Higher Education Bubble: Trades Under Pressure from Illegal Immigration

As a parent of a teenager and an intellectual who somehow managed to avoid Academia, I’ve  followed the higher education bubble stories carefully. Glenn Reynolds has written and linked extensively on the subject, and Virginia Postrel places the blame on federal student aid. While I completely agree with Reynolds that the trades have gotten ignored in favor of college and university educations, I’ve noticed that he and others working to improve the image of the trades in the minds of young people are ignoring one important issue: the impact of illegal immigration on blue collar jobs.

Having moved to the rural South I have spent the past two years renovating our home. This task has put me into contact with numerous plumbers, electricians, carpenters, roofers, and handymen. All of them have been born and raised here, and none of them would recommend the trades to young people interested in making a living because of illegal immigration. I wrote about my early experiences with talking to these men here.

They are especially bitter when it comes to illegal immigration. Mexicans have flooded into North Carolina and driven down wages for skilled and semi-skilled workers. They are constantly underbid by contractors employing illegals at a fraction of the going hourly rate.

These men face the competition of teams of illegals everyday. They are locked out of larger jobs that hire a single contractor employing teams of illegals instead of American citizen subcontractors. When skilled Mexican tradesmen are paid minimum wage (or less), it’s difficult for those who hire sheetrock hangers and carpenters at the going rate ($15-$25/hr in these parts by my estimate) to compete. The success of these illegal teams has led to their usage on ever smaller jobs, the meat and potatoes of general contractors, leaving only the smallest jobs for the local contractors to compete against each other for. These usually have low margins and being small are difficult to make a living doing when traveling and buying supplies is included.

Long time readers will know that although conservative and free market oriented, I am no Ayn Rand disciple. The older I become the more I suspect that, as Neal Stephenson predicted in the cyberpunk classic Snow Crash, globalization has smeared things out into a worldwide layer of “what a Pakistani bricklayer would consider prosperity.” With New Economy industries employing fewer workers than the factory jobs they replace, those with college degrees are finding themselves without job security. Companies are offshoring everything they can, and it is only a matter of time before automation begins to nibble away at the creative jobs previously considered “safe” from either of these forces. It isn’t clear what jobs will replace them.

In a prior incarnation I actively fought offshoring and labor dumping by the government through its policies of lax immigration designed to flood the domestic market with cheap labor. I learned that the government uses technical visas like the H-1b and J-2 to allow skilled foreigners to lower the cost of labor and price out domestic white collar workers. Because these workers are compensated in part by the prospect of working in America – and in the case of the H-1b, with the potential reward of a green card three to seven years after their arrival – they could be paid a lower salary than equivalently skilled American workers. In effect the H-1b visa holders are subsidized by the American government: they receive a salary plus a visa that doesn’t cost the government anything but which they accept in lieu of cash. Their employers get cheaper labor that boosts their bottom-lines and grants them the flexibility of underbidding firms that only employ citizens or green card holders. This forces competing firms to either hire foreign labor or go out of business.

The case is the same with blue collar workers. Illegal immigrants come to the United States accept lower wages because they are receiving a government subsidy in the form of future citizenship. The likelihood of being found out or deported by the federal government is miniscule, especially at a time when the federal government is actively fighting efforts to tighten border controls and demands to increase arrests and deportations of illegal citizens. Again, this subsidy doesn’t cost the government anything, yet it provides a reward that is almost as good as cash to illegals who are paid under the table.

But there is a cost to this meddling by the federal government in the labor market: higher unemployment and the social costs that attend it such as increased criminality, alcohol and drug abuse, and the breakdown of the family. But these social costs don’t appear in the statistics – just as the illegal immigrants don’t either – and are ignored whenever talk turns to economics.

If white collar jobs are threatened by offshoring, the trades are threatened by illegal immigration and all jobs are threatened by automation, is the American worker and the economic system that is based on him or her doomed? Some believe that the changes over the next several decades could spell the end of work as we know it, as something that is viewed with dread and a sense of fatalistic duty changed into a system whereby each person pursues creative talents that will be in demand and that require imagination and perspective that computers and perhaps even foreigners won’t know how to do. One wag characterized it as everyone planning everyone else’s weddings – an updated and more positive prediction that we would all someday be slinging hamburgers to one another after manufacturing’s demise.

I’m not so sure. Perhaps such a future beckons, but in the meantime I would prefer that the government stop meddling in the labor market by increasing the porosity of America’s borders with the world. Sealing the border with Mexico would be a good place to start. A free market pool of labor is supposed to be a compromise between two competing forces: employers and employees. Labor dumping through lax immigration and “open border” policies undermine that compromise, allowing employers to dictate what they are willing to pay for a given skillset while being protected from a tight labor market by government policy. Employees have no redress other than to change jobs or if they are old enough, retire. If the government stopped interfering in the market to favor one side over the other, the domestic labor market would begin to function as a free market instead of an overly regulated, skewed one. If plumbers are in demand, their salaries will rise and people will start considering them (as Glenn Reynolds, Virginia Postrel and others suggest). Similarly, if java programmers are in demand, their salaries should rise to the point where colleges and IT bootcamps pump out java programmers to fill the demand. In both cases supply of workers would eventually overshoot demand (because companies by their very nature strive to become more efficient), and these salaries would stabilize and eventually decline.

Until that happens, white collar and blue collar workers, skilled and unskilled, educated and trained will have to always look over their shoulders afraid of the boss’s unexpected call for a personal meeting at the end of the day on Friday. Whether the boss’s collar is clean or dirty won’t matter as long as the government continues kicking up waves in the labor pool.

Update: The Financial Time reports on the difficulties employers have with finding skilled employees. This is a myth that is trotted out whenever employers want skilled workers but don’t want to pay what those skills demand. It also reflects laziness on the part of the employer. For example it begins quoting Drew Greenblatt from Marlin Steel Wire Products complaining about the inability to find three sheet metal setup operators for $80k in salary and overtime.

The article doesn’t say what the going rate is for sheet metal setup operators in the area. While $80k may sound like a reasonable salary to most people, Mr. Greenblatt obviously needs to pay more to fill the position. Either he is underpaying or the job is so esoteric and rare that no one does it so he will have to train someone. If the latter, why doesn’t he approach a sheet metal setup operator working for his competition and offer them a higher salary than they are making? That’s the way the free market is supposed to work.

The article offers support to this conclusion:

Without in-house training programmes, companies have often been left looking for staff with specific skills. “A generation ago, employers would hire and train employees. Now, they demand trained workers,” says Peter Cappelli, a professor of management at the University of Pennsylvania’s Wharton business school.

“The skills gap is largely a figment of companies’ imagination,” says Mr Cappelli. “They cannot find workers to do the very specific tasks they want done. That is different from not being able to find capable workers.”

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