Unemployment and underemployment are trends becoming more noticeable as the 20th century draws to a close. Eighteen million new jobs were created in the United States during the expansionary 1980’s, but, ominously, structural unemployment—the seeming base level in our economy—was still redefined upward from 4.5 percent to 5.5 percent of the work force. Worse, new job creation fell far from this pace in the early 90’s and remained sluggish even as the production of goods and services grew. All the while, the category of “discouraged worker,” describing those who have ceased looking for work, rises uncounted. The root cause of these developments is, arguably, a rapidly growing population. More people means more workers. Some few contend that this bodes well for America in the long run. But there is room for doubt.
First, review some characteristics of labor. It is a factor of production; labor productivity puts an upper limit on the wage that can be paid without igniting inflation. In other respects labor is a commodity; wages, or the price paid for labor, respond to the law of supply and demand. Wages usually rise in a strong economy. The trigger is unemployment falling to near its structural level, which allows labor to command, as well as demand, higher wages.
Consider the decade and a half after World War II. The economy boomed, the labor supply did not expand, wages went up very, very fast, and the consumer market was strong. This was not too inflationary, however, because productivity also rose quickly, industry responded to expensive labor by substituting new technology and automation, which increased productivity. Almost everyone prospered. Most people thought easy times had come to stay and each generation would do better than the one before.
Too soon, the worm turned. A 1987 Wall Street Journal article identified a large increase in the supply of labor as the cause of stagnant real wages during the 1970’s and 1980’s. Baby boomers and women entering the labor force for the first time were depressing wages. When this temporary bulge was absorbed, the story went, real wages would rise again.
Historical demography supports the point that a tightening labor supply stimulates general prosperity, whereas a growing labor supply damps wages. Ronald Lee at Berkeley, studying 19th-century England, found that a 10 percent rise in the labor supply led to a 22 percent increase in rents (return on land or, broadly, return on capital) and to a 19 percent decline in wages. The picture that emerges is of the polarization of society into rich and poor, based largely on a change in the supply of labor.
Now turn to the labor supply in the United States. Is the general impression that it is growing quickly or slowly? Slowly? To be sure, the baby boomers are just about absorbed into the labor force, as are the middle-aged women who entered it during the 1970’s. In 1987, indeed, a labor shortage, particularly among skilled workers, was predicted by the “executive summary” of Workforce 2000, released by the Hudson Institute of Indianapolis. The “executive summary” stated that, from 1987 to 2000, white males would account for only 15 percent of new entrants into the labor force. Every CEO in the country heard this number and knew its implication; the traditional source of skilled labor was drying up. The gap would have to be filled by women, minorities, and immigrants.
Almost immediately, however, some people noticed a mistake in the “executive summary.” But the word about a correction never really got out. The true fraction of labor force entrants who are (will be) white and male is nearly 32 percent. The “executive summary” omitted the word “net.” The intended message was 15 percent more white males are to enter the labor force than leave it (through attrition and retirement). This means that from 1987 to 2000 the economy and capital investment must grow at least 15 percent to absorb just the extra white males.
Add to this the extra black males and other minorities and the extra females— a very large change because of low female labor force participation in earlier generations—and the number of new jobs has to expand very fast indeed just to keep up with the supply of young American workers. In fact, nearly one million more young Americans enter than older Americans leave the labor force each year.
How well is the country doing with its growing supply of labor? A few sectors hold surprises. One-half of young black men are unemployed, and virtually all of them are in the unskilled sector. The cost of this unemployment (and related alienation) is significant, not only in the taxes and direct private sector money that it takes, say, to rebuild Los Angeles, but also in what it means to the American dream. What happened to integrating most people into mainstream America? And will this staggering unemployment creep upward into the next levels of education and skill? Maybe. Disappointed college graduates report that a bachelor’s degree is worth very little in today’s job market.
Science magazine reports that several hundred (out of fewer than 1,000) new Ph.D.’s in mathematics in 1991 could not find jobs; they were competing with Chinese students who had sought asylum and professionally established Russian mathematicians. Among the latter. Science reports, as many as 300 had sought employment in the United States within the previous two years. As recently as March 1993, 13 percent of mathematicians with Ph.D.’s were unemployed.
Engineers are experiencing the same. The 1990 Immigration Act tripled the number of visas for engineers and scientists. The rationale—the expected skilled labor shortage—is derided as “lies and fraud” by the president of the American Engineering Association (AEA); companies prefer to hire foreign engineers, he states, because they work for lower wages. The AEA is currently petitioning Congress to reconsider the 10 percent of visas set aside for skill-based immigration.
Congress should no doubt reconsider its entire legislative package concerning immigration. It should certainly reconsider the effect of immigration on unskilled Americans. Fully one-quarter of workers with less than a high school education are immigrants; the impact on America’s own poor and minorities (including recent immigrants who now make the United States their home) can hardly be overestimated. New econometric studies are at last documenting the job displacement and decline in wages resulting from current immigration. In round numbers, over one million immigrants, refugees, and asylees enter legally each year; 90 percent of them have “family reunification”—not skills-based—visas. And an estimated half-million more enter without coming to the attention of the Immigration and Naturalization Service (INS) but intending to stay.
The population of the United States is growing by 58,000 people a week. Nearly half of that growth is immigration; some additional portion is due to children born to immigrants, who have significantly more children per woman than native-born Americans. The immediate impact of this on the labor force is significant, and down the road the numbers are immense. In the next 60 years the American population is set to grow 50 percent by Census Bureau projections and nearly 100 percent if one extrapolates our present growth rate.
Now, how does immigration relate to unemployment? The INS issues work authorization papers, either as “temporary work permits”—many of these to people who arrive in the United States without documentation of any kind—or as “green cards,” which are issued to refugees and legal immigrants. In the first six months of 1992,439,000 temporary work permits and 390,000 green cards were issued. Even if only 75 percent of all holders of green cards entered the labor market immediately, we still get 659,000 newly authorized foreign workers competing for the total number of new jobs. This very nearly matches the number of new jobs (864,000) that were created nationwide within the same period.
In all of 1992, the economy created well short of 2 million net new jobs while the potential labor force grew by nearly 1 million net new American workers, by 1.3 million legal immigrants, refugees, and asylees who received work authorization papers from the INS, and by approximately one-half million illegal foreign workers. Clearly, workers exceed jobs. Without immigration of any kind, the job market could come into balance by reabsorbing the unemployed, reengaging the “discouraged” worker, and inducing certain of the more productive older workers to postpone retirement.
But under present conditions, I need hardly say, native-born Americans, especially those just coming into the job market and particularly the least skilled, are having a tough time. An economic slowdown is hard enough to overcome, but our continuously and rapidly growing labor force, driven by the highest levels of immigration this country has ever seen, is putting paid to any prospect that the majority of the young or their children will enjoy the American dream.
No administration or government program, and no foreseeable private investment of the quantity needed, can expect to overcome unemployment in the face of 1.5 million immigrants every year. If the administration and Congress want to improve employment prospects for Americans, let them establish policy that limits immigration, from all sources combined, to under 200,000 a year. This level would about equal the annual voluntary flow out of America. Only then can unemployment cease to burden jobseekers and taxpayers alike, the consumer market regain strength, and joy return to the land.
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