30 November 2011

Spot The Fallacy (Labor Edition)

From ASI:

Economist Diane Coyle has noted that migrant workers in the UK tend to be either very highly skilled or low skilled, which suggests that they are filling gaps in specific areas of the labour market, not taking jobs from the native or resident population. And Bryan Caplan explains that by doing low-skilled work migrants enable more productivity in the native labour force.  [Caplan’s post can be found here. –ed.]
Caplan argues that the native workers don't have to spend time doing daily, menial chores and are free to focus on improving their skills, and working harder. And this increases wages.

For a fun little experiment, I propose that Britain deport 50% of its migrant workers and see what happens to unemployment.  If Alabama is any indication, unemployment rates will decline.

Why?  Because wages, aka prices, are determined by two things, and two things only:  supply and demand.  Increase the former without increasing the latter and wages decline.  Decrease the former without decreasing the latter and wages increase. And so on.

Caplan’s fallacy, and by extension ASI’s, is that there is an ever-increasing demand for highly productive labor.  This may or may not be the case, and I suspect that it’s the former.  Labor laws make it difficult to determine how much demand exists for highly productive labor.  Not only that, economists seem to forget that some employers are rather satisficing in their approach to hiring.  Furthermore, many jobs are part of a sufficiently complex process that attempting to maximize labor productivity in one specific role is likely an exercise in futility.  In essence, Caplan’s theoretical model bears little resemblance to the real world, which is why it is wrong.

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