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Employment Penalties   (Michael Goodfellow, April 18, 2008)


I think there are various "employment registry" ideas floating through Congress now. There are several problems:

- The registries have the usual huge error rate -- something like 5% false negatives. You'll feel a lot worse about this system if your employer is forced to fire you (even white, native you) because of a database error. How long are you supposed to sit around while the government processes the paperwork to verify you are really an American?

- You will of course have to keep the government informed of every address change and every job taken, to keep you from "sharing" your ID with others. That might work fine if you are a suburban wage slave with a corporate job (although there will still be errors.) It doesn't work at all if you are a migrant worker, or just someone who takes odd jobs to make ends meet. Lots of people move regularly. You don't really want to be denied employment because the super-DMV that tracks identity hasn't processed your new address correctly.

- Registries are only as good as the source documents. If a birth certificate can be faked, you can use that to apply for your fake national ID/"right to work" card.

- The stronger the identity system, the more incentive to steal identities. Of course, I read an article recently saying that it's now so easy to steal IDs that the price is plummeting. It costs something like $500 to get the social security number, address and bank account details of an average American.

- There's an underground economy of nannies, cleaners, day laborers, etc. that isn't going to go away. Cash on the table, no records, etc. It's very hard to enforce laws in that area. Trying to enforce those laws just makes that work even more dodgy, with people not being paid, or otherwise abused (and having no recourse, since they are illegal.) This kind of thing already happens in the garment industry and the construction industry.

- If they can't get rid of illegal drug sales or prostitution, what makes you think the government can magically get rid of other undocumented work?

- Finally, there's the problem that if employers are penalized for hiring illegals, their natural reaction is going to be avoid anyone who looks like they might be a problem. Hispanics with poor English skills, who just might be illegals with fake papers, are going to get discriminated against, even if they were born in the U.S..

I also have to argue against the premises of this whole concept. First, it's delusional to think that you can increase the cost of labor and not have some effect on the economy. If waiters are more expensive, the sit-down restaurant converts to take-out, to avoid that cost. The manufacturing plant relocates overseas to avoid the expensive labor here. Factories and farms switch to more automation. The customer gets his house cleaned once a month, instead of every two weeks. More women stay home with their kids, since they can't make enough money working to pay for day care. People with low skills are simply unemployable, since nothing they do is really worth $10/hr with benefits. This isn't hypothetical -- it's exactly what strict labor laws have created in Europe -- an underclass of permantly unemployed people.

Second, in terms of "getting real", I think a lot of people could take that advice! I think the post WWII baby boom generation grew up in a world where just being an American guaranteed a certain standard of living. Europe and Asia were wrecked -- their economies were no threat to ours. The third world wasn't just poor, it was distant, with no effect on us. There was that famous lifetime employment (if you happened to work for a Fortune 500 company), the nonworking wife and the house in the suburbs. All you had to do was show up to work and not be a complete screwup.

None of that is the case now. The first world is competitive, the third world is right next door (due to cheaper transport and communications), and everyone wants our lifestyle. Yet we still talk as if just being American was some kind of ticket to the good life. As if we can bolt doors on Fords for $60,000 a year forever and not worry about the rest of the world. People in China or Mexico are supposed to sit on their side of the border and rot, able to do the exact same work for 1/10 as much, but somehow not competing with Americans.

I've read that U.S. factory workers are something like twice as productive as even the best of the Mexican transplant factories (this is in the auto industry.) I'm not sure where the extra productivity comes from, but I would guess that going through an American education probably makes people easier to train, even if they don't learn anything particularly useful in school. It's likely that basic skills like reading and arithmetic are better in U.S. factory workers than in Mexican rural labor -- although that's probably not saying much.

So we can get twice the wage of the third world workers, due to productivity differences. The problem is we want 10 times the wage.

Closing the borders means losing the jobs to overseas companies. There is no alternative but to compete. Given what we spend on education, an American worker should be head and shoulders over some semi-literate guy off a farm in rural Mexico. Unfortunately, our system turns out a lot of completely unskilled, bored, entitled, teenagers who can't even compete with immigrants for the poor jobs, let alone the good ones.

We're also already very dependent on imported labor. It's not just the illegals who we would miss, but the legal immigrants as well. Something like half the science and engineering talent in this country is born overseas. We're already making it harder for them to come here (see the H1-B visa issue) at the same time their home countries are getting more attractive. Other first world countries are also making an effort to attract talented immigrants. I really don't think we can slam the door on illegals and not also affect legal immigrants.

And after all, it wasn't some Republican plot or an excess of greed in corporations that led to this situation. Businesses have always sent work where it could be done cheaply. The difference is in the technology. Consider call centers. In 1970, if you had wanted to outsource that to India or China or Mexico, you'd have been out of luck. Their phone systems were horrible and their economies were closed. Even if you'd wanted to outsource to Ireland, it would have been pointless. Back then, $2 a minute to Europe was a cheap phone call (remember when "long distance" meant expensive?) At that rate, you are paying $120 an hour just for the phone. Even a free worker wouldn't have been competitive. Now, it's $0.02 a minute, or $1.20 an hour for the phone, and suddenly there's a difference between a $15/hr U.S. tech support guy, and a $2/hr Indian one. And of course, in the last twenty years, India and China have opened up to the world and added a billion workers to the market. Did we really expect that not to have any effect?

In fact, I'm kind of amazed when I read articles blaming wage stagnation and loss of good manufacturing jobs on illegals, or "corporate greed." You could probably have read nearly identical articles in the 1970's, when imports first started to appear. It's stunning that you can read the same thing now, without any references to technology -- not to automation, not to shipping containers that made "just in time" worldwide manufacturing possible, and not to cheap communications and computers which made all that outsourcing possible and not to China and India opening. Any article that doesn't mention those things is living in the past.

I expect factory work is drying up all over the world due to increased automation. That 1950's-style job for life at Ford on an assembly line is never coming back. I actually think automation is going to affect the 3rd world more than the U.S. Just as they are climbing the bottom rungs of the ladder, the rungs are going to fall off due to technology. We have fewer of those kinds of jobs (manufacturing is a small percentage of the workforce now.) On top of manufacturing automation, every new bit of labor saving technology, from bank ATM's to voice-recognition phone systems, eliminates unskilled or low-skilled jobs. That's not going to stop. A recession might even make it worse, as companies are more desperate to cut costs.

I don't know what the solution is, but wailing about how horrible it is that people hire illegals and foreigners is a dead end.


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