Inflation

Worry About Inflation, Not Immigration

High inflation can harm low-income families. Immigration, not so much.

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Inflation, labor shortages, and the migrant crisis have captivated the news cycle for most of 2021 and led to wavering debates over the severity of these problems and how best to resolve them. Lately, the attention has been on whether soaring inflation will erode the real earnings of the average American. That hasn't stopped some people from sounding off alarms on immigrants—whether at the border or on employment-based visas—for fear that increased labor competition will depress the wages of America's existing low-skilled workers.

How real are these concerns for the most vulnerable Americans? Should they be worried for their wallets due to increased inflation, immigration, or neither?

Inflation can act as a regressive tax if rising prices are centered on necessities and if workers in poorer bargaining positions are unable to obtain pay increases. When inflation was growing at about 2 percent per year pre-pandemic, a person making $15 an hour, or $30,000 annually, would lose about $600 a year without a pay increase—not a trivial amount for someone living paycheck to paycheck.

But 2 percent inflation growth is no longer our reality. Prices are now up 6.8 percent since last year, which is the sharpest increase in 39 years. If a $15-per-hour worker didn't receive a pay raise over this last year, his real earnings could fall by as much as $2,040.

Some workers did see a bump in their paychecks, albeit not enough to offset inflation. After accounting for increases in nominal earnings, the Bureau of Labor Statistics has estimated that, on average, workers experienced a 1.9 percent pay cut over the last year due to inflation. This means a $15-per-hour worker likely saw $570 disappear from his wallet.

Averages can often be misleading, though. Gas prices have climbed by 58.1 percent over the last year, and low-income Americans tend to spend more of their average dollar on gas. Indeed, a Federal Reserve Bank of New York study found that poor and rural households are particularly hard-hit when gasoline prices skyrocket, and this was a main contributor to "inflation inequality."

Finally, we should acknowledge another factor that masks the typical impact of inflation on wages: the unique labor shortage experienced in the last year, which was partially caused by lingering unemployment benefits and has led to higher-than-usual increases in pay for many workers. Without it, low-income workers would be significantly worse off due to climbing inflation.

Notably, some inflation is not always concerning—especially if it's steady, or temporary, or accompanied by simultaneously raising wages. But today, we can still say with confidence that low-income workers are in for a rough adjustment.

In contrast, most research shows that immigration has a small effect on wages in the short run, whether it's a positive or negative effect.

To put this into perspective, the highest-end negative estimate (and one frequently cited by opponents of immigration) finds that the relative wages of U.S.-born workers fall by almost 4 percent when immigration increases the number of workers within the same skill group by 10 percent. However, even this high-end estimate is often misinterpreted and miscited because it measures the relative impact and not the absolute impact on wages. In other words, it measures the effect of immigration on the wages of one skill group relative to another, and not how immigration impacts the total amount of money someone actually makes.

Over the past decade, immigration has increased the number of workers with only a high school diploma by 0.14 percent per year on average. Even if we put aside the problems of using the high-end estimate, this would result in U.S.-born workers with the same education experiencing a fall in income of about 0.06 percent annually. For our $15-per-hour worker, this amounts to a yearly pay cut of only $18 due to low-skilled immigration. That's hardly a comparison to the real impact of inflation on the same worker.

It's not even clear that we need to be making the comparison. The United States has experienced a net outflow of immigrants without a high school diploma since 2010, meaning U.S.-born workers who dropped out of high school would actually be earning more using that same estimate. Immigration patterns have shifted in the last few decades, with more high-skilled immigrants moving in. The research consensus is that high-skilled immigration improves the wages and employment prospects of all Americans, with long-term increases in innovative activity and economic growth.

The bottom line is that immigration fears seem to be overblown when we ground them in real numbers, while high inflation can harm many low-income earners in the short term. Today, compared to immigration, Americans should be far more concerned about inflation eroding their earnings.

NEXT: Rent Control Is Fashionable Again. It's Still a Bad Idea.

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    1. Fight for $50!

      1. Single Mom Makes $89,844/Yr in Her Spare Time on The Computer Without Selling Anything.KJH you can bring from $5000-$8000 of extra income every month. working at home for 4 hours a day, and earning could be even bigger.

        The potential with this is endless….. WorkJoin1

        1. Inquiring minds want to know - I want to know. Does she shave her pubes before her webcam show? How does she hide the stretch marks resulting from her babymomma status?

    2. Ironically I've been telling people for years that unless you fix the money, you're going to "win" the Fight For $15 and immediately have to start the Fight For $20, followed by the Fight For $25.......

  1. Why do you frame it as "either/or"? Discover the magic power of "and".

  2. Hey y'all... Please show us, on the doll... WHERE did the illegal sub-humans touch you, in a bad way?

    Inquiring minds want to KNOW, dammit!!!

  3. Why not just move Koch Industries south of the border. The Mexican minimum wage is $5.00.....a day. What say you OBL?

  4. Most, but not all, of those worried about immigration are concerned about illegal immigration and much less so about the legal sort.
    Imagine, if you can, the difference between shopping and looting.

  5. Unless the US ends the welfare state, bringing in more people will create more problems. Even worse to pay them $450,000 each. End the welfare state then the immigration roadblocks.

    1. As somebody really smart once said, at the end of the night you don't have to chase everybody out of Disneyland, you just shut off the rides and the rest takes care of itself.

