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National Data | If the economy is so good, why do we feel so bad?—the immigration dimension
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February 04, 2006, 04:00 AM
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Despite four consecutive years of economic expansion, 4.6 million new jobs since May 2003, low unemployment and inflation, Americans are in an economic funk. A Gallup Poll taken in January found that 55 percent of us rate the current state of the economy as only "fair" or "poor." And 52 percent expect it to get worse.

Why the disconnect between data and perceptions?  We present the conventional explanations, as per the Economic Policy Institute, a liberal DC-based think tank, [Issue Brief #219 Why People Are So Dissatisfied With Today`s Economy]—and the "the rest of the story", as per VDARE.COM, which adds the immigration dimension that EPI studiously ignores.

  • Job growth seems robust: 2 million last year on top of 2.2 million in 2004

EPI: "Last year`s 2 million new jobs represented a gain of 1.5%, a sluggish rate by historical standards…. In fact, it is less than half the average growth rate of 3.5% for the same stage of previous business cycles that lasted as long."

VDARE.COM: And…immigrants took the job growth cream. White non-Hispanics, a group accounting for 70 percent of the U.S. labor force, experienced a mere one percent employment growth last year. (Table 1.)  By contrast, Hispanics (a proxy for immigration because up to half are foreign-born) had a 4.7 percent employment growth. (Federal government statistics on immigration are lousy, but we know Central and South Americans enjoyed a 7.1 percent growth rate). Black non-Hispanics experienced a 2.6 percent employment growth rate. Asian-non-Hispanics enjoyed a 3.9 percent growth rate.

These job growth differentials reflect not just different underlying rates of immigration, but also natural population increase. Even after adjusting for their sluggish population growth, however, whites are falling behind. In December 2005 65.8 percent of non-Hispanic whites were in the labor force versus 68.5 percent of Hispanics. In the past 12 months, labor force participation rates have risen by 0.7 percentage points for Hispanics and 0.3 percentage points for white non-Hispanics. Conclusion: Americans, especially whites, are being crowded out.

  • Unemployment: At 4.9 percent, is below the average rate of the 1970s, 1980s, and 1990s. Doesn`t that mean we have a tight labor market?

EPI: "Unfortunately, no, because the unemployment rate under today`s circumstances is misleading as a gauge of tightness in the labor market…..However, the employment rate (i.e., the ratio of employed workers to the country`s working-age population) provides a better gauge of tightness in the labor market for the 227 million people now of working age. The employment rate has declined from 64.3% in March 2001 to 62.8% in December 2005. If the employment rate had recovered to its March 2001 level, an additional 3.4 million people would be employed today."

VDARE.COM: And…this "employment rate" measure shows that Americans have it worse than immigrants. In December 2005, the employment rate for Hispanics was 64.4 percent, compared to 63.4 percent for white non-Hispanics, and 57.7 percent for Black non-Hispanics. Employment rates have declined for all races and ethnicities since March 2001. But Black non-Hispanics have suffered by far the largest declines—a result attributable primarily to their displacement by illegal and legal Hispanic immigrants with whom they are direct competition. Had American employment rates remained at March 2001 levels, an additional 2.2 million whites and 742,000 Blacks would be working today.

  • Wage growth: In December Treasury Secretary John Snow noted that real wages rose 1.1 percent since March 2001, in contrast to the 2.1 percent wage decline over a comparable period in the 1990s. So incomes are rising, right?

EPI: "In fact, real wages fell by 0.5% over the last 12 months after falling 0.7% the previous 12 months." [Issue Brief #219] "For low- and middle-wage workers, as well as those with a high school degree, real wages fell last year by 1%-2%." [Economy Up, Wages Down]

EPI`s explanations include "slack in the labor market" (a tautology), and accelerating inflation. And"other factors contributing to the decline in real wages are those that reduce the bargaining leverage of many in the workforce, including: the erosion of union power, the fall in the real value of the minimum wage, the growing imbalance in international trade, and the offshoring of white-collar jobs." [Economy Up, Wages Down]

VDARE.COM:  And…in 2004, the latest year of Bureau of Labor Statistics employment data by nativity) 14.5 percent of U.S. workers were foreign-born. Each one percent rise in the U.S. labor force due to immigration reduces native wages by about 0.35 percent, according to Harvard economist George Borjas. [NBER Working Paper 9755]  So immigrant workers must have reduced native wages by approximately 5 percent [14.5 times 0.35 percent]. Unskilled natives, who compete directly with the foreign-born, suffer even larger wage declines—as much as 7.4 percent, according to Borjas.

Such wage declines will grow over time, and not merely because more immigrants are constantly coming in. A 2003 study [PDF] by economists at the Atlanta Federal Reserve Bank  found that immigrants who are in the country longer and who upgrade their legal status—getting a green card or similar documentation—have more of a negative impact on low-skilled native workers than do newly arrived immigrants.

This suggests that, even if immigration were stopped, George Bush`s guest worker proposal would greatly accelerate the fall in native living standards.

EPI acknowledges that it supported by labor unions. An earlier generation of labor leaders had no trouble recognizing immigration`s impact on their members—Samuel Gompers was a leading advocate of the 1920s cutoff.

What is EPI`s problem?

Ask them

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.