If You Believe Deporting Immigrants Will Help the Economy, You’ve Been Conned

If you believe Donald Trump’s promised efforts to deport 2 to 3 million undocumented immigrants (or President Obama’s successful deportation of 2.5 million) will result in more jobs for American citizens, or better wages, or any other meaningful improvement to the economy, you’ve been conned. I’m sorry to be the one telling you.

Why You Might Think That

Well, it’s just, y’know, supply and demand, isn’t it? Right now, there’s all these desperate illegals doing those jobs, jobs that historically have gone to hardworking Americans, like mopping floors and changing hotel linens and picking oranges. If they go away, then, ipso facto, post hoc ergo propter hoc, those jobs have to be filled by Americans. Boom!

Why That’s Not Actually The Case

Here’s a chart that compares American gains in productivity (what labor produces) and wages (what labor receives) over the last 65 years, courtesy of the Economic Policy Institute.

That big gap between output and compensation, on the far right side of the chart? Those are all returns to capital. That’s money that laborers — the people whom a tightening of the labor supply should help — could be getting, but aren’t. Someone punching a clock today is 11% better off than their parents punching a clock in 1973, but the owner of that business is 73% better off.

The same textbooks that teach the “supply and demand!” rote that everyone thinks will raise American wages also teach that, in a free and competitive market, marginal returns to capital (read: profit) will eventually and inevitably be whittled to zero. If a business turns a profit, it will attract competitors into that same line, who will compete for the existing labor pool with more generous compensation.

But that apparently hasn’t held since 1973 or so. We are not in the free and competitive market of economics textbooks. And so maybe the Econ 101 analysis of “supply and demand!” doesn’t have much to tell us.

The contention is that American employers would be forced to pay citizen laborers more (whether by raising their wages or by hiring more of them) if there were fewer undocumented immigrants. My contention is that, if American employers wanted to pay citizens more, nothing is stopping them. They’ve got 40 years of runway.

“Yeah, but compensation is so low because, y’know, those illegals are depressing wages!” A casual reading of American history suggests this isn’t the case. The jobs that undocumented immigrants take today, by and large, receive crap wages, no health insurance, no long-term job security, and no upward mobility. If every undocumented immigrant vanished overnight, the citizens who Walmart, McDonald’s, and Kroger hired to replace them would receive the same plateful of garbage.

Remember The Grapes of Wrath? The big California farming companies treated “Okies” — their fellow American citizens — like dirt because they could get away with it. Remember when Pullman porters, elevator operators, shirtwaist sewers, and other menial jobs were predominantly held by the most vulnerable American classes?

“Them Okies got no sense and no feeling. They ain’t human.”

Employers aren’t keeping wages low because undocumented workers are illegal. They’re keeping wages low because undocumented workers are vulnerable. They’re paying them as little as they can get away with.

(This is to say nothing of the intimidation and violence that undocumented workers suffer. I’m limiting my analysis to compensation alone for the sake of clarity. But I suspect the life of a casual day laborer in the American West is not one that a Rust Belt voter would trade for any wage, much less the miserable wages they make)

But American Workers Wouldn’t Stand For That Kind of Treatment

Sure they would. Why wouldn’t they?

Only one in 10 American workers belongs to a union. Unions have engaged in questionable politics over the last 100 years, but their chief strength is collective bargaining. A worker who is a member of a union has the strength of their union behind them. A worker who isn’t has nothing.

If every undocumented worker vanished overnight, it’s possible that the first unemployed Californians to show up in the strawberry fields would balk at $9.66 an hour. But the next ones wouldn’t. And if unemployment is high enough — if we get back to the bad old days of 2008, when U6 cracked 16% — there will always be someone in line behind you.

Sure, a real tightening of the labor pool might jack wages all the way up to $11.33 an hour. Eleven dollars and thirty-three cents an hour in a tight market! Hot damn! That’s only 24% lower than the wage that employees had to go on a nationwide protest for last year! That’s still within the eligibility requirements for California’s version of Medicaid for a family of three, with 15% to spare! Big money, how you livin’?

But The Companies That Employ Undocumented Workers Would Have To Fill Those Vacancies

Says who?

