Stagnant Wages? Made in USA
Robert Kuttner
May/June 2006

As Congress grapples with immigration policy, most experts agree that wide-open immigration slightly depresses wages, especially among unskilled workers. But the main reason for static wages has more do with policies made in the United States.

Immigrants, coming from destitution at home, will work for less than American wages. And, if they are here illegally, they can't defend themselves against subminimum wages and working conditions otherwise against the law.

Some of this is supply and demand­--more workers competing for the same supply of jobs. But as former labor secretary Robert Reich has noted, if labor laws were enforced, immigrants would be less likely to depress wages. Moreover, the supply of jobs is not static. As immigrants enter the stream of commerce, they generate economic activities and jobs.

The Republican Party is now split between business groups who want cheap workers and jingoists who are just plain anti-immigrant. The nativist wing of the GOP plays both to the national security and economic fears of ordinary Americans.

The attacks of 9/11 did happen (though the attackers were not Mexican.) Wages of ordinary workers are in fact depressed (though immigrants are not the main cause.) Both sets of fears make it harder for Congress to legislate sensible policy.

It is a small miracle that four Republican senators on the Judiciary Committee broke ranks and voted for the McCain-Kennedy bill, which would toughen border enforcement and penalties for employers who employed undocumented workers, in exchange for a small "guest worker" program as well as an earned path to permanent citizenship. Some Republicans support this because the House bill (no path to citizenship and a Berlin-style 700-mile wall along America's southern border) would reverse whatever recent gains the Republicans have made among Hispanic voters.

However, it is worth leaving the immigration debate to explore the deeper causes of stagnant living standards that make so many Americans fearful of immigrants. In the current recovery, for the first time since the government has kept such statistics, median household income has lagged behind inflation in a recovery for five straight years.

Census data show median household income fell 3.8 percent or $1,700, from 1999 to 2004, according to economist Jared Bernstein of the Economic Policy Institute (on whose board I serve.) And this drop occurred during a period when average productivity rose three percent per year.

Moreover, as economist Jeff Madrick has observed in his book "Why Economies Grow," , the reality is worse because prices of commodities that make us middle class are rising much faster than inflation generally: housing, college education, health care, and also child care. These very rapid price increases are offset by falling costs of consumer electronics, basic food, and clothing, creating misleadingly low inflation measures.

It's great that shirts are cheaper than a decade ago, and that we all have cell phones. But that doesn't exactly substitute for a house, an affordable college education, or health care.

According to economist Bernstein, whose study covers the years 1991-2002, households in the middle fifth of the economy increased their incomes (not adjusted for inflation) by 41 percent. Inflation during that period, as measured by the government's Consumer Price Index, went up 33 percent. That implies real living standards rose by a not very impressive 8 percent during more than a decade.

But hold on. During the same period, housing, healthcare, education, and child care went up 46 percent, or more than incomes. We cannot afford the big things we need and comfort ourselves with gadgets. The cheaper laptop, plasma TV, and GPS screen in your car make it appear statistically that living standards are not falling as much as they are.

The emblem of the new economy might be a 35-year-old, listening to an iPod, living in a house much smaller than the one he grew up in.

To use a favorite word of my grandmother's, call it the Tchotchke Economy (a Tchotchke is a small trinket): Plenty of nifty, ever cheaper electronic stuff--and ever more costly housing, education, healthcare. An iPod is swell, but it doesn't exactly make you middle class.

Why does this describe America in 2006? Don't blame it on immigrants. Blame it on the people running the government, who have made sure that the lion's share of the productivity gains go to the richest 1 percent of Americans. With different tax, labor, health, and housing policies, native-born workers and immigrants alike could get a fairer share of our productive economy--and still have the nifty iPods.

Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Boston Globe. Published on Saturday, April 1, 2006 by the Boston Globe.

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