Wall Street hailed the January 2018 Bureau of Labor Statistics report as a big winner. While most of the leading indicators were only so-so - 200,000 new jobs, steady unemployment and labor force participation rates (LFPR) at 4.1 percent and 62.7 percent, respectively, economists shouted out their huzzahs at the 2.9 percent wage growth, the largest in eight years.
But a closer look at the stagnant LFPR and deeper analysis of wage data indicate that economic conditions may not be so rosy after all. The LFPR has been in steady decline since 2000 when it hit its 67.3 percent peak. The BLS has an exhaustive explanation for why the labor participation rate hasn’t bounced back. For 15 years, about half a generation, most major demographic groups experienced a decrease in LFP: teenagers, young adults and women - especially those without a college diploma - fell out of the labor pool. The LFPR of working age men 25 to 54 years continued its long-term decline.
Fortune pointed to societal challenges that kept the otherwise employable detached from the labor force. The Brookings Institution research blamed the opioid crisis for 20 percent of LFPR decline. August Princeton University and the University of Chicago scholars contend that video games could be responsible for as much as a 79 percent decline in young men’s working rates.
The wage growth spike needs a closer review too - namely to find who’s getting those pay bumps and why. As Heidi Shierholz, an Economic Policy Institute labor specialist said, “The wage increases are not being broadly shared.” Part of the boost came in the pay scales’ low end of the employment spectrum after 4.5 million minimum wage workers in 18 states got pay hikes on January 1.
Mark Zandi, Moody’s Analytics’ chief economist, said that business are struggling to hire and hang on to employees, and therefore have no choice but to raise wages. The biggest jobs classification winner was clothing manufacturer workers who saw a 14 percent pay bump. To that, Zandi had an interesting observation: “I’m sure the crackdown on immigration is having an impact in that sector.”
Mainstream reporting on jobs and wages rarely mentions immigration as a variable. Yet Zandi suggested that the prospect of fewer available immigrant employees - either because of their prior removal or because fewer are coming - forces wages upward. Conversely, the reverse must be true. Immigrant labors’ historic and abundant availability puts downward pressure on wages. For years, the U.S. has admitted an average one million, legally work-authorized immigrants annually, and has also issued each year about 750,000 employment-based visas.
The Los Angeles Times in its story, “Immigrants flooded California construction. Worker pay sank. Here’s why,” provided an example of how immigration displaced nearly an entirely American, unionized industry, construction. In its analysis of federal data, the Times found that construction in the Los Angeles area became, within a few decades, nonunion and immigrant-dependent. From the story: “The result: Today slightly more than 1 in 10 construction workers are in a union, compared with 4 in 10 in the 1970s....an influx of immigrants who would work for less made it easier for builders to quickly shift to a nonunion labor force..."
Immigration’s negative effect on wages has been noted by, among others, AFL-CIO President Richard Trumka, liberal New York Times Nobel Prize winner Paul Krugman and the 2010 U.S. Commission on Civil Rights.
Admitting one million legal work-authorized immigrants annually and supplementing the labor pool with three-quarters of a million guest workers is likely a greater contributor to wage suppression than video game addiction or drug dependency. Supply and demand: more available workers means a loose labor market and lower wages. Fewer workers means higher wages across the board.