Immigration Debate, Labor Shortages, and Market Wages

Julia Preston has a few anecdotes about employers who are supposedly having trouble attracting employees at market wages:

Mike Gilsdorf, the owner of a 37-year-old landscaping nursery in Littleton, Colo., saw the need for action by businesses last winter when he advertised with the Labor Department, as he does every year, for 40 seasonal workers at market-rate wages to plant, prune and carry his shrubs in the summer heat. Only one local worker responded to the notice, he said, and then did not show up for the job. Mr. Gilsdorf was able to fill his labor force with legal immigrants from Mexico through a federal guest worker program. But that program has a tight annual cap, and Mr. Gilsdorf realized that he might not be so lucky next year. His business could fail, he said, and then even his American workers would lose their jobs. “We’re not hiring illegals, we’re not paying under the table,” Mr. Gilsdorf said. “But if we don’t get in under the cap and nobody is answering our ads, we don’t have employees.” His group, Colorado Employers for Immigration Reform, is pressing Congress for a much larger and more flexible guest worker program … “I can’t replace those people,” the executive said. She said that despite offering competitive wages from $9 to $17 an hour, the company had failed over the years in repeated efforts to attract nonimmigrant workers because of the state’s tight technology labor market and because of the nature of the work, exacting and tedious. If the workers were fired or arrested, she said, she could fail to meet her contracts.

This unnamed executive is reported to receive $20 million a year in compensation (late correction – no the article said it was $20 million company). Dean Baker has a problem with this reporting:

By contrast, the NYT tells us that many employers want to relax laws penalizing them for hiring undocumented workers because “they grappled, even in an economic downturn, with shortages of low-wage labor.” In a market economy, the response to shortages is higher prices, or in this case higher wages. While it is understandable that employers do not want to pay higher wages, just like most of us do not want to pay higher gas prices, that is the way a market works. If they cannot afford to pay higher wages, then in a market economy, they go out of business, just as tens of millions of inefficient businesses have gone out of business as the economy has grown over the last century. It would be helpful if the NYT would apply some basic economics to its discussion of this economic issue.

I find it hard to sympathize with a CEO who receives $20 million a year (OK – we’re not sure what this CEO makes) but complains about not finding enough workers when her company is paying some workers less than $10 an hour. Markets respond to labor shortages by increasing the compensation of workers. Over the past 18 months, we have witnessed a fall in the employment to population ratio from 63.4% to 62.4%. Over the same period, real wages for production and nonsupervisory workers has declined to the levels witnessed at the end of 2001. Indeed we are facing another economic downturn at least from the perspective of the labor market. I’m all for eventually relaxing immigration laws, but let’s not kid ourselves – more immigration during this period of labor market weakness is going to make the labor surplus more severe.