Tuesday, May 30, 2006

More Phony "Labor Shortages"

Dean Baker picks up another phony labor shortage article (for more background, see here and here). As any econ101 student should know, genuine shortages of any kind produce rising prices (in the case of labor, wages). Yet when we look at the trends for wages in jobs traditionally filled by immigrant labor--construction, maintenance, and food service--we don't see a trend of rising wages, we see a trend of declining wages. Declining wages, as any econ101 student should know, are evidence of a labor surplus. Dean Baker, again, skewers this all-too-common fallacy.

As the article reports, there are a huge number of less-skilled jobs waiting to be filled by immigrants, but almost no visas are available for immigrants to come across the border and work at these jobs legally.

To prove this case, the article quotes Stephen P. Gennett, president of the Carolinas chapter of the Associated General Contractors of America (a builders’ trade group), “we have a problem here, a people shortage.”

While Mr. Gennett is undoubtedly knowledgeable about the state of the labor market for construction workers, he also represents an organization that has a clear interest in this issue, they want cheap labor. Ordinarily, the claim that there is a people shortage would imply that wages are rising at an extraordinary rate. (This is the way economists ordinarily think about markets – shortages mean higher prices.) This means that there is a quick way to verify Mr. Gennett’s claims about a people shortage: see if wages in construction have been rising at an extraordinary rate.

A quick trip to the Get Detailed Statistics section of the Bureau of Labor Statistics website tells us that inflation adjusted wages for construction workers have actually fallen about 5 percent since 1980, a period in which productivity has increased by more than 70 percent. So, we have wages falling in spite of a labor shortage – not where I learned my economics.

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