans, a meal in a restaurant, house cleaning, childcare, or yard work, illegal workers are probably involved. However, the people who directly compete for work with illegal immigrants don’t eat hand-picked vegetables, eat in restaurants, hire baby sitters, or pay someone else to cut their grass. They don’t make up a majority of the voters, either. Therefore, unless the poorest Americans become the tie-breakers in the next election, those illegal immigrants are likely to stay, and a lot more will come.

The US domestic birth rate has declined; increasing population is largely due to immigration. Meanwhile, however, the productivity of US workers has increased at a greater rate. And this is true of workers at every level; technology such as computers, nail guns, and optical scanners have greatly increased the productivity of low-wage workers. During the last 20 years, the US population increased by about 20% percent, but the average productivity of our workers (discounted for inflation) has increased by nearly 50%.

How many people the US economy can productively absorb is a complex question — but if we look at some other prosperous countries, we get a clue. The number of people per square mile of arable land in France is about 850; Germany: 1800; The United Kingdom: 2500; The Netherlands 3500; and Japan: 8,000. The United States still has less than 400 people per square mile of arable land. According to the USDA, over 97% of our land is cropland, forest, grassland, etc. Less than 3% is labeled Urban Areas.

While American workers now produce almost 50% more than they did two decades ago, real wages remain pretty much the same. The problem is that our frontier is gone. The nineteenth century and the Homestead Act are over. There is no alternative way for people to employ themselves. This may seem axiomatic to those who understand Ricardo’s law of rent, and the corollary law of wages. It is not so obvious to everyone else.

The Vital Role of the Frontier

America was the safety valve for Europe in the 19th Century. As long as there was land available, offering an independent livelihood for those who could not find other work, America had the potential for full employment. The cheaper the price of land, the more employers would have to offer in wages. While the US was not nearly as productive as Britain and Western Europe, wages were much higher. Between 1803 and 1853 the United States acquired the Louisiana Territory, Florida, Texas, and the 6 other western states — a total of about 1.8 million square miles. That gave the US mountains, deserts, and a total of 700,000 square miles of arable land. With 25 million people, that was only 36 people per square mile — or, over 17 acres of arable land per person! (That statistic probably doesn’t count most of the native people who were eventually driven off or eliminated.)

There were half a dozen occasions when land was given for homesteading. In the famous act of 1862, one and a half million people were given 80 million acres. Many of the initial claims were sold to investors, and they, in turn, resold it for family farms. But, because so much land was available, the price was exceptionally low. Employers offered high wages, because too many workers had the option of buying cheap land and working for themselves. Although wages remained much higher in the United States than they were throughout Britain and Europe, wages were falling and poverty was increasing as the 19th Century drew to a close.

Land Speculation

By 1890, good farmland was no longer cheap. What happened? How could so much land have been needed in such a short time? There were waves of immigration and a high birth rate — but, as recently as 1930 there were only 176 people per square mile of arable land. The answer is Land Speculation — owning and hoarding land for the increase in its selling price. Not only could our cities then, as now, hold many more people in a much higher standard of living, but the suburbs sprawl inefficiently and leapfrog past blighted areas that could be used for urban and suburban communities. Farmland that sits in the path of this sprawl continually grows in value.

At the end of the 1920s, a decade in which the world experienced a greater technological advance than ever before — the general level of wages fell, and unemployment rose. As inventions replaced workers, those unemployed workers had to find someplace else to work. However, every invention not only increased productivity, it increased the rental value and the selling price of land — especially urban land. In the expectation of future increases in the price of land, too much of it was held back for future sales. Without enough land available for production, many of those displaced workers remained unemployed.

Without any way for workers to employ themselves — no free land alternative — wages for those with the least intelligence, skills, and education tend to a bare subsistence. Workers get hungry and accept the wages of a slave — food, clothing and shelter, the amount below which they get weak and sick, produce less, and yield less income to their employer. That is why in 1935, in the middle of the Depression, with mass unemployment, Congress enacted the Legal Minimum Wage. And ever since then, the Minimum Wage, low as it is, has served to restrict the employment of desperate people who would be willing to work for less.

During the last quarter-century we have seen many new tools and machines that increase the workers’ productivity — even the least-paid. But wages are not determined by a worker’s productivity. Wages are determined by a worker’s alternative: how much you could earn in the best available “other place” you could work. But where is this “other place”? Since there really is no more free, or even cheap, land, wages tend to stagnate.

As population increases, as the infrastructure is extended and improved, as new technologies increase the results of labor, the selling value of land increases. While the land is held in anticipation of the increase in value, it is either unused or grossly underused, and this contributes to the shortage of jobs and housing. In addition, every time a machine replaces a worker, that worker has to work some place else. In other words: the problem is that, because of the irresistible incentive to hold land as a speculative investment, at any given time, not enough land is released for use in production to put everyone to work.

