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Monday, June 28, 2010

Immigration and the Minimum Wage: an economic answer for a Political Question

Today’s document is a short letter from Henry Hazlitt to an unknown individual about a minimum wage debate between economists Alvin S. Johnson (founder of New York’s New School) and Frank W. Taussig. In reality, the letter is about the faults Hazlitt takes with Johnson’s arguments, which he claims is in the style of an attorney (because he is sure of his position and merely trying to prove it at the cost of sound economic theory). On the other hand, Hazlitt calls Taussig a judge because he is a true researcher in search of the truth in the vain of the Albert Einstein quote “If we knew what it was we were doing, it would not be called research, would it?”

Hazlitt’s points about Johnson’s arguments are interesting and well worth reading, particularly about Johnson’s final argument about immigration. Immigration is certainly a topic even free market advocates find controversial today. Many libertarians and classical liberals disagree on the subject but few will disagree about the effects of the minimum wage law. Today, many non-libertarians have made the argument for higher wages to keep immigrants out (see David Henderson’s freeman article attacking the economic fallacies of such a proposal) but the fact remains, no matter your feelings toward immigration, such proposals are economically unsound.

Johnson states, “Immigrants and children of immigrants make up the mass of those most cruelly sweated. *** A nation-wide living wage might at first produce unemployment, but in the long-run, chiefly in consequence of the check it would give to immigration, the slack would be taken up by the natural development of industry.” Much of this anti-foreign bias is built around the fallacy that immigration hurts the economy by bringing down local wages. If all else were constant this might be true. An increase in supply, holding everything else constant, would lower wages. The problem with this logic is that immigrant labor brings offsetting effects. With their wages comes a demand for goods and services, which creates new jobs. Of course it is an empirical question as to which effect is greater. Conservative estimates suggest that immigrants have a net gain of 20 million dollars to the economy.

So, no matter what your opinion on immigration maybe, it is important not to throw economic theory out the window. Economics is a value free science and can only tell us what is, not what should be. In looking at these types of questions we should agree with Hazlitt that one should favor arguments that look for the truth and not simply assume we are correct at all costs. The lesson here: in social questions argue like a judge not an attorney.

Download Hazlitt’s letter on minimum wage here.

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.