Monday, January 5, 2015

Unintended consequences of throwing all the illegals out.

Over the weekend, I wrote an answer to a Quora question.

What will be the economic impact (long term / short term) if US government hypothetically deports all of the 12 million undocumented immigrants by the end of 2013?

Some anti-immigration group suggest that these jobs will be filled by 23 million US nationals, Is it really that simple? Common sense says that this will be a massive shock to the economy and it will likely go to a recession. But, will the economy be better off in the long run ? Do the illegal immigrants decrease the aggregate welfare of US as the anti-immigration groups claim?

Obviously the question has been around for a while, but it didn't start receiving traffic until recently.

Here's my answer.

The long term effects are the most interesting ones.

Due to the contraction of the labor market, wages for these jobs would go up...resulting in price increases... resulting in a short term lower demand.

But that is the short term.

In the long term, the jobs themselves would migrate out of the country, so that activities such as farming would move out of the US and to Mexico and China.

Those jobs that could not move, such as restaurant and car wash workers, would be replaced with automated processes.

Of course, the politicians would respond to pressure by repealing NAFTA and outlawing robots.

Meanwhile, Mexico and China would have problems of their own, as wages in those countries would rise dramatically. As wages rise to the equivalent of $5 an hour, even for unskilled work, product demand (already hit by restrictions on exporting to the US) would tumble as prices rose. However, they would still be better off, because at least there would be work.

Eventually, Americans would illegally go to Mexico and work, seeking better lives for their families.

Long-time readers know that my response reflects some of my previously expressed concerns. For example, I've written about the low minimum wages in other countries in 2008 ("Minimum wages in other countries - we never had it so good") and earlier ("The Solution to Illegal Immigration, But It Will Take Communist Action Over Baby Seal Clubbers").

I've also written about automation ("You will still take a cab to the doctor’s office. For a while.").

P.S. I haven't looked at minimum wages in Mexico in several years, but those minimum wages continue to increase. New minimum wages were approved for 2015.

The minimum wage in Mexico is based on two geographic areas. As of January 1, the daily minimum wage rate for Zone “A” will be MXP (Mexican Peso) $70.10, and for Zone “B” it will be MXP $66.45.

If you assume an exchange rate of 15 MXP to 1 US dollar, we're still talking about daily minimum wages that are lower than hourly minimum wages in the United States.

Be sure to read the article to see why minimum wages haven't risen even more dramatically.
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