Chart on Long Term Markets With Immigration Data
Chart from writer, Stuart Hayashi regarding the * idea fixe* on Long-Term Markets vs. Reality of Long-Term Markets.
"There is an assumption, popularized by Malthus and beloved by Marx, that says that a large increase in the number of people in the labor market will necessarily result in dragging down wages for the long term. This is commonly cited in arguments against open immigration.
Say's Law of Markets contradicts this. Here is what is missing from the assumption: when new entrants into the labor market (let us say impoverished immigrants) earn money -- even if it is meager -- they shall use this money to pay for the amenities, such as food, clothing, and shelter. This drives up demand for these goods, which businesses are to supply. And, contrary to this "corporations aren't people" rhetoric, businesses are very much "people." Without employees, there is no business. When these working immigrants offer to pay money to businesses that supply them their amenities, the businesses themselves find that they need someone to man the store. The increased business commensurately increases the local business' demand for laborers.
This should be clear from U.S. history. In 1800, the U.S. was 5 million. In 2016, it is over 300 million. Does that result in 295 million Americans being jobless? Does it result in the average wage being lower today than it was in 1800? No. The net increase in population by 295 million people increased the number of laborers but this was balanced by a commensurate increase in the number of consumers. A laborer is necessarily a consumer, and for a consumer to consume, the consumer must pay money to a laborer.
Also consider Miami. In 1980, so many Cubans fled to Miami that the size of the city's workforce increased by 8.4 percent overnight. People expected this would either result in long-term mass unemployment or the wages dropping for the long term. Neither happened. This is because of the phenomenon I described.
Some people have told me they don't like my chart because they expect the demand curve to be steeper. The point is that people who expect that an increase in the size of the workforce will cause a long-term reduction in wages are repeating a fallacy from Marx and Malthus and altogether ignore that an increase in the number of laborers is commensurately an increase in the number of consumers who pay for the services of still other laborers."
"There is an assumption, popularized by Malthus and beloved by Marx, that says that a large increase in the number of people in the labor market will necessarily result in dragging down wages for the long term. This is commonly cited in arguments against open immigration.
Say's Law of Markets contradicts this. Here is what is missing from the assumption: when new entrants into the labor market (let us say impoverished immigrants) earn money -- even if it is meager -- they shall use this money to pay for the amenities, such as food, clothing, and shelter. This drives up demand for these goods, which businesses are to supply. And, contrary to this "corporations aren't people" rhetoric, businesses are very much "people." Without employees, there is no business. When these working immigrants offer to pay money to businesses that supply them their amenities, the businesses themselves find that they need someone to man the store. The increased business commensurately increases the local business' demand for laborers.
This should be clear from U.S. history. In 1800, the U.S. was 5 million. In 2016, it is over 300 million. Does that result in 295 million Americans being jobless? Does it result in the average wage being lower today than it was in 1800? No. The net increase in population by 295 million people increased the number of laborers but this was balanced by a commensurate increase in the number of consumers. A laborer is necessarily a consumer, and for a consumer to consume, the consumer must pay money to a laborer.
Also consider Miami. In 1980, so many Cubans fled to Miami that the size of the city's workforce increased by 8.4 percent overnight. People expected this would either result in long-term mass unemployment or the wages dropping for the long term. Neither happened. This is because of the phenomenon I described.
Some people have told me they don't like my chart because they expect the demand curve to be steeper. The point is that people who expect that an increase in the size of the workforce will cause a long-term reduction in wages are repeating a fallacy from Marx and Malthus and altogether ignore that an increase in the number of laborers is commensurately an increase in the number of consumers who pay for the services of still other laborers."
It doesn't make a difference whether it's new technology or new people wanting to do the work for money. Maybe the work is welding tabs on to batteries for $1/hr. New ways to get things done appear, and everyone adapts, finding the thing they can do that other people want. I would never not use a technology because it disrupts some existing market. I certainly would not keep who want work away from people who want their work.
There are several implicit assumptions being made here. One of the most important is that the influx of workers and their demand for new amenities (goods and services) cause and expansion in the capacity and generation of deliverables that the base cannot establish without increased workers and increase salaries to hire these workers.
In times of deep economic slowdown such as a recession or even depression this is not the case. Their willingness to work for a lower wage further depresses the market and their increase in demand for goods and services does not push the production capacity requirement above a full employment level.
It is only when demand exceeds the full employment level that the new capacity will be generated thus enabling new people to be hired and enabling a rise in the basic wage of the worker.
One must be careful when making economic analysis to fully explore the basic assumptions underlying your analysis. Make sure that the assumptions do not invalidate or obscure the true activity being analyzed.
We will start with the simplest case first. If we have a country where the overwhelming majority of people are living in the Malthusian Trap (i.e., the edge of starvation, subsistence living) then if more people move into that country people’s wages will not go down, but people will starve to death. With this information let’s examine the two extreme cases: a technologically stagnant country and a technologically dynamic country. In a technologically stagnant country the total GDP is flat to declining slowly. If immigrants increase the population of this country they will not and cannot increase its GDP, so real per capita incomes will decrease and therefore wages will decline. This is similar to the country in the Malthusian Trap.
When a country is technologically dynamic then its real per capita GDP is increasing. Immigrants in this case can contribute to the country’s increasing level of technology and therefore the wealth of the country. In that case each new person that is open to using their mind is an asset and only makes the country wealthier. A pretty good measure of how technologically dynamic a country is its economic freedom index.