  6. Because the main concern when uninvited strangers show up at your house and start living there is how their arrival will affect your wages, rather than the fact that you are being displaced in your own fucking home.

  7. Funny; I didn't know the concern was about immigration I thought the concern was about ILLEGAL immigration.

    1. Legal immigrants overstaying their visas and then becoming illegal immigrants is the norm. So, yes -- "legal" immigration is also problem when the immigration laws are not enforced.

    2. All immigration, starting with the Irish and Germans in the 1830s and 1840s, has been bad for America and Americans. We should have slammed the borders shut in 1790. We are less free today because of immigration.

  8. So you're saying wages do decrease but we shouldn't worry about that because it's only a small amount?

    1. Gov-Gun enforced wages are higher than ever...

  9. I don't think people are going to worry a whole lot about illegal immigration with inflation on the rise.

    No one except the people who's jobs rely on whipping that hobby horse with or without inflation, that is.

  10. I can worry about two things at once (or even more!). The fact is that illegal aliens reduce the quality of living of those here legally. They take away jobs, housing, educational opportunities, and assistance services from Americans and also legal immigrants who have worked hard and complied with American laws in order to start on the path to becoming Americans.

    So, don't give me any b.s. and pretend that those walking across the border without any vetting do not cause harm to all Americans. The people who live in border states are struggling hard to deal with those who have invaded (yes, invaded) their towns and counties. Resources and tax payer dollars are spread thin. I guess you think that this small towns just have endless budgets provided by taxpayer dollars to provide all these services to the illegal aliens.

    Also, every day I read stories of the crimes these illegals commit as they steal from those homeowners on the border and as they assault and rob people in those towns. And, when some of the illegal alien men get needy for sex, they can just rape the nearest female. That's what they do in their own country. Different culture and all which you are fine with. And they are spreading out (being shipped out) all over this nation and doing the same in every state. Are you saying they are just committing the crimes that Americans refuse to do?

    So, why doesn't this author quit her job and give it to an illegal alien? Why doesn't this author turn her home and banking accounts over to an illegal alien? No? Not willing to? You just want others to do so.

    Exactly how clueless do you think those that read this site are? Oh, never mind. Most here think the same as you do and are clueless as well.

    Maybe Australia would work better for most Reason writers!

  11. Once again, you are not entitled to slave labor. Does Matt Welch even have a job besides complaining about others in his kids school?

  12. Immigration is all about prospective. Businesses love it and some couldn’t exist without it . I recently went on vacation to California. At the airport I expected it to be like JFK to my surprise it was one of the whitest places I have traveled . Same for the coast. I now see why California is so “inclusive” . They get the upside of cheap labor without mixing with the help . How do they do it KKK patrols ? Nope high housing costs . Then they complain about income inequality what a scam. But in most places NY being one example it results in over crowded housing , parks and beaches. Some area’s are completely unrecognizable from what they were 30 yrs ago and not for the better . From my prospective it’s a bit more complicated.

  13. Laws of supply and demand FINALLY pushing up wages? Companies will not put up with this for too long.

    Expect business group to sharply lobby to open up the foreign guest worker pipeline soon.

  14. I can think of only a few reasons why an article that coaches us "not to worry about immigration" would appear in a supposedly libertarian "blog".
    (1) Reason thinks it readers, i.e., libertarians are stupid enough to deny all functions of government, including protection of borders, is unnecessary, or
    (2) The editors at Reason don't read, or don't understand, the articles they approve to put up on their site, or
    (3) Reason is no more a truly libertarian site than Mother Jones or the Huffington Post, but tries to sling on enough camouflage that casual readers won't notice.

    I'm not sure which explains the appearance of idiotic articles like this one, but the number of articles that don't ring true sorta cause me to lean towards (3).

  15. Why would you even compare the two? Even if illegal immigration is less to worry about than inflation, that doesn't disprove or refute the simple fact that illegal immigration will eventually destroy what's left of our Republic.

  16. Huge numbers of illegal immigrants will certainly fuel inflation. They are taxing the Federal law enforcement system. They will tax the government welfare system, they will tax the government healthcare system, and they will tax the school systems. Our government has no money, yet will just keep printing it to deal with these problems. Local taxes will have to be raised to educate these illegal children. This will add fuel to are already on fire inflation. Even poor people pay taxes in their increased rents. So do the elderly on fixed incomes. I am not surprised "woke, liberal, socialist" Reason refuses to make the all to real connection between illegals and increased inflation.

  17. The Fed (the third central bank, the bane of T. Jefferson who called it "The greatest threat to liberty.", was resurrected by claiming a need to stabilize the $ that it would provide. It DESTABILIZED the dollar, causing the boom/bust of the '20s/'30s. Its century history is testament to its failure for us, but it is great at transferring our wealth to the elite. 1. Our money needs to be stable, e.g., free from currency degradation. 2. The free market does that, IF we have a free banking system, which the Federal Reserve stops. 3. The Fed can't possibly set interest rates rationally, and therefore fails to stabilize. 4. The Federal Reserve Act is a conspiracy to extort the populace by exploitation of their economic ignorance and faith in govt. (force, instead of reason/morality). 5. The public needs to wake up, stop believing that granting an elite the power to rule them is freedom; it's the opposite, self-enslavement.

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