Saturday, September 30, 2006

Productivity is the offspring of human creativity and the primary source of our economic well-being.

Productivity means doing things more efficiently, finding a better way. In technical jargon, it is output per unit of input. It is the wellspring of economic growth, the fabled goose that lays the golden eggs. But the goose can come to harm, and we need to be ever vigilant.

One threat to productivity today is cheap immigrant labor. An estimated 12 million illegal immigrants, mostly low-skilled, poorly-educated Mexicans and other Latin Americans, have stolen into and remain in our country. Their numbers increase by nearly a half million yearly and if the president and the Senate have their way the immigrant inflow is bound to accelerate.

The negative impact of illegal workers on American wages and social welfare costs has been well documented and publicized. But far less attention has been given to the detrimental effects the excess supply of immigrants has on productivity. Following is a summary of some of the more significant analyses.

Mark Krikorian, executive director of the Center for Immigration Studies, in a paper on guest-worker programs, explains how illegal immigration slowed productivity growth in American agriculture. Take the case of raisin grapes.

The conventional harvesting method involves cutting the grapes off vines by the bunch with a knife, then laying them on paper trays and repeatedly turning them by hand for drying. In the late 1950s, grape farmers in Australia, faced with a labor shortage, came up with a more efficient way of producing raisins whereby the grapes dried naturally on the vine and were knocked into bins by a tractor-mounted harvester. Labor use was cut drastically and yields skyrocketed.

Did this new technique spread among raisin farmers in American? For the most part, no. The ready availability of cheap immigrant workers blunted the incentive to make the expenditure to switch to the more efficient method, with consequent long-term losses to both farmers and consumers.

Because of the excess supply of immigrant labor in American, notes Mr. Krikorian, the European Union is well ahead of us in bringing new agricultural technologies to market, which could result in the U.S. losing out to international competitors. But if we were to restrict cheap foreign labor, modernization would be spurred, not only in the farm sector says Mr. Krikorian, but in services as well.

Others have arrived at similar findings. A study titled “Alternatives to Immigrant Labor?” by agricultural researchers Yoav Sarig (Agricultural Research Organization, Israel), James F. Thompson (Department of Biological and Agricultural Engineering, University of California-Davis), and Galen K. Brown (Florida Department of Citrus), analyzed fruit and vegetable crop mechanization in the United States. The authors found there has been little investment in mechanized harvesting by growers since 1980 because of the ready availability of cheap labor, and “many workers were illegal aliens using falsified papers.”

Philip Martin, professor of agricultural and resource economics at the University of California-Davis, in a paper on foreign workers, wrote: “In 1960, 80 percent of the 45,000 peak harvest workers used to pick 2.2 million tons of the tomatoes used to make catsup in California were Braceros [Mexican laborers] and growers testified that ‘the use of Braceros is absolutely essential to the survival of the tomato industry.’ In 1999, about 5,000 workers were employed to ride machines to sort 12 million tons of tomatoes harvested by machine on 300,000 acres. In the tomato case, the end of the Bracero program led to the mechanization of the tomato harvest, expanding production, and a reduction in the price of processed tomato products, which helped to fuel the fast-food boom.”

Michael Lind, Whitehead Senior Fellow at the New America Foundation, recently wrote in the Financial Times: “The availability of low-wage immigrant labor has caused the U.S. to lag behind Japan, Australia and others with advanced mechanical harvesting. And thanks to the glut of cheap labor, home construction in the U.S. remains low-tech and inefficient. A tight labor market would force rapid productivity gains in nontraded domestic industries that today are labor-intensive.”

In manufacturing, the story is similar. Economists Myriam Quispe-Agnoli and Madeline Zavodny at the Federal Reserve Bank of Atlanta in their study, “The Effect of Immigration on Output Mix, Capital, and Productivity,” developed a regression model that showed “changes in the labor supply due to immigration appear to lower labor productivity in both the low- and high-skilled sectors.”

Ethan Lewis, economist at the Federal Reserve of Philadelphia, authored an econometric study, “Immigration, Skill Mix, and the Choice of Technology,” based on Census plant-level data. The study examined the impact of low-skilled immigrant labor on technology adoption in manufacturing. It concluded plants with fast labor supply growth “adopted automation technology more slowly… and even de-adoption was not uncommon…. The relative supply of less-skilled labor reduced demand for technology.”

Unless and until effective immigration reforms, including border protection, employer sanctions and benefit restrictions are put in place, the tide of illegal immigrants entering our country will not abate. If low-skilled immigrants continue to increase their share of the work force, there likely will be a further dampening of technological and productivity growth in key sectors of the economy. America cannot afford that. It’s not that productivity isn’t growing, but it could be higher.

Alfred Tella is a former Georgetown University research professor of economics.

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