No countries on Earth today are fully optimized to increase their level of technology and only a few are absolutely technologically stagnant. Some of the more technologically dynamic include Singapore and Honk Kong. As Peter Thiel has pointed out the rate that the U.S. creates new technologies outside the information technology area has slowed significantly. Countries that are close to being technologically stagnant include Venezuela and North Korea and many African countries
Since economists do not control for how technologically dynamic the economy (or part of the economy) was that they used in their studies of whether immigrants increase or decrease wages, it is not surprising they got differing results even if they did everything else right in their studies.
Not arguing your other points, but Miami may not be the simplest example.
So far I haven't seen much thought put into what happens when most current low skill jobs are performed by robots (and that is happening). How does society deal with an unskilled, unemployable population?
Our philosophy of "you must work to eat" comes from the reality that only by the dint of the effort of most of the population can the goods they use be produced. This is still true but full robotic labor will end that. A "world of plenty" will require a reworking of our perception of the necessity for work.
Where will the money come from? Well, either taxes or simply printing it. Printing it would not be inflationary if the money was kept in balance with the goods produced. Of course it does mean essentially stealing value from those who do produce it. But that would be the robots.
So, who owns the labor of a robot? Well, obviously the person who built the robot. Fine, and if that robot builds another robot, does the same person own its labor? And if it builds another robot which builds another robot? At some point does the labor of the original person become diluted?
I've been struggling with this. I clearly do not want people to die of starvation in a world of plenty, a world where no one wants their labor or is unwilling to pay more than a few cents for it since that's what a robot's labor would cost. Nor do I want people forced to do useless tasks for the purpose of "working". We could have the bulk of the population digging holes and filling them up again with the government paying them. But that's economically no different than simply handing them the money. Make work does not produce value.
There will be some new classes of labor created with the growth of robotics, but most will be high tech. Unskilled and low skilled jobs are still available today because robotic labor is still somewhat expensive, but it won't be long before an enterprising entrepreneur will make robot labor financially attractive. If we don't prepare for that now, it could have a devastating impact on society.
Longer term, we face an even more challenging issue, when artificially intelligent beings we've created will demand recognition and civil rights. That's the subject of some interesting future discussions.
Currently. Eventually the general purpose robot will be created that can do these tasks. They will not replace simply repetitive work, but any work a human can do -- other than the highly creative, and that's not certain.
If 1,000,000 immigrants came here skilled in making wagon wheels, does not create a demand for wagon wheels.
Jobs are a byproduct of profit period.
First, you must have a product that people demand. Just because everyone might demand a Tesla does not mean they can afford the $65,000.00 to buy one. Just because you have a massive unskilled labor force does not mean the cost of production for said Tesla will go down either.
The mentioned 1,000,000 wagon wheel immigrants will have to get jobs someplace else be on welfare draining the product of other people's labor.
If you look at the IT industry, of which I am a part, the more H1B Visas given to Indians to come here, significantly lowers the wages we have this is a fact. A Sr. Program manager who earned 150k 4 years ago is luck to get 90 - 100k today because of the massive influx of immigrants. Wages are continuing to plummet. This is not creating demand for more products since these people send the excess money back tot heir homelands.
While I appreciate your defense of completely open borders this is not good for any economy.
"you must have a product that people demand." That is simply not true. Most people were negative about many of the disruptive inventions we have today. This included the steam engine, the sewing machine, electricity, autos, manned flight, etc. no demand. the invention preceded demand in each of those cases
If Supply and demand operated as you suggest, they, China and India would be the wealthiest countries in the world.
"You must have a product people demand".. IF you expect to grow a company, stay in business AND hire employees for any length of time. A product can be a service.
Actually, there WAS a demand that preceded the invention in EVERY case. Even if that demand was a demand of one person. That demand was the solution to a problem even if that was ONE person. Just because the masses were reluctant does not mean a demand did not exist.
When immigrants start their own business, usually a 7-eleven, they are fulfilling a demand.
A Taco stand, on the side of the road succeeds ONLY if there is a demand. Success depends on how many people eventually demand that product or service.
What was the single event that started WWI? There was one that set into motion the entire world plummeting into chaos.
No matter what way you look at economics, and this is my pathetic uneducated opinion. Things work in a very linear manner. Very binary in nature.
I have encounter a problem. I invent something that solves MY problem. I have an invention and product and demand of one.
I decide I can solve this problem for other people so I risk some capital, time and effort to produce this thingy and make it available to 100 people. I did it all myself so no jobs at all.
Here is the binary part. Either people will want it or not. Zero and One. If I sell out of my 100 items, I now have a binary choice. Make more or not.
I make more, take profits and make 1,000. and sell out. Now I have a choice continue or not.
I continue, but I have to hire 10 people to make 10,000 thingies. 10 jobs were a byproduct of my profit and choice to make more. those jobs be them immigrants or not has NOTHING to do with then showing up or not, but ONLY because of the, demand or lack thereof for my product. The ten people I hired did not create my demand by there mere existence.
10 people now have jobs, to buy stuff with, so they apply their binary choices to buy something or not, which translates to a purchase or not of something THEY demand.
So my definition of Demand is anyone who wants something, even if that person is one person. Even if I make two items, and charge a billion dollars and sell one item to one person that is supply and demand.
The question is the person demanding the product are they willing to pay the price for it or not. Again binary in nature. If they refuse to pay they have a binary choice, negotiate or not for a lower price. Everything is binary in nature. Maybe is for people who refuse to exercise their free choice, and like shades of grey, which makes them liberals.
edited to fix sentence.
You stated. "he net increase in population by 295 million people increased the number of laborers but this was balanced by a commensurate increase in the number of consumers."
Consumers do drive the economy. Productivity does.
Proof of this are the tens of millions of consumers that produce nothing and just drain resources. If your statement were true, then the Democrats and Pelosi are right that Government welfare is the best way to drive growth.