I mentioned Walmart earlier. They are America’s largest private employer, with 1.5 million Americans on payroll. They also employ a large number of undocumented immigrants. They don’t share numbers on how many, but 345 were arrested across 21 states in an immigration crackdown in 2003, for which Walmart paid a settlement in 2005. So it’s safe to say undocumented immigrants are a notable but not majority portion of their workforce.

But as big as 1.5MM employees sounds, that number isn’t as high as it could be.

In January 2016, Walmart closed 154 of its thousands of U.S. stores. 10,000 workers were laid off or relocated as a result. Why? They’re America’s largest retailer. Did the American population decrease 0.6% in the last few years? (No)

What happened: Walmart (WMT) is a publicly-traded company. Their share price fell 30% in 2015 as the retail sector slumped overall. Their investors — principally the Walton family, but plenty of institutional investors as well — demanded action by Walmart’s management to control costs.

As monolithic as Walmart is, they, too, are sensitive to the fluctuations of market demand. They’re also sensitive to pressure on the supply of labor. There’s no law that says that Walmart will keep growing, or even stay at its current level, forever.

all we are is dust in the wi-i-nnnd

If a company is run by investors who are in for the long haul — as the Waltons likely are for Walmart — they might forego major cuts to labor. But not all investors are so forgiving. As those commie nutcases at Harvard Business Review have observed, there’s a documented tendency of investors and boards to push short-term metrics and profits at the risk of a company’s long-term health.

Executives often explain their deference to Wall Street by saying they have a “fiduciary duty” to maximize shareholder returns. That’s been an article of faith since 1970, when Milton Friedman wrote in the New York Times that executives’ only responsibility was maximizing profits. The problem, however, is that it’s not true. […] [It] becomes clear that we must do something to curb the enormous and disproportionate power of Wall Street. — Gautam Mukunda, “The Price of Wall Street’s Power”, HBR, June 2014

And why shouldn’t they? Pension fund managers, hedge fund traders, and activist investors have no special love for the companies they invest in. They’re looking for the highest feasible rate of return. If a company doesn’t give them the returns they want, they’ll dump their shares and look elsewhere.

Just because Kroger employs 400,000 people today, or Macy’s 165,000, or ABM Industries (a leading janitorial provider) 118,000, does not mean they would employ that many if the labor market tightened up overnight.

So You’re Saying a Mass Deportation of Undocumented Immigrants Would Have No Effect on the Labor Market?

That’s too bold a statement. As you read in the examples above, a tightening labor market can raise wages. Hell, even Walmart raised their wages in the past year (from $12 to $15/hour for department managers, whoo-ooh lordy). But those wages will likely revert to the mean over time — or they won’t grow at the same rate as the Walmart stock price (up 24% from its 2015 low point of $56.42, and likely to keep growing). Gains in productivity will continue to outpace gains in compensation.

I will say, with confidence, that deporting 3,000,000 undocumented workers will not create 3,000,000 above-the-poverty-line jobs for American citizens. American employers have no incentive to keep all those rolls full, especially if the cost of labor rises unexpectedly. Employers are rewarded by investors for keeping costs down, not for giving a job to everyone who asks. A tightening of the labor market will mean a tightening of the labor market; any secondary effects are up for grabs.

Then Why Are People Blaming Immigrants?

Because you’ve got to blame somebody, right? You can’t run on a platform that states, “the global experiment in neoliberal capitalism is starting to show its age; the compulsion to reward investors with ever-increasing returns to capital, combined with — and resulting in — the diminishing power of labor as a price-setting force, has created a host of mercenary firms that will chew up and spit out workers as fast as we can breed them; the working class and the employing class have nothing in common.” At least, not if you want to win the nomination.

It’s easy to blame undocumented workers because they have almost no political power. They can’t organize, they’re not much of a constituency, and no one wants to raise their hand and say, “Yes, I’m for them.” You can hit them and they can’t hit back.

But we live in a retail-heavy economy that hinges on cheap labor. We demand it. We get antsy if the price of bread gets too high, even if we publicly sneer at the people packaging and stocking it. We reward companies that provide us with goods at the lowest prices. Investors reward companies that keep costs low. Every incentive in the system is angled toward paying laborers as little as possible. And undocumented workers can be paid very cheap.

So You’re Saying We’ve Been Conned?

In so many words, yes.