Immigration and Growing the Economic Pie

Hank is certain immigration is causing the downfall of the United States. “Illegal immigrants cause higher unemployment and lower wages,” states Hank. “They take jobs from tax paying citizens and because there’s so many of them, they lower everyone’s wages.” Then Hank pulls out his strongest argument, “There’s only so many jobs and only so much money to go around. The more we split it up, the less there is for each of us!”

The views Hank so eloquently expressed have been used for generations. He believes there is an economic pie, it is only so big and we don’t want to share it. What happened in the southeastern United Sates following passage of Civil Rights laws provides evidence that Hank is off the mark.

After the Civil War, the Dixie States fell into a prolonged economic downturn. How bad was it? In 1930, while the rest of the country was in the throes of the Great Depression, the per capita income in the Southeast was 50% of the U.S. average. This century long economic catastrophe was one of the prime drivers for keeping Jim Crow laws in place in the South. Poor whites didn’t have much, but they had more than the blacks and the whites wanted to keep it that way.

If you believed in the economic pie theory, if African-Americans got equal consideration for jobs, or even worse, preferential treatment, whites would lose their jobs, their homes and not have enough money to feed their families. At least that was the thought process.

When blacks came home after fighting and seeing friends die in World War II, they wanted an equal piece of the pie. In 1957, the first civil rights law passed and in 1964, a more effective law was signed.

Bureau of Economic Analysis, “Table SA1-3. Personal Income Summary”, http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1&isuri=1&acrdn=1, (accessed 11-8-2012)

Contrary to expectations, there was no economic apocalypse for whites. The economic pie got bigger as blacks moved into the workforce. From 1960 through the mid 1970’s, wages in the southeastern U.S. rose dramatically compared to the rest of the country.

Per capita income is closely related to productivity. Adding a large influx of new workers to the region’s  labor force spurred productivity and per capita income gains.

The newly hired workers had money to spend. This created more economic activity. Local stores were getting more business, so they expanded and hired more workers. The cumulative effect was an expanding economy that became increasingly upscale in core urban areas.

Other dynamics besides civil rights contributed to the Southeast’s economic resurgence. More people moved south because of the weather and because civil rights laws made the area less threatening. Between newly enfranchised blacks, increasing birth rates and northerners moving south, the working population exploded. Surprising to local whites, most got jobs.

Source: Bureau of Economic Analysis, “Table SA1-3. Personal income summary” http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1&isuri=1&acrdn=1, “Table SA04. State income and employment summary” http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1&isuri=1&acrdn=1, (accessed 11-08-2012)

 

Contrary to conventional wisdom, from 1969 (when the earliest labor records were kept) up until the late 1990s, the Southeast’s per capita income gains (measured as a percent of the U.S. average) stayed ahead of the burgeoning labor pool. Unfortunately, educating on the cheap and overdependence on low skill factory jobs that could be out sourced or automated caught up with the Southeast in the late 1990’s.

Applying the lessons today…

Hank’s fixed size economic pie theory doesn’t work. The Southeast U.S. showed  economies flourish with influxes of new workers. Larger labor markets generate more competition, leading to higher productivity and more economic activity providing bigger paychecks to almost everyone.

Immigration is the foundation of our nation. Immigrants from all over the world came to the U.S. in the 19th and 20th Centuries. African-Americans and women moved into the labor force in record numbers during the last half of the 20th Century. Each new group of immigrants looked and acted differently than the previous generation of newcomers. They each met resistance and predictions of bringing economic doom to the “natives”.

Our formula for success doesn’t require new workers with PhDs or white skin; it requires people who want a better life, are willing to risk everything they have to get it and are willing to work as hard as it takes to realize their dreams. The Inscription on the Statue of Liberty sums up where most of us came from.

Give me your tired, your poor,
Your huddled masses, yearning to breath free,
The wretched refuse of your teeming shore,
Send these, the homeless, tempest tost to me,
I lift my lamp beside the golden door.

The United States built on the diversity of “the wretched refuse of your teeming shore” to become the world’s economic powerhouse. This is no time to change a winning formula.

 


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