Market Effects of Immigrant Labor Case Study

Remaining workers will get jobs at higher than equilibrium wage, the Supply curve shifts to the left, and wage and output stabilize until something else changes like input cost or legislation.

Were firms able to hire workers at less than minimum wage, say like in Figure 4, where the cost of paying illegals including the enforcement cost results in lower demand for legal minimum wage workers, the result would be a total average cost between the two supply lines, increased outcome for the firm, at less than average minimum wage cost. The new Alabama law seems to attempt to drive off the black line "illegals" by mandating stiffer enforcement for services and privileges like business or auto licenses, Rawls (2011) explains. This creates an interesting distribution of costs if firms derive profit, but the cost of enforcement is being pushed onto others not employing illegals. If the black line in Figure 4 were closer to the gray "Legals" labor supply, there would be less incentive for firms to cheat. If the "Legals" labor supply was any higher to the left, i.e. wages were higher than minimum, and there were illegal workers, the result would be lower average wage for all of them but unemployment for the legal workers. Raising the cost of the black line in Figure 4 to the level of the gray line would get rid of any incentive to hire undocumented workers but instead Alabama has chosen to increase the burden of enforcement outside the firm. The result is a direct subsidy by all other businesses who want to get a license, or individuals who want to license a car (cutting into auto sales and thus theoretically raising price there), with that cost given directly to the owners of firms who hire illegal workers, in theory. The firms who break the law profit at the expense of the rest of the society, and deliver higher profits to their owners drawn off from all neighboring business who may or may not break the law hiring illegals, and/or specific businesses in regulated industries, here auto sales among others.

The Alabama law brings up another interesting aspect of the labor market picture which it then omits considering at length, the apparently important supply of foreign labor working legally amidst the Alabama labor force (Rawls 2011). These workers lower the average cost of labor like the illegals do but without the additional cost of enforcement for other services and employers, if they are not allowed to consume those services without being a legal resident. Nor would these workers compete for longer term investments like homes or college loans, if they are not legal residents. These workers would directly compete for jobs with residents except that if their employing firms would not locate to Alabama given the existing labor costs, which seems to be a possible implication from the article, the result would be less demand by these employers for other inputs, goods and services. The deeper solution not mentioned in the article would be to get rid of the federal minimum wage, in which case Alabama residents could work for the original, below-minimum equilibrium wage, which would be lowered even still by the presence of illegal and legal nonresident workers. This would eliminate deadweight loss but would tend to deflate the entire local economy if workers had less earnings to spend on consumption goods.

Why there was any embarassment over asking guest workers for their proof of residence remains unexplained as well. If the new law is being enforced uniformly, then "everyday transactions" will entail this type of scrutiny for everyone. There should be no outcry about the state's Civil Rights history unless…