Immigration and Narrowing the Income Gap

The Obama administration is concerned, as am I, about the huge and growing gap between the incomes of the very rich and those of the working classes. Obama wants to attack this problem by increasing the taxes on the rich and lifting the minimum wage — and I, for one, agree to both proposals.

But there is a third policy tool available in this arena: reducing the size of the labor force — notably by enforcing the immigration law — and the administration takes a position on that issue that will simply aggravate existing economic inequities.

There are three ways to increase wages for the least-skilled people. You can engage in the long, slow process of increasing human capital through education, which is, of course, a good idea; or you can, rather more swiftly, raise the minimum wage and/or shrink the labor force (through enforcement).

If you insist on both a higher minimum wage and an amnesty, you will be pouring water into a bucket with a large hole in it. You will not get very far.

As a former client of mine, the late Howard D. Samuel, then president of the AFL-CIO’s Industrial Union Department, said repeatedly, “the worker’s best friend is a tight labor market.”

If employers need to compete to obtain workers, wages will rise without the need for any governmental intervention. That is both obvious and too often forgotten. It is, if you will, a force of nature.

Lifting the minimum wage works differently. It is a much-needed, but artificial, intervention into the labor market. Employers are told that they will be punished with fines if they do not pay their workers enough.

It is useful in those honorable parts of the labor market where employers tend to obey the law, but it is hard to enforce in the many parts of the economy where employers ignore such things. Further, it is not generally recognized that there are only about 1,000 wage-hour inspectors to cover the whole nation.

Put another way, shrinking the labor force or expanding the number of available jobs are the natural ways to increase wages — these two forces operate throughout the entire economy. On the other hand, raising the minimum wage only works directly on the above-ground economy, where laws are observed.

At the national level we see the conflict between higher (proposed) minimum wages and immigration policy. Similarly, at the state and local level, Democrats are too often ensnared in similar dysfunctional sets of policies.

They advocate both higher state and/or city minimum wages while making life easier for, and thus encouraging the influx of, illegal aliens. New York City Mayor Bill DeBlasio wants better pay for workers and he wants to give City ID cards to illegals. In many states, such as California, the movement is toward driver’s licenses for illegals and an enhanced minimum wage.

If you think about it, these sets of policies do not make sense — but that requires thinking.

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