Target, the Labor Market, and Immigration

Target raises its minimum wage to $13 an hour in tight labor market. https://t.co/9cImI71prc

— NBC News (@NBCNews) April 4, 2019

As the above tweet shows, retail superstore Target announced an intent to raise its minimum employee pay to $13/hour. A tight labor market – and an effort to separate itself from Walmart (which pays a minimum of only $11/hour) in the market for retail employees – is cited as the primary driver of this wage increase for the company’s lowest-paid workers.

Target’s pay increase is hardly a surprise. There is ample evidence that a relatively hot US economy (bolstered today by yet another favorable jobs report) is seeing the demand for employees – particularly at the bottom of the corporate ladder – outstrip the supply of needed wage earners for such employment. Living in Dallas (where this author resides), it is routine to see retail stores and restaurants advertising at their place of business a need for employees – and a willingness to pay wages that far exceeded the market in retail and service positions from just a few years ago. Bottom line, it is a pretty good time for workers seeking entry level work – jobs are available and pay is regularly increasing.

At the same time, a seemingly unrelated news story – the attempted mass illegal immigration by residents of the Golden Triangle (El Salvador, Honduras, and Guatemala) across the US/Mexican border – has the potential to have long-term negative impacts on the growth of low skill wages for Americans. Put simply, migrants from Central America are simply not coming to the United States to compete in professional, technological, engineering, or other white collar occupations. Moreover, they are exceedingly unlikely to compete with high skill blue collar workers, such as plumbers, electricians, and heavy machine operators, who typically have skills that take decades to fully master and are often quite well compensated.

Instead, these migrants are almost certain to compete at the very bottom of the labor force – in positions of simple manual labor or construction, at restaurants, in janitorial services, and so on. Such positions (which share many similarities with basic retail positions) are at the bottom of the labor market, often require the least education, and offer the lowest wages for their occupants.  Frankly, due to their generally low pay, they are often held by the Americans whose financial struggles are most acute, and are the most likely wage earners to rely on governmental financial assistance.

An influx of low-skilled migrants, then, naturally results in the enlargement of the pool of low-skill workers.  In places that significant immigration of people lacking skills has occurred, most economists have found a deflationary impact on wages for the native population working in the same lower-skilled economic sectors.  In effect, the greater the supply of people willing to work for less pay, the lower employers must compensate their employees in entry level and/or low-skill positions.

While this deflationary wage pressure does not impact most Americans personally (as the United States is a country largely composed of citizens and legal immigrants with fairly substantial educational and skill attainment), there is a real societal/government cost to this phenomenon.  In particular, as mentioned above, Americans without employment or at the bottom of the pay scale are those most likely to receive means-tested government benefits.  To the extent that illegal immigrant labor shrinks the available number of job opportunities and/or drives down wages, the Americans at the bottom of the labor pool are less likely to elevate themselves to an economic station where governmental assistance is not necessary or available.  And ultimately, it is American taxpayers who pick up the check for that assistance.

In order to boost the economic fortunes of those most vulnerable in our society, a healthy skepticism of illegal, low-skill labor is warranted.  A reduction in labor competition for those Americans at or near the bottom of the employment ladder accords them more job opportunities and generates inflationary pressure on their wages, ultimately allowing more of our fellow Americans to achieve a better, less dependent economic station for themselves and their families.