The result: wages for those with the least skills and education tend to a bare subsistence. They rely on the Minimum Wage laws, because they have no alternative. However, the United States currently has some twelve million illegal immigrants, who are willing to work for less.

A Stopgap Measure

So what do we do? Let’s consider a stopgap proposal that shares the economic benefits of immigration with the workers. Suppose we index the Minimum Wage to the rate of increase in per capita GDP. That way, workers will share in the benefits of increased population and technology.

Next, we could have the government provide minimum wage, WPA-type jobs for everyone (regardless of immigrant status) who is willing and able to work. They can clean up the highways, fix up the parks and replant the forests. With that requirement, the government will have an incentive not to let more people into the country than can be economically employed.

With all these people working, though, there will be a shortage of affordable housing. Let’s have the government provide enough public housing so that everyone on the Minimum Wage can get decent shelter at an affordable price. If we could do those three things, we could eliminate the ill effects of immigration on our own citizens — for the moment.

However, in a few years, we will have another recession. What are we going to do with our non-citizen workers then? In the 1930s, they were sent back to Mexico, where they suffered. If we welcome people into the country to work, we require them to fulfill all the obligations of a citizen — they play by the rules, pay their taxes and generate profits for their employers — have they not earned the community’s support when there’s a hurricane or an earthquake — or the next depression? If they’re good enough to contribute to our economy, ought they not have a vote and our mutual support when disaster falls upon us?

Can We Afford It?

Can we expect the government to do all those things — even in good times? Taxation now totals about a third of the nation’s output. People bitterly resent the burden of taxation, and economists everywhere say that taxation slows the economy down. Where are we supposed to find the revenue to employ and house all our own people, not to mention twelve million immigrants?

Unfortunately, our current tax system could never do it. But, fortunately, there is a viable alternative. A revenue source exists by which we could raise all the money the community needs, without penalizing wealth-producers and incurring middle-class wrath. By shifting all taxes to the rental value of land, we would encourage people and business to hold the smallest amount of land they could use, and produce as much as possible on it. Large numbers of people would save by living in apartment buildings and sharing a view. Business would build the highest buildings that were profitable. There would be no more crumbling tenements in center-city.

Erecting buildings — which, after all, provides jobs and stimulates demand — would no longer be penalized. But it would become very expensive to hold on to valuable land and not put it to use. The tax on the rental value of land would have to be paid even if the land were not generating any income from which to pay it. There would simply be no reward for holding unused and underused land for future use or sale.

Under these incentives people would migrate toward the cities and suburbs, and developers would compete to provide them with affordable housing. With modern technology, high-rise buildings allow us to house more people per acre, in spacious comfort, than are now packed into the most overcrowded slum.

Meanwhile, the best commercial, industrial, and mineral lands will be put to their most productive uses. As labor and capital migrate in the process of maximizing their efforts on the best land, demand for the least productive land will fall. Soon, there would be land — good for building houses, growing crops or supporting a small business — but without market value. Having free land available to everyone to live and work on would deliver high wages for everyone — just like it did in past centuries when America had a free land economic frontier. Not that everyone would become a yeoman farmer — but no one would work for someone else, under pitiful, unhealthy conditions, if they could do better working for themselves.

Every increase in productivity would, as it does now, increase the rental value of superior lands — but, unlike now, it would not merely make the rich richer; it would provide more revenue for the increasing needs of society. Every increase in productivity would also increase production on the free land — just at the edge of the land that was economically demanded and valuable. Therefore wages would go up. Every increase in productivity would also increase the returns to capital — and all would benefit. “Capitalists” would be productive, not parasitic.

Under this arrangement, every increase in the population will increase the quality of life for every person in the country. And it will continue until we reach the point of diminishing returns. In short, with this system in place, we could open the border and declare “The more the merrier.” The value of land in Mexico and Central America would fall a little bit more as each person left. How long would their ruling families stand by and watch the their land values drop? In self defense, they would implement some competitive measure to draw their workers back. We hope they would raise wages, rather than shoot those who try to leave.

What is Humanly Possible

Yes, the United States stole the best half of Mexico. However, not only Mexico, but virtually every impoverished country in the world still has ample resources to provide for its people. With an equitable distribution of wealth and opportunity, every nation can have full employment. Every nation can accumulate capital, develop the infrastructure, maximize productivity and enjoy a level of wages that are as high as the most prosperous nation’s are today. The place where humans first appeared is thought to be in Africa. Everywhere else, we are all descended from immigrants. Certainly a democratic system of local self determination is humanly possible with free migration and open borders for each and every citizen of the world.