Myths about Unemployment

One of my friends works as an intern for a US Senator and takes calls from constituents who have questions or comments regarding their senator. My friend occasionally tells me about some of the calls he receives and how he handles them. This story has to do with economics, which I have an interest in, so I’ve decided to publish this as my first post on YAL.

Recently, a constituent called with comments to make about the immigration law in Arizona. Now I personally have no problem with the law in Arizona. States are allowed to make laws regarding illegal immigration and from what I understand the majority of Arizona residents (even Democrats in Arizona) support the bill because of the problems they have had with organized crime.

However, the caller who had an opinion about illegal immigration did not support the bill for the same reasons that residents of Arizona did. Rather, he seemed to have fallen victim to an economic fallacy (a rather stupid one at that) — that is, the assumption that immigration increases unemployment because foreigners take up jobs for lower wages. While it is silly that the caller would claim that immigration increases unemployment, I have noticed that this is a common error that people make when thinking about unemployment. This zero-sum view of the world rests on some foolish assumptions.

First, the caller’s world view rests on the assumption that there are only a certain number of jobs in the economy, and that an increase in the number of people will result in a corresponding increase in the number of people without a job. If this were true, eliminating unemployment would be easy.

First, a census bureaucrat could count up the number of jobs in a given area (say, Arizona). Then he could count up how many people were in the same area. Then the government could simply round up the extra people and send them on their way — then impose strict childbirth laws to keep the population constant. In fact, if the number of jobs were to always remain constant, any population growth at all would increase unemployment. Just think, if unemployment is 10% now, then a doubling of the population would make unemployment soar to 55%… but wait! Hasn’t the population been increasing nonstop for… the past several thousand years? How is it that unemployment hasn’t reached a modest 99.99%? If you’re starting to get the idea of how absurd this is, then you get my point.

Second, the caller’s world view assumes that if any individual immigrant takes a job for a lower wage he or she will automatically displace another job in the process. Even if someone were to point to a specific example of an entire factory that laid off its workforce and hired immigrants for half the price, this evidence would not support the caller’s world view. Think of the incentives that the owners of the factory face when they make the decision. If they can get the same quality of work for half the price, the laid off workers aren’t worse off in the long run. Some of the savings will show up in the form of lower prices for consumers of the factory goods produced. Consumers who enjoy lower prices will have more money to spend on everything else, stimulating jobs in other parts of the economy. Alternatively, the owners of the factory may enjoy higher profits than before. They could use these profits to expand their business or to go on vacation. The use of the profits is irrelevant — but what is relevant is that more jobs are created in other parts of the economy.

I suppose the caller could make the argument that immigration increases inequality, after all when the economy grows the poor have a tendency to get richer while the rich get much richer. Not that there’s anything wrong with that — as long as everyone gets richer in an absolute sense I don’t really care about income inequality. However, based on the caller’s views about immigration I’d be willing to take a guess that he’s Republican. Not that there’s anything wrong with that either, but since when have Republicans been concerned about income inequality? — much less used immigration reform as a tool to prevent income inequality?

Hopefully I’ve dispelled some of the myths surrounding immigration and how it relates to unemployment. While I support any laws that Arizona makes regarding its own citizens, I’ll be the first to disagree with someone when he or she makes the claim that the Arizona law will improve employment.

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