Chart on Long Term Markets With Immigration Data

Posted by khalling 7 years, 8 months ago to Economics
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Chart from writer, Stuart Hayashi regarding the * idea fixe* on Long-Term Markets vs. Reality of Long-Term Markets.


"There is an assumption, popularized by Malthus and beloved by Marx, that says that a large increase in the number of people in the labor market will necessarily result in dragging down wages for the long term. This is commonly cited in arguments against open immigration.

Say's Law of Markets contradicts this. Here is what is missing from the assumption: when new entrants into the labor market (let us say impoverished immigrants) earn money -- even if it is meager -- they shall use this money to pay for the amenities, such as food, clothing, and shelter. This drives up demand for these goods, which businesses are to supply. And, contrary to this "corporations aren't people" rhetoric, businesses are very much "people." Without employees, there is no business. When these working immigrants offer to pay money to businesses that supply them their amenities, the businesses themselves find that they need someone to man the store. The increased business commensurately increases the local business' demand for laborers.

This should be clear from U.S. history. In 1800, the U.S. was 5 million. In 2016, it is over 300 million. Does that result in 295 million Americans being jobless? Does it result in the average wage being lower today than it was in 1800? No. The net increase in population by 295 million people increased the number of laborers but this was balanced by a commensurate increase in the number of consumers. A laborer is necessarily a consumer, and for a consumer to consume, the consumer must pay money to a laborer.

Also consider Miami. In 1980, so many Cubans fled to Miami that the size of the city's workforce increased by 8.4 percent overnight. People expected this would either result in long-term mass unemployment or the wages dropping for the long term. Neither happened. This is because of the phenomenon I described.

Some people have told me they don't like my chart because they expect the demand curve to be steeper. The point is that people who expect that an increase in the size of the workforce will cause a long-term reduction in wages are repeating a fallacy from Marx and Malthus and altogether ignore that an increase in the number of laborers is commensurately an increase in the number of consumers who pay for the services of still other laborers."


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  • Posted by CircuitGuy 7 years, 8 months ago
    When the new supply of laborers appears, the nature of the supply/demand curve changes. People can specialize more. It's like the scenario Straightlinelogic recently imagined with two people stuck on an island. The more people, the more they can specialize. His scenario started with two people. If a bunch of other people had arrived, they would have specialized further. The market for someone who could do 50% of tasks to maintain life would disappear, but overall wealth would increase because each person could focus on doing one thing really well.
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  • Posted by CircuitGuy 7 years, 8 months ago
    The scenario in this post discusses an increase in labor, but consider the similar case where technology replaces labor. Consider the market for people assembling electronics in the 40s and early 50s, rows of people wiring together radios. Then someone invents the printed circuit board, in which wires are replaced by traces made by etching away Cu in a lithographic process. All you have to do is solder in the parts. Then someone invents wave solder, so all you have to do is "stuff" the parts on the board. Eventually someone invents a pick-and-place, and the whole process is automated. It leads to inexpensive electronic devices. The market price of someone hand-wiring circuits fell to around $1/hour. Eventually technology will replace these $1/hr jobs. There's nothing we can do about that. We could try to stop people wanting to buy hand assembly for $1/hr from reaching those eager to sell hand assembly services. It's hard to stop them. Even if you build a wall and stop DHL from shipping, people will find a way. Eventually someone will invent a machine that can do things that currently require hand assembly. Then what? Do we focus on maintaining that demand curve for hand assembly by not using this new technology? No. We'll use it. And people of the world will find new ways to serve one another for money.

