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Sunday, October 01, 2006

Immigration and Productivity

This is an argument against illegal immigration on the basis that it stifles innovation and technological change by taking away the incentive to lower costs:

Productivity and immigration, by Alfred Tella, Washington Times: Productivity is the offspring of human creativity and the primary source of our economic well-being. Productivity means doing things more efficiently, finding a better way. ... It is the wellspring of economic growth, the fabled goose that lays the golden eggs. But the goose can come to harm, and we need to be ever vigilant.

One threat to productivity today is cheap immigrant labor. An estimated 12 million illegal immigrants, mostly low-skilled, poorly-educated Mexicans and other Latin Americans, have stolen into and remain in our country. Their numbers increase by nearly a half million yearly...

The negative impact of illegal workers on American wages and social welfare costs has been well documented and publicized. But far less attention has been given to the detrimental effects the excess supply of immigrants has on productivity. Following is a summary of some of the more significant analyses.

Mark Krikorian, executive director of the Center for Immigration Studies, in a paper on guest-worker programs, explains how illegal immigration slowed productivity growth in American agriculture. Take the case of raisin grapes.

The conventional harvesting method involves cutting the grapes off vines by the bunch with a knife, then laying them on paper trays and repeatedly turning them by hand for drying. In the late 1950s, grape farmers in Australia, faced with a labor shortage, came up with a more efficient way of producing raisins whereby the grapes dried naturally on the vine and were knocked into bins by a tractor-mounted harvester. Labor use was cut drastically and yields skyrocketed.

Did this new technique spread among raisin farmers in American? For the most part, no. The ready availability of cheap immigrant workers blunted the incentive to make the expenditure to switch to the more efficient method, with consequent long-term losses to both farmers and consumers.

Because of the excess supply of immigrant labor in American, notes Mr. Krikorian, the European Union is well ahead of us in bringing new agricultural technologies to market, which could result in the U.S. losing out to international competitors. But if we were to restrict cheap foreign labor, modernization would be spurred ... says Mr. Krikorian...

Others have arrived at similar findings. A study titled "Alternatives to Immigrant Labor?" by agricultural researchers Yoav Sarig (Agricultural Research Organization, Israel), James F. Thompson (Department of Biological and Agricultural Engineering, University of California-Davis), and Galen K. Brown (Florida Department of Citrus), analyzed fruit and vegetable crop mechanization in the United States. The authors found there has been little investment in mechanized harvesting by growers since 1980 because of the ready availability of cheap labor, and "many workers were illegal aliens using falsified papers." ...

Michael Lind, Whitehead Senior Fellow at the New America Foundation, recently wrote in the Financial Times: "The availability of low-wage immigrant labor has caused the U.S. to lag behind Japan, Australia and others with advanced mechanical harvesting. And thanks to the glut of cheap labor, home construction in the U.S. remains low-tech and inefficient. A tight labor market would force rapid productivity gains in nontraded domestic industries that today are labor-intensive." ...

Unless and until effective immigration reforms, including border protection, employer sanctions and benefit restrictions are put in place, the tide of illegal immigrants entering our country will not abate. If low-skilled immigrants continue to increase their share of the work force, there likely will be a further dampening of technological and productivity growth in key sectors of the economy. America cannot afford that. It's not that productivity isn't growing, but it could be higher.

This leaves the wrong impression: "The negative impact of illegal workers on American wages ... has been well documented." Documented by some yes, but others disagree and this is not a settled area in the immigration debate.

So U.S. agriculture lags behind other countries in terms of implementing technology? We're getting our pants beat off by those enterprising Japanese (they don't subsidize the farm sector do they?), Europeans (I thought they also subsidized, and there's that welfare state thing), and Australians because we are "low-tech and inefficient" agricultural producers?

Uh, no.  I don't think that's right.

Growing up as the son, grandson, and brother of people in the tractor business in the farm country of Northern California (the "State of Jefferson" to those water-stealing southerners), that's not the story I heard. Maybe I'm biased from all those year wearing John Deere hats, I probably am, but Kubota tractors are not beating our pants off. As I worked my way through college at the parts counter of a tractor and farm implement dealer, as I grew up in a small agricultural based town, the rapid pace of technological change in U.S. agriculture compared to the rest of the world was always a point of pride. Take a look inside the cab a modern rice harvester for example, or even the cab of a tractor - there's no comparison to the ones my dad sold in the1960s or 1980s in terms of productivity. Rice can be harvested by hand with cheap labor, that's still done in many countries, but even so mechanized harvest is far, far cheaper and the availability of illegal labor has not slowed innovation in this area. Talk to U.S. rice farmers about how efficient the Japanese are and see what they say.

As for the example in the article, if it was cheaper to harvest raisins by machine, growers would not hesitate to do so. But, unlike tomatoes, prunes, walnuts, corn, wheat, rice, and so many other crops, even new growers who do not faced the fixed costs of switching alluded to in the article do not choose mechanical raisin harvesting, they harvest with labor intensive methods instead. They aren't failing to use the most efficient technology available to them as claimed in the article - the labor intensive technology is cheaper and more efficient (I don't know much about raisin farming from first-hand observation - but assume the author is correct about the lack of mechanization). What choice would farmers in Australia make if abundant cheap labor were available? Whatever cost the least to use.

Dealing with labor issues is a pain, and illegal labor is even worse. Farmers will choose to avoid employing illegal labor if they can, they have no reason to use illegal labor if cheaper planting and harvest methods exist, and this provides a strong incentive to find technologies to replace labor. We could still dig ditches with immigrants and shovels, but why do so when a tractor with a ditch digging attachment will do the job so much faster and cheaper? There's no lack of incentive to find cheaper ways to produce agricultural products, and there is example after example of cheap labor, illegal or not, being displaced by technological change.

I don't think this particular argument against illegal immigration, i.e. that it reduces productivity, holds up (yes, I know it's illegal, I'm focusing on the author's argument). I understand he is trying to say that paying labor $5 per hour instead of, say, $7 means that technological change that reduces costs to the $5-$7 range will not be cost effective and that without illegal immigration such change would be put into place - at least I think that's what I think he's saying - but the incentive to reduce costs below $5 remains powerful and I don't see any evidence that U.S. agriculture has suffered for lack of technological innovation to improve productivity.

In any case, other countries already have cheap labor and cheap agricultural products, that is what the fight about Doha has been about to a large extent. Without protectionism, the incentive to cut costs already exists, the labor does not have to come here. That is, if costs are $5 per hour in, say, Mexico, then preventing illegal immigration so that we can put in technological change that reduces costs to $6 won't help unless we are willing to impose protectionism to prevent the cheaper goods from crossing our borders.

    Posted by on Sunday, October 1, 2006 at 03:38 PM in Economics, Immigration, Technology | Permalink  TrackBack (0)  Comments (22)


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