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One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Friday, August 25, 2017

The RAISE Act Would Improve Productivity and Boost Worker Pay

Eric Ruark
by Eric Ruark: Last month, The New York Times brought attention to a paper published by the Roosevelt Institute, authored by economist J.W. Mason. One of Mason’s contentions is that the slower-than-expected (by “experts”) increase in worker productivity despite the “strong” economy over the last several years is due, in part, to a slack labor market. This slackness depresses the demand for goods and services, tamps down wages, and retards worker productivity.

Mason recognizes that the U.S. economy is in a recovery only in the sense that it is still not in a death spiral, but to pretend, as many economists do, that things are not only fine but peachy keen (not Mason's terms) is to totally misrepresent the performance of the U.S. economy since the Great Recession.
Since 2007...there has been no tendency to make up the ground that was lost during the recession. On the contrary, the gap between per-capita GDP and the pre-recession trend has steadily increased, reaching 15 percent in the last quarter of 2016 (the most recent available). There is no precedent in the postwar period for a deviation from trend this large or this persistent.One of the sections of the paper discusses labor force participation and its recent, significant decline. This is a problem, on several fronts. Immigration expansionists will claim that this is because of an aging U.S. labor force, which necessitates the importation of massive numbers of immigrants to prop up our economy and our Social Security system. This is a frequent claim, but one that is untrue. The retirement of Baby Boomers in increasing numbers is a factor in the declining labor force participation rate, but the not the most significant factor, and, according to Mason, not a significant one when the higher education levels of younger workers is accounted for, since a younger, more educated workforce should be offsetting older workers exiting the labor force.We find that changes in the composition of the population can explain as much as 40 percent of the fall in the employment-population ratio since 2007, if the effects of rising education are ignored. If demographic variables are defined to include education, the contribution of demographic change to falling employment is essentially nil.Mason’s paper is academic in tone but not overly technical and well worth the read for those interested in economics. It does not deal with immigration, and there is only one mention of immigration, almost a throw-away line consistent with the ethos of what The New York Times labels a “liberal think tank.” In discussing types of spending that may grow the economy by raising the GDP but would have “grave social costs,” Mason mentions “spending on foreign wars, immigration enforcement, environmentally destructive infrastructure projects.”

One could argue (I do) that Mason’s wish to see more Americans in the labor force would be brought about by greater enforcement of our immigration laws, and that there are grave social costs that have resulted from allocating tremendous sums of taxpayer money to DHS without receiving immigration enforcement in return. But, the paper does contain information useful to those of us who make the argument that our current immigration system exacerbates the structural defects in the U.S. Economy.

A strong argument in favor of the RAISE Act is that it would improve economic output, in part by bringing in more productive workers. And the RAISE Act’s point system will favor employers who are willing to pay premium salaries for truly valuable employees; not those employers who are looking to undercut wages.

A good example of how our immigration system undermines productivity is mechanization. Mechanization is displacing workers in the labor market, and this trend will accelerate. However, the relative low-cost of labor in an economy as advanced as the United States’ is delaying mechanization and keeping economic productivity lower than it could be.

Mason says:
Our economic problem is not that machines are replacing labor, thanks perhaps to wages that are too high. Rather, it is that machines are not replacing labor, because wages are too low.And Marco Annunziata, the chief economist of General Electric, told The New York TimesThe investment [such as in technologies like 3D printing] that should be most powerful in driving productivity for companies has been the weakest…It means that all these innovations aren’t scaling. They’re only being implemented on an episodic basis, on a small scale.Down the road, as mechanization becomes less capital-intensive and companies do decide to concentrate on integrating technological innovations, the U.S., if we continue our current course, will reach a tipping point where tens of millions of workers will be displaced over a short period of time, adding to the tens of millions of Americans already out of work.

What Senators Cotton and Perdue understand is that the immigration system does not suit the needs of American workers. They also understand what Paul Ryan, Chuck Schumer, Marco Rubio, et. al., reject: that rising wages are good for U.S. workers and good for our economy, and essential if we wish to reduce income inequality.

The “experts” tell us that rising wages will cause run-away inflation. Here’s Mason on that point:
The idea that the economy has now reached supply constraints and is in danger of overheating should not become conventional wisdom without more critical scrutiny….And one of the most important results of “overheating” is wages rising relative to productivity. But if real wage growth is never allowed to exceed real labor productivity growth, it is impossible for the wage share of national income to ever rise.Mason argues correctly that wages may be rising but they are not at the level they should be, given the losses in the Great Recession. Some employers prefer to keep the balance tilted heavily in their favor through mass immigration. That is not the purpose of the U.S. immigration system.

NumbersUSA believes American workers deserve a RAISE.
Eric Ruark is the Director of Research for NumbersUSA.

Tags: Eric Ruark, The Raise Act, improve productivity, Boost Worker Pay To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 11:40 AM - Post Link


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