    It doesn't make a difference whether it's new technology or new people wanting to do the work for money. Maybe the work is welding tabs on to batteries for $1/hr. New ways to get things done appear, and everyone adapts, finding the thing they can do that other people want. I would never not use a technology because it disrupts some existing market. I certainly would not keep who want work away from people who want their work.
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  • Posted by mminnick 7 years, 8 months ago
    I am very impressed with the thought and analysis that went into this article. This article caused me to rethink several of my previously held ideas and thoughts. As I did this rethinking, I realize that there was possibly a basic assumption underlying the problem that could be wrong. The paragraphs that follow are my initial thoughts on this. I do think this analysis is thought-provoking and worthy of further study and comment. Now for my comments. These are initial and subject to change as I have only spent a few hours thinking about the problem presented here. As my thinking and analysis continue I will return to post other comments. Again let me say a superb initial analysis very thought-provoking and a move toward the start of a reasonable discussion in several areas.
    There are several implicit assumptions being made here. One of the most important is that the influx of workers and their demand for new amenities (goods and services) cause and expansion in the capacity and generation of deliverables that the base cannot establish without increased workers and increase salaries to hire these workers.
    In times of deep economic slowdown such as a recession or even depression this is not the case. Their willingness to work for a lower wage further depresses the market and their increase in demand for goods and services does not push the production capacity requirement above a full employment level.
    It is only when demand exceeds the full employment level that the new capacity will be generated thus enabling new people to be hired and enabling a rise in the basic wage of the worker.
    One must be careful when making economic analysis to fully explore the basic assumptions underlying your analysis. Make sure that the assumptions do not invalidate or obscure the true activity being analyzed.
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  • Posted by $ jdg 7 years, 8 months ago
    The problem, as I see it, is that even in countries where borders are open (either legally or by non-enforcement), we do not have a free market in labor, because laws such as the minimum wage and occupational licensing force some people to go without jobs, and others to waste time and money satisfying requirements such as unneeded continuing education. This is what's killing our productivity, and if we don't soon get an administration willing to sweep aside all or most of those laws, we will inevitably become a "banana republic" in which nearly all jobs are off the books.
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  • Posted by Herb7734 7 years, 8 months ago
    Can you even begin to imagine how true this would be if all the nonsense regulations and laws which impedes business were removed? We'd be bursting at the seams with prosperity.
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  • Posted by mia767ca 7 years, 8 months ago
    I think that if regulations were done away with....corporate and individual taxes were abolished...that the economic activity generated from that would require the import of 200 million + to cover all the job openings...
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  • Posted by dbhalling 7 years, 8 months ago
    Does immigration lower wages or not? Economists argue both side of this argument and point to differing empirical evidence to support their positions. The reason for this confusion is that economists do not understand that inventions are the source of real per capita increases in wealth. I will show how my system of economics resolves this debate and why there appears to be conflicting empirical data.
    We will start with the simplest case first. If we have a country where the overwhelming majority of people are living in the Malthusian Trap (i.e., the edge of starvation, subsistence living) then if more people move into that country people’s wages will not go down, but people will starve to death. With this information let’s examine the two extreme cases: a technologically stagnant country and a technologically dynamic country. In a technologically stagnant country the total GDP is flat to declining slowly. If immigrants increase the population of this country they will not and cannot increase its GDP, so real per capita incomes will decrease and therefore wages will decline. This is similar to the country in the Malthusian Trap.
    When a country is technologically dynamic then its real per capita GDP is increasing. Immigrants in this case can contribute to the country’s increasing level of technology and therefore the wealth of the country. In that case each new person that is open to using their mind is an asset and only makes the country wealthier. A pretty good measure of how technologically dynamic a country is its economic freedom index.
    No countries on Earth today are fully optimized to increase their level of technology and only a few are absolutely technologically stagnant. Some of the more technologically dynamic include Singapore and Honk Kong. As Peter Thiel has pointed out the rate that the U.S. creates new technologies outside the information technology area has slowed significantly. Countries that are close to being technologically stagnant include Venezuela and North Korea and many African countries
    Since economists do not control for how technologically dynamic the economy (or part of the economy) was that they used in their studies of whether immigrants increase or decrease wages, it is not surprising they got differing results even if they did everything else right in their studies.
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  • Posted by $ Thoritsu 7 years, 8 months ago
    but having grown up in FL, Miami did go from being a nice place to a crime sink hole overnight. It has largely recovered, at least to the level of another big city, but that was a big mess.

    Not arguing your other points, but Miami may not be the simplest example.
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  • Posted by DrZarkov99 7 years, 8 months ago
    This principle holds for human labor, as each laborer has needs that increase demand for goods and services. What happens as robotic "workers" begin supplying those goods and services? Aside from basic power and maintenance "needs," the robots do not create increased demand to offset their impact on the labor market.

    So far I haven't seen much thought put into what happens when most current low skill jobs are performed by robots (and that is happening). How does society deal with an unskilled, unemployable population?
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    • Posted by $ WilliamShipley 7 years, 8 months ago
      Although I don't like the implications, the only solution I come to is a national income. When robots can do the jobs of most people and we can produce all the goods everyone needs for a "middle class life" (whatever that is) utilizing the labor of 5% or less of the population then we have to do something to allocate the goods to them. An income allows market forces to continue to play.

