Crime Shouldn't Pay; Working Should

The American Conservative has an interesting cover story by the always intriguing Ron Unz, which you might have skipped because of the terrible title.

That title is: “Immigration, the Republicans and the End of White America.”

Now, you’d think that, with such a title, the article would be about how awful immigration is because it’s leading to the end of white America and of the Republican Party (the presumed protectors of white America). But that’s not the article’s point at all. Rather, Unz’s argument is that “white America,” if it isn’t a thing of the past already, is going to be one in the near future no matter what; the demographic change, good or bad, is already baked in. Campaigns based on outright demonization of immigrants, whether or not they are morally wrong, are a practical mistake, because they will solidify the perception that the GOP is a white ethnic party.

However, Unz goes on, mass immigration is a problem because, by keeping wages persistently low at the lower end of the scale, it is leading to an economically more stratified society, which may be a bad thing in its own right but also leads to persistent economic and political problems.

Unz’s solution, therefore, is to tackle the problem from the other end. Rather than try to restrict immigration, legislate a rise in wages. With a national minimum wage in the $10-12 range, the jobs that currently go to low-skilled immigrants from much poorer countries would go one of three places: either overseas (where they might wind up employing the same people in their home countries), or away altogether (substituting capital for labor through innovation), or to natives willing to do the work if it paid a more reasonable wage. Enforcement would still be an issue, of course, but the constellation of interests in favor of “enforce minimum wage laws” would be much stronger than that in favor of “enforce immigration laws.” Labor unions that are ambivalent about mass immigration (immigration holds down wages, but increases the number of public-sector jobs) would be unequivocally in favor of enforcing minimum wage laws. Hispanic politicians, who generally favor a high-immigration regime, also favor a regime that is more friendly to poor immigrants once they are here, and that leaves them less-subject to economic exploitation. They would certainly also be on the “enforce the minimum wage” side of the fence. And so forth.

I think Unz’s argument merits real consideration. It’s very much in the same universe as two reform proposals that I’ve long found attractive: replacing some or all of the payroll tax with a value-added tax, and replacing the existing patchwork system of visas with a simple auction, the proceeds of the auction going to offset the costs that areas with high levels of immigration bear due to rapid population growth (and, in particular, rapid growth in the relatively poorer segment of the population). The payroll tax is no big deal for a large employer, but it’s a meaningful burden on, for example, household employers, and creates an incentive to hire people off the books – which, in turn, is easier to do if the employees aren’t here legally. A VAT would bring those wages (when they are consumed) under the tax umbrella without creating a disincentive to employment; some kind of payroll-tax exemption for very small employers, meanwhile, would eliminate the incentive to hire illegal immigrants for these jobs.

My other proposal, a visa auction, would open the “front door” of legal immigration (the process for getting a visa to work at a large firm would become trivial; instead of hiring a lawyer, taking out ads, and bearing the costs of endless bureaucratic delays, you’d just pay the cost of the visa and be done with it) while simultaneously aligning forces correctly for closing the “back door” of illegal immigration (someone who employed an illegal immigrant would be illegally depriving the government of revenue; the IRS is very good at catching and punishing people who do that). Moreover, the auction would bring in revenue, which would not only offset the social costs of immigration but would create an incentive to open the “front door” to the optimally-wide level (if we could bring in billions of dollars per year by increasing the number of visas, Congress – and the electorate – might feel differently about the subject than now, when costs are socialized and benefits are largely privatized). Finally, you’d expect a visa auction to uptier the average skill level of the immigrant population relative to the current system of making it very difficult to hire skilled immigrants on the books, and relatively easy to hire unskilled immigrant laborers off the books.

A higher national minimum wage would be complementary to these kinds of reforms. Yes, it would impose a burden on very small employers – but if you also eliminated the payroll tax for such employers, the net effect might not be so significant. A visa auction system would be vulnerable to parochial lobbying by, for example, agribusiness seeking special “seasonal” visas at a lower price. But if the minimum wage were hiked as well, those employers would have to lobby for an exemption to the minimum wage as well – a taller political order. The difficulty of that lobbying effort might be enough to tip the balance in favor of restructuring their enterprises to work within the law rather than trying to change or evade the law so their operations can continue as currently structured.

Wouldn’t raising the minimum wage increase unemployment? Isn’t that a terrible idea right now? Well, maybe, but not necessarily. Businesses that had to pay a higher minimum wage would have to do one of the following things: (1) raise prices to compensate; (2) apply capital in innovative new ways to reduce the need for the job and/or make the job more productive, so it “earns” a higher real wage; or (3) shut down or relocate operations. If the inflationists are right, and what we need is coordinated expectations of higher nominal prices, then (1) is exactly what we need in our current economic circumstances. If I’m right, and what we need is coordinated expectations of higher real wages, then (2) is exactly what we need in our current economic circumstances. To the extent that (3) means that instead of people coming from Mexico, capital flows to Mexico and the people stay there, then a reduction in the growth of the American workforce doesn’t lead to higher American unemployment. And to the extent that (3) means that smaller operations simply go out of business, we should think about offsets to prevent that happening (such as payroll tax relief).

But I’d also turn the question around. Does anyone think that unemployment would drop significantly if nominal wages at the low end of the wage scale dropped suddenly? If the inflationists are right, we need real wages to drop to get out of the recession, but that’s across the board – a very different proposition from saying that declining real wages at the low end of the spectrum are beneficial. The opposite, in fact, may be true. Deflation benefits creditors at the expense of debtors. Debtors are, generally, the folks to the left of the median in terms of wages. So if those wages come under pressure, but wages at the other end, where the creditors are, remain stable, then you’re exacerbating the effects of deflation, not counteracting them.

I’m not so much endorsing Unz’s specific proposal – or even my own ideas – so much as saying that we should be thinking about the problem in terms of the title of this post. Crime shouldn’t pay. Working should. The best way to make that true isn’t to build a huge punitive infrastructure organized around stopping some people from working (an infrastructure which is then only applied fitfully and inconsistently, as any punitive infrastructure will be when you’re dealing with a large class of lawbreakers). It’s to align incentives properly. Make breaking the law more expensive. Make following the law more remunerative. And align the law more sensibly with what’s good, in general, for those from whom the law’s authority ultimately derives.