The "completely made-up number" that papers over wage loss

Updated: October 14th, 2021, 5:15 pm


  by  Jeremy Beck

Alan Tonelson is gobsmacked by a post on the White House's website from the Chair of the President's Council of Economic Advisers (CEA), Cecilia Rouse, that claims legalization and immigration increases have essentially zero negative impact on the wages of American workers:

Here's what the CEA said:

"While there is not a large economics literature on the labor market effects of legalization on other workers, in a well-cited National Academies report on the economic and fiscal impact of immigration, a distinguished group of experts concludes that in the longer run, the effect of immigration on wages overall is very small."

I could write an entire blog post on what's jaw-droppingly wrong with this sentence's methodology. Chiefly, it's not only an appeal to authority – which logically is an implicit confession that the appealers don't know much themselves about the subject they're writing about. It's an appeal to authorities who themselves don't seem to know much about their subject, or can't cite any evidence. Therefore they can only offer an evidently unsupported conclusion.

But what's most important to me about this CEA point is that it never challenges the wages claim made by those "critics of legalization." All the authors can counter with is a contention that, at some unknown point, the wage depression resulting from amnesty will become "very small." That's some comfort to Americans [sic] workers today. And for possibly decades."

The long-run effect claim is the kind of thing that gives economists a bad reputation, it's a trick employed to deceive. The economic model is built with the assumption that the long-run effect on wages is zero, but Rouse and her co-authors present this as a finding.

The clip runs from 23:49-27:24. Skip to 25:52 for the explanation of how the long-run number is "a completely made-up number, having nothing to do with the data."

In the short-run (i.e. what happens to wages now), the very report the White House points to says recent immigration reduced wages by an average of 5.2 percent, or roughly half a trillion dollars that transferred from wage-earners to the investment class (this is one way current immigration policy contributes to inequality). The more educated you are, the more likely you are to profit from immigration, whereas the less-educated bear the brunt of the loss, and the National Academies' report adds "this negative effect may be compounded for native minorities."

Remember that next the time you read a news report that qualifies the benefits of immigration expansion with "on the whole," or "in the long-run."

One wonders what President Biden's long-time economic advisor Jared Bernstein is thinking when he sees propaganda like this come out of the White House. Bernstein, who sits on the Council of Economic Advisers with Rouse, knows this is bunk, and more than that, a ploy to support policies that help depress wages. He wrote a book about it: "Crunch: Why Do I Feel So Squeezed? (And Other Unsolved Economic Mysteries)" Excerpt:

One thing we learned in the 1990s was that a surefire way to reconnect the fortunes of working people at all skill levels, immigrant and native-born alike, to the growing economy is to let the job market tighten up. A tight job market pressures employers to boost wage offers to get and keep the workers they need. One equally surefire way to short-circuit this useful dynamic is to turn on the immigrant spigot every time some group's wages go up....

To do so - to solve every labor shortage by bringing in more workers from abroad - may boost profits, but it also jams an important economic signal, squeezes paychecks, and contributes to the crunch."

It doesn't take a council of economic advisors to explain the law of supply and demand to the president of the United States, but it helps to have them around if you want to muddy the waters, or "short-circuit" wage gains.

JEREMY BECK is the Director of the Sustainability Initiative for NumbersUSA