      Our philosophy of "you must work to eat" comes from the reality that only by the dint of the effort of most of the population can the goods they use be produced. This is still true but full robotic labor will end that. A "world of plenty" will require a reworking of our perception of the necessity for work.

      Where will the money come from? Well, either taxes or simply printing it. Printing it would not be inflationary if the money was kept in balance with the goods produced. Of course it does mean essentially stealing value from those who do produce it. But that would be the robots.

      So, who owns the labor of a robot? Well, obviously the person who built the robot. Fine, and if that robot builds another robot, does the same person own its labor? And if it builds another robot which builds another robot? At some point does the labor of the original person become diluted?

      I've been struggling with this. I clearly do not want people to die of starvation in a world of plenty, a world where no one wants their labor or is unwilling to pay more than a few cents for it since that's what a robot's labor would cost. Nor do I want people forced to do useless tasks for the purpose of "working". We could have the bulk of the population digging holes and filling them up again with the government paying them. But that's economically no different than simply handing them the money. Make work does not produce value.
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      • Posted by DrZarkov99 7 years, 8 months ago
        Thanks, William. You've characterized the dilemma quite well. So far the human race has handled the encroachment of technology into the working environment quite well, from the incorporation of animal labor, to steam, to the computerization of industry, as each change has resulted in a new labor demand. However, as robots become more capable of handling human tasks, and in some cases better than the humans they replace, I don't see a clear picture of how that can be managed.

        There will be some new classes of labor created with the growth of robotics, but most will be high tech. Unskilled and low skilled jobs are still available today because robotic labor is still somewhat expensive, but it won't be long before an enterprising entrepreneur will make robot labor financially attractive. If we don't prepare for that now, it could have a devastating impact on society.

        Longer term, we face an even more challenging issue, when artificially intelligent beings we've created will demand recognition and civil rights. That's the subject of some interesting future discussions.
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        • Posted by $ WilliamShipley 7 years, 8 months ago
          The idea that technology will create new jobs relies on the incredible complexity of what a human can do. A simple task such as clearing the dirty dishes from the table, washing them and putting them away represents a problem vastly more difficult than repetitive tasks such as weaving or welding some precise spots on a new car. We automate repetitive tasks and then humans move to ones that require our unique skills. These don't have to be high-tech skills. Cleaning and restocking a hotel room requires abilities beyond what AI can do currently.

          Currently. Eventually the general purpose robot will be created that can do these tasks. They will not replace simply repetitive work, but any work a human can do -- other than the highly creative, and that's not certain.
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          • Posted by 7 years, 8 months ago
            these are the questions asked whenever new, disruptive processes and inventions occur. The irish immigrant was going to the factory in the 1800s. But before the factories were prolific, the same immigrant was likely coming to the US to homestead and farm. Neither vocation is in tremendous demand in the US anymore. People always must learn the skills necessary to compete in a technologically advanced, first world nation. It has never been a 0 sum game unless controlled (markets)
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  • Posted by Hot_Black_Desiato 7 years, 8 months ago
    Says Law of market fails to account for a number of things. First Jobs and availability of laborers does not necessarily impact the number of jobs the subsequent pays, quality of jobs.

    If 1,000,000 immigrants came here skilled in making wagon wheels, does not create a demand for wagon wheels.

    Jobs are a byproduct of profit period.

    First, you must have a product that people demand. Just because everyone might demand a Tesla does not mean they can afford the $65,000.00 to buy one. Just because you have a massive unskilled labor force does not mean the cost of production for said Tesla will go down either.

    The mentioned 1,000,000 wagon wheel immigrants will have to get jobs someplace else be on welfare draining the product of other people's labor.

    If you look at the IT industry, of which I am a part, the more H1B Visas given to Indians to come here, significantly lowers the wages we have this is a fact. A Sr. Program manager who earned 150k 4 years ago is luck to get 90 - 100k today because of the massive influx of immigrants. Wages are continuing to plummet. This is not creating demand for more products since these people send the excess money back tot heir homelands.

