Raising the Minimum Wage, Without Raising the Minimum Wage

I noted in December after Trump's election that one problem I foresaw with his position against illegal immigrants and building a wall was the low unemployment and the high non-participation rate by legal citizens of this US of A.  The unemployment rate at the time was 4.9% and has since dropped to 4.4%, which is quite low, and the participation rate has bounced around a bit but is about the same, which also is extremely low - it's lowest in decades.  In short, my position was that we likely need a lot of these illegal aliens to fill the jobs. 

Don't get me wrong, I am not in favor of people entering the country illegally and certainly any who commit crimes need to be dealt with, but the reality is there are a lot of jobs out there these folks are filling that are not being filled - or wanted - by legal residents.  I am more in favor of allowing more folks from outside the country, be it Mexico or elsewhere, to come in legally with proper vetting.  And I suspect plenty of employers agree, especially some in the construction trade, agriculture and service sector.

Thus, I was a tad surprised this week when the Administration announced its RAISE Act that is reportedly designed to reduce the issuance of green cards, i.e. legal immigration, by 50% and that by its very terms targets immigrants who do not speak English and would fill low wage jobs.  Hmm, what immigrants would that be?

The surprise to me is that the Administration is targeting low wage jobs.  Nearly all the job growth in the U.S. for the past couple of years has been service sector jobs, which are low minimum wage type jobs, perhaps with tips.  We are talking waiters, bartenders, checkout clerks, cooks, maids, bus boys (which I did one summer and do not recommend) and the like. Not high paying jobs.  But as President Trump mentioned in announcing the new RAISE Act, it will eliminate a lot of competition for low paying jobs, effectively making employers pay more for U.S. citizens to fill those jobs.  Which means we are not raising the minimum wage, but the RAISE Act will RAISE the effective minimum wage.

I am not particularly sold that reducing competition will get folks into the job market in masses.  The participation rate, according to the bureau of labor statistics, is at 62.8%, which is low.  I think most are not working because they do not want to, and some perhaps due to the drug epidemic in this country.  Raising the minimum wage a couple bucks is not in my view likely to alter that significantly. Either way, I believe the RAISE Act will have a lot of push-back from businesses as it will make filling low wage jobs nearly impossible.  In the long term, this merely leads employers to do as much as the can to automate and get rid of employees.  It is happening left and right in stores, restaurants, factories and soon taxis and long-haul trucking, with autonomous vehicles.  The Administration may foster wage increases in the short-term but likely will lead to lots of unfilled jobs and pushing employers to automate - and thus eliminate jobs - in the mid-to-long term.  We will see.

Let me add, however, that there has been, as noted in the linked Bloomberg article, a slight uptick lately in participation rate for low paying jobs, so there may indeed be some light at the end of this tunnel.  Obviously this is not due to the RAISE Act, but some attribute it to increased minimum wages in various states.  Whatever the cause, increased participation by US citizens is a good thing but we have to wait and see if immigration policies will have the impact they are designed to have or, alternatively, whether they simply leave a lot of employers in need of workers and/or paying a lot for the workers they can hire.

https://www.bloomberg.com/news/articles/2017-08-04/americans-on-lower-rungs-get-relief-as-labor-market-strengthens

August 6 Update

Much of what I said in my post above is today in an article in Bloomberg, which similarly notes the already tight labor market and trends toward automation.  They add that increased pressure on wages may simply push more companies to shift plants and jobs overseas to lower wage countries.  Either way, seems the Senate is not likely to pass the bill (or any bill), so it looks like no RAISE in the immediate future.

https://www.bloomberg.com/news/articles/2017-08-05/immigration-curbs-may-be-wrong-way-to-boost-weak-u-s-wage-gains