Economy & Business

The Corner

Low-Income U.S. Workers Are Facing Real Wage Declines

Nelson D. Schwarz of the New York Times reports on a new study released by the National Employment Law Project, a left-of-center group that focuses on advancing the interests of low-wage workers:

Despite steady gains in hiring, a falling unemployment rate and other signs of an improving economy, take-home pay for many American workers has effectively fallen since the economic recovery began in 2009, according to a new study by an advocacy group that is to be released on Thursday.

The declines were greatest for the lowest-paid workers in sectors where hiring has been strong — home health care, food preparation and retailing — even though wages were already below average to begin with in those service industries.

Why might wages be so low in these sectors? One possibility is that as demand for less-skilled labor shrinks, there is a large number of workers willing to take these jobs, even at low levels of pay. If we believe that stagnant or falling wages for less-skilled workers are a bad thing, there are a number of strategies we could pursue. We could seek to raise the average skill level of the workforce, thus reducing the number of workers with low levels of literacy and numeracy. We could subsidize low-wage work, as we do through various safety net programs and in-work benefits. But one thing we would not do, presumably, is increase the supply of less-skilled workers, even as demand for their labor falls. 

This leads us to the question of less-skilled immigration. Stagnant wages for the providers of home health care, food preparation, and retail services help limit the cost of acquiring these services for consumers. One could argue that falling take-home pay for the lowest-paid U.S. workers in these sectors is actually a good thing, as the only way to make these services more readily available is to drive down their cost. That, in a nutshell, is the central economic case for increasing less-skilled immigration. As of 2012, immigrants represented 23 percent of all home health aides, and that share is set to increase in the years to come. Home health aides do work that it is difficult for machines to replicate, for now, at least. And to less-skilled immigrants who find that their skills are not in great demand in other, higher-wage sectors, even extremely low wages can be attractive. 

There is a complicating factor, however, which is that these workers are not mere inputs into a production process. Rather, they are women and men who are trying to support themselves and those closest to them, and extremely low wages can make that difficult in the extreme. Moreover, families headed by working parents with limited skills are often in need of labor-intensive services that can only be provided by credentialed professionals, like teachers, social workers, doctors, and nurses. Suffice it to say, even though teachers and social workers aren’t generally paid handsome wages, they earn far more in high-wage, high-productivity societies than in low-wage, low-productivity societies. It could be that poor people are in no need of social services, but I suspect that researchers at the National Employment Law Project would reject that proposition. 

We as a society finance safety net programs and in-work benefits in large part because there is a standard of living below which we don’t want anyone in our society to fall, regardless of whether or not they can command high wages on the open market. There is something strangely circular about deliberately increasing the number of people who will need this kind of support to be full participants in an affluent market democracy. (If anything, it might make more sense to encourage U.S. retirees in need of labor-intensive services like home health care to relocate in countries with relatively low wages, an idea that the former Mexican foreign minister Jorge Castañeda briefly explores in his provocative book Mañana Forever? Wages that would be low by U.S. standards would be more than enough to secure a dignified middle-class lifestyle in Mexico, or in other middle- and low-income countries.) This tension can be resolved if we see immigration not as a means of raising average skill levels and average productivity levels, but rather as a means of redistributing wealth from the global rich to the global poor. If you ever encounter a candidate for office making this case explicitly, please let me know. 

In the meantime, I’d suggest that we advance policies that will raise the wages of home health aides and other service workers, and that will encourage more skilled workers to enter these fields. If labor scarcity grows pronounced, entrepreneurs will devise more capital-intensive as opposed to more labor-intensive business models, as they have in so many other sectors. 

 

 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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