    While I appreciate your defense of completely open borders this is not good for any economy.
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    • Posted by 7 years, 8 months ago
      H1B visas are a detrimental, crony scheme. You start in the middle with supply/demand. Most immigrants do NOT get to start in a new country with their skill. They often perform low skilled labor until they can seek accreditation, build confidence with employers, learn the language, etc. so I do not see how your wheel making example applies. jobs are not a zero sum game and many immigrants start their own businesses. Even with welfare rolls, the final figures are accurate as to wages increasing over a longer period of time.
      "you must have a product that people demand." That is simply not true. Most people were negative about many of the disruptive inventions we have today. This included the steam engine, the sewing machine, electricity, autos, manned flight, etc. no demand. the invention preceded demand in each of those cases
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      • Posted by Hot_Black_Desiato 7 years, 8 months ago
        Your statement and argument suggests jobs are a product of simple population, be that population immigrant of just spawned, that economics is driven simply by the number of people. If that were true China and India would have the highest standard of living on the planet.

        If Supply and demand operated as you suggest, they, China and India would be the wealthiest countries in the world.

        "You must have a product people demand".. IF you expect to grow a company, stay in business AND hire employees for any length of time. A product can be a service.

        Actually, there WAS a demand that preceded the invention in EVERY case. Even if that demand was a demand of one person. That demand was the solution to a problem even if that was ONE person. Just because the masses were reluctant does not mean a demand did not exist.

        When immigrants start their own business, usually a 7-eleven, they are fulfilling a demand.

        A Taco stand, on the side of the road succeeds ONLY if there is a demand. Success depends on how many people eventually demand that product or service.
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        • Posted by 7 years, 8 months ago
          nope. my argument always in economics starts with what is the source of real per capita increases in wealth. Immigration is a question in the middle. and frankly, your economic arguments applied to immigration are in the middle of foundational ideas. Let's start here. Economics is NOT a zero sum game. taco stands do not make the world go around, but they may pay more bills in the US then in Guatemala for the same work effort (regs aside). I guess we would have to agree on a definition for demand (in economic terms) if you want to start with one person. otherwise, I find that statement meaningless.
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          • Posted by Hot_Black_Desiato 7 years, 8 months ago
            Demand, in any economic book I have read during my MBA, never once defined with a quantity of "demand." The Demand for Hand Crafted Bently's is different than the demand for 250 ft' luxury yachts, vs the demand for spam. the principals of demand of one item vs. billions of items remains the same. Economics will never be a zero sum game, and the complexities either on the micro or macro-economics field are astounding. I like to think of economics like weather, and always think about the "butterfly effect."

            What was the single event that started WWI? There was one that set into motion the entire world plummeting into chaos.

            No matter what way you look at economics, and this is my pathetic uneducated opinion. Things work in a very linear manner. Very binary in nature.

            I have encounter a problem. I invent something that solves MY problem. I have an invention and product and demand of one.

            I decide I can solve this problem for other people so I risk some capital, time and effort to produce this thingy and make it available to 100 people. I did it all myself so no jobs at all.

            Here is the binary part. Either people will want it or not. Zero and One. If I sell out of my 100 items, I now have a binary choice. Make more or not.

            I make more, take profits and make 1,000. and sell out. Now I have a choice continue or not.

            I continue, but I have to hire 10 people to make 10,000 thingies. 10 jobs were a byproduct of my profit and choice to make more. those jobs be them immigrants or not has NOTHING to do with then showing up or not, but ONLY because of the, demand or lack thereof for my product. The ten people I hired did not create my demand by there mere existence.

            10 people now have jobs, to buy stuff with, so they apply their binary choices to buy something or not, which translates to a purchase or not of something THEY demand.

            So my definition of Demand is anyone who wants something, even if that person is one person. Even if I make two items, and charge a billion dollars and sell one item to one person that is supply and demand.

            The question is the person demanding the product are they willing to pay the price for it or not. Again binary in nature. If they refuse to pay they have a binary choice, negotiate or not for a lower price. Everything is binary in nature. Maybe is for people who refuse to exercise their free choice, and like shades of grey, which makes them liberals.


            edited to fix sentence.
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            • Posted by 7 years, 8 months ago
              you write long comments. it will take me awhile, during work, to get through it. Some invention is precipitated by solving a problem. Some invention is curiosity, discovery of how materials work together and create options for purposes hereto for unknown as something important. You are avoiding the real issues in the post and are now devolving into sophistry.
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              • Posted by Hot_Black_Desiato 7 years, 8 months ago
                I will be concise.

                You stated. "he net increase in population by 295 million people increased the number of laborers but this was balanced by a commensurate increase in the number of consumers."

                Consumers do drive the economy. Productivity does.

                Proof of this are the tens of millions of consumers that produce nothing and just drain resources. If your statement were true, then the Democrats and Pelosi are right that Government welfare is the best way to drive growth.
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