On The Minimum Wage And Immigration Enforcement
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October 05, 2011, 12:14 AM
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There have been lots of good comments on Ron Unz`s proposal to raise wages to lower unskilled immigration. An old friend emails:
Ron Unz has the right of this. Raise the minimum wage and the vast majority of businesses will obey. The more contentious issue is how much a higher MW will curb immigration. Ron clearly thinks it will have a large effect. I am less sure, but still in favor of the change. However, there are strong positive aspects to raising the MW even if it doesn`t have as big an effect on immigration as Ron hopes.

Minimum Wage Enforcement

As we both know, some Federal laws are well enforced and others are not. Try buying explosives in this country. It is essentially impossible without an appropriate license and a legitimate use. Virtually no black market in explosives exists. As a consequence, America`s internal terrorists have been forced to make their own. Sadly that is possible. America`s very tough and well enforced explosives laws are a product of a wave of terrorism 100 years ago (predictably tied to immigration).

However, a better analogy is Social Security payroll taxes. Plenty of companies are tempted to cheat on payroll taxes. However, you really can`t get away with it. If you try, the IRS will come after you. Significantly, directors and officers are personally liable for unpaid payroll taxes. As a consequence, they tend to favor strict compliance with the law. There is also criminal enforcement. See here and here. The U.S. has been averaging 70 indictments per year with a 80% incarceration rate in recent years.

In other words, the Federal government has been able to enforce our payroll tax laws by sentencing roughly 60 people a year to jail for roughly 24 months each. Of course, there are other enforcement actions as well. Still, you can see the point. A fairly minimal enforcement effort is quite sufficient. This also demonstrates how little effort has been made to enforce our immigration laws.

Could minimum wage enforcement work as well? Actually, it should work even better. Why? Workers have no immediate interest in payroll tax collection. If their employer fails to make the required deposits, they rarely even know and don`t suffer any ill effects. The same can be said for the minimum wage. If the minimum wage is supposed to be $10 and hour and you get $8, that`s pretty obvious. Beyond that, low wage workers probably don`t generally understand the payroll tax. They are quite aware of the minimum wage.

As a consequence, the minimum wage can be made almost entirely self-enforcing with an 800 number and modest rewards to workers who turn in their employers. Every business in America is required to display certain labor law posters (see here). Just add the 800 number and some minimal reward information to the posters.

I would even argue that the 800 number and rewards, while desirable, aren`t necessary. Why? Because we seem to be able to enforce the minimum wage now without them. The bottom line is that minimum wage enforcement isn`t politically contentious. No one really tries to interfere with minimum wage enforcement. Raising the minimum wage, even for reasons related to immigration, won`t change that.

Minimum Wage Effects

I am far less confident that raising the minimum wage will have as much impact on immigration as Ron Unz believes. It will assuredly reduce the demand for low wage labor (a good thing) and stimulate innovation in several industries including agriculture, food service, food processing, hospitality, construction, etc. That`s desirable as well.

However, at $10 an hour, an illegal may still be more attractive than a native or legal immigrant. Indeed, higher wages should make these jobs even more attractive to illegals. The converse, is that natives and legal immigrants will also want them more. Essentially, Ron appears to be arguing that making these jobs more attractive will induce natives and legal immigrants to fight harder for these jobs and force illegals out. Maybe, is as far as I would go.

The big picture macro effect will assuredly be fewer low wage jobs. At $10 an hour, the number of lost jobs is likely to be small. At $15 an hour, the number could be material. You can argue that natives and legal immigrants will suffer the jobs losses and that raising the minimum wage will accelerate the displacement of legal workers by illegal. That`s a stretch, but not inconceivable. A more likely outcome is that a shrinking supply of unskilled jobs will (eventually) make the U.S. a less desirable place to enter (legally or otherwise).

A more subtle point is that a higher minimum wage makes low-skilled immigration less attractive to higher income workers. In other words, at $10-15 hour low-skilled immigrants can`t provide cheap lawns and meals but still impose almost all of the same social and tax costs. The average middle-class American hasn`t done a detailed cost benefit analysis of unskilled immigration. However, most folks do seem aware that low-skill immigrants make dry cleaning cheaper and are also a taxpayer burden. Raising the minimum wage shifts that calculation.

Why it`s a Good Idea

A sensible country rewards work and minimizes dependency. Raising the minimum wage does both. For decades the U.S. has steadily reduced the rewards for unskilled labor and tried to compensate by relentlessly expanded the welfare state (food stamps, WIC, Medicaid, public housing, EITC, etc.). Only one of those programs (the EITC) is tied to work. The rest are either independent of labor force participation or discriminate against working (you lose benefits via employment).

The results have been disastrous, to say the least. Time to change direction.

Thank you

P.S. The above are serious arguments. A less impressive point, is that raising the minimum wage to reduce immigration will make all of the Open Borders Libertarians crazy. Steven Landsburg will have a nervous breakdown. Matt Yglesias will go insane trying to decide if he should support or oppose such a scheme. 
P.S.S. Middle-class American appear oblivious to the impact of immigration on housing costs, but are acutely aware of the impact on schools.
Okay, but my experience serving on a jury in 2006 was that the state of California has trouble even putting immigrant used car dealers in jail for blatant sales tax fraud. I was the only juror to vote to convict the president and CEO of a used car dealership that had embezzled $2 million in sales taxes owed Sacramento.
Farm employers in California have lots of experience using Farm Laborer Contractors as middlemen to shield them from getting in trouble for violating various laws that are supposed to protect migrant workers.