AP Flunks Economics 101

Economic thinking about immigration is often confused, losing sight of what really are economic benefits, how to measure them and how markets work.  Paul Wiseman’s recent AP piece is no exception.

Wiseman begins with an unsourced “government” claim that nearly half of the jobs emerging by 2026 will require, at most, a high school diploma. Many of these jobs will be passed over by “unwilling” Americans, and taken by “willing” immigrants. He gives the example of Mexican workers in North Carolina more reliably holding down seasonal farm jobs than Americans at $9.70 per hour.

This is half-truth. Yes, unskilled Americans facing immigrant competition are stuck with intractably low wages.  But Wiseman assumes that absent that competition, either employers will not respond to labor shortages with wage increases or that unskilled workers will not respond to higher wages by taking those jobs, or both.

Wiseman then notes how vital the immigrants are to the American economy. He summarizes Penn Wharton Budget Model results, claiming that the continued flow of immigrants will make a difference of 4.6 million jobs by 2040.

Yes, they make the American economy bigger. But bigger isn’t always better. Implicit here is a failure to distinguish aggregate GDP from per capita GDP. Arguably you get more GDP and jobs, the more people you have, if more of them are employed than the number of citizen workers who are displaced. But the welfare of Americans is approximated by per capita GDP, not aggregate GDP. India has a higher aggregate GDP than Switzerland, but Switzerland with its much higher per capita GDP is where you would choose to live.

Wiseman takes his push for expanding unskilled labor further.  Supposedly we need more of them, not just people with certain degrees. We need more of everybody.

This confuses aggregates with benefit at the margin. We have the good fortune to know the benefit at the margin of an additional labor input: We have the price, the cost of labor! Would the economy (remember, GDP per capita) benefit more from bringing in someone whose value to an employer is $100,000 per year or someone whose value to an employer is $30,000 per year? The question answers itself.

But Wiseman is relentless, appealing to his likely readers’ interest in having nannies and housekeepers. True, cheap domestic help allows American women to work longer hours on the job. Considered on a micro basis, immigrants, especially illegal aliens, benefit upper income Americans. They, and the owners of capital, get the benefits and the harms are spread out on the general population, especially concentrated in the low-skill sector.

Finally, as a last resort, Wiseman generates the fear we have as the baby boomers retire.  We need replacement workers.  The author has trapped himself in a reductio ad absurdum: Because acclimation to American culture and incomes leads to lower fertility rates, our ever growing population of people too old to work generates a need to import an ever larger supply of immigrant labor. Forever, like a Ponzi scheme.

The economics of low skilled immigration is easy if you sort out a few basic concepts. First, labor markets work. Expanding supply drives down wages. Second, an economy that is bigger isn’t necessarily better, on average, for Americans. Third are the distributional effects. Even if low-skill immigration did make the economy better, on average, the benefits are to the owners of capital, both financial capital and human capital — basically the rich and educated. The costs are to those who own neither, and are without a voice.

About Author


Mark Venezia brings a wealth of experience in management, country analysis and the securities business. During his nearly 30 years as Director of Global Fixed Income at Boston based Eaton Vance, he visited over 40 countries, his group traded the foreign exchange and securities of nearly twice as many, and he developed interests in foreign political systems and immigration. Mr. Venezia was previously Vice President of Network Utilities, the first options pricing provider to run off of a personal computer network. He left in 1984, to start Eaton Vance’s first mortgage-backed securities fund and, years later, the Global Macro Absolute Return Fund.


  1. avatar
    Richard Harris on

    The claim that retiring baby boomers implies a need for more immigrant labor to replace the retirees is completely false. We currently have 93 million people not in the labor force, not looking for work, due to lack of jobs. That is, we have a labor surplus of 93 million people. As baby boomers retire they can be replaced by members of the 93 million labor surplus. We don’t need any more excess labor to replace the baby boomers. Excess labor does not increase GDP. The excess labor merely sits on the sdelines creating a drain on the nations resources via welfare payments.

  2. avatar

    I turn 65 next month. If you think I’ll ‘retiring’ then, guess again. Due to the import of millions of cheap “H1-B” Indians, on ‘temporary visas’ I’ve been out of work permanently since 2012. I had to start collecting my Social Security at age 62, at a reduced benefit rate, or go broke. That’s not enough income to live on. I’ll have to continue working odd jobs indefinitely, until I’m broken down entirely. Prior to the one-year of work 2011-’12 I was often unemployed due to the flood of Indian Cheap Labor, so I was never able to accumulate retirement savings from the mid 1990’s on. Despite their visas being ‘temporary’ with a ‘maximum’ duration of six years, very few of the Indians were ever required to leave. In fact, they were granted the ability to REMAIN here while unemployed, and seek employment with someone other than the original sponsor. The program’s abuses were never reformed. President Trump has tightened things up some, but it’s too late for millions of Americans like me. As for wages, hourly contracting rates, and salaries in the computer programming field, adjusted for inflation they’re lower than they were in the mid 1980’s. There is no labor, or even skills shortage. And if you think the “Republicans” have fought it; guess again. Many of those in the GOP who claim the mantle of “conservative” have pimped for the Cheap Labor Lobby worse than Democrats.

  3. avatar

    The argument about baby boomers retiring is bogus. The youngest boomers were born in 1964, meaning they will only be 54 this year, 12 years short of retirement. A good percentage are years from retirement, and polls, in other words actual facts, show that the majority will want, or need, to work at least part time even after retirement. Automation is also a factor, it’s replacing a lot of low skilled jobs now.

    The figure of immigrants producing 4.6 million jobs by 2040 is quite small. Considering the fact that we will probably add 60 million in population by then, given present rates of immigration, it hardly seems worth the cost. And why do we need to worry NOW about our labor needs 22 years in the future? Is there going to be some shortage of people willing to come here in the future? Absurd.

    As pointed out, holding out total GDP of a country as some kind of success story is meaningless. India, as open border libertarians love to point out, has a big growth in total GDP every year, but it’s due to out of control population growth. They passed one billion in population 20 years ago and have added 300 million since. How could anyone consider THAT some kind of desirable progress. The vast majority of the population lives in abject poverty in a polluted landscape. No thanks.

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