The Worst Yet From Edwin Rubenstein

Edwin Rubenstein makes a habit out of producing economic analyses that are peppered with spin, faulty logic, unsupported economic theories and outright lies. But this one takes the cake. This is the most dishonest column he’s written to date.

His most recent column was to dispute a report by the Cato Institute that reported that immigration yields significant economic gains to Americans: http://tinyurl.com/yl7aem5 Here Edwin Rubenstein takes on the task of arguing that immigration is not good for the economy.

His first deceptive spin is found in his comments on the workforce.

An average 650,000 native-born dropouts were unemployed last year—10.1% of their labor force. That’s the good news. The bad news: the vast majority of uneducated natives—over 10 million—were too discouraged even to look for work. Labor force participation for them was a measly 38.4% compared to 61.3% for their foreign-born counterparts.

Rubenstein wants his readers to think that the labor participation rate among uneducated native born Americans is low because they’re too discouraged to look for work. This is not the case. There are several reasons why people are not included in the workforce. Yes, some are too discouraged to look for work. Others are homemakers raising children. And it should not surprise that many uneducated Americans are not in the workforce actively seeking work because they’re getting an education. This is the primary reason why the labor force participation rate is the lowest among uneducated people: school attendance. Rubenstein doesn’t want his readers to understand that. He tries to inflate the unemployment of the uneducated and undereducated and blame it on immigrants.

This type of deception is typical Rubenstein and is present in most of his writings. But later on Rubenstein goes off the deep end:

Stricter border controls would tend to create labor shortages. But eventually, market forces would kick in: wages would rise, more native-born Americans would enter the workforce, employers would invest in productivity enhancing equipment. That would be good for most workers, although profits might take a hit.

If the supply of illegal aliens were to suddenly dry up, employers would respond in two ways. First they would offer higher wages, increased benefits, and safer working conditions. At the same time, employers would look for ways to substitute capital for these suddenly more expensive native workers. Labor scarcity stimulates capital investment.

Here Rubenstein makes two points. The first is that employers would offer higher wages if the supply of labor were reduced. This is true.

But what is the real effect on wages? George Borjas (a real economist by the way) estimated that the effect of immigration on high school dropouts’ wages is less than 5%. http://tinyurl.com/yg9y7gu So in the absence of immigrants the wages of high school dropouts would increase 5%. So the guy making $10 per hour would make $10.50 per hour theoretically. That’s chump change.

Studies have shown that merely graduating from high school can increase a worker’s earnings potential by as much as 40%. That’s real money. Anti-immigration fanatics are always whining about how immigration affects wages of the uneducated. If they really wanted to help these people, then they’d be encouraging them to get out of bed in the morning and go to school.

The second point that Rubenstein makes is that in the absence of workers, businesses will invest in capital. Rubenstein makes the claim that “labor scarcity stimulates capital investment”. This is what I was talking about when I said that this one takes the cake. This is the most ridiculous claim that Rubenstein has ever made.

The exact opposite is true. Capital compliments labor and labor compliments capital. Workers make equipment productive, and equipment makes workers productive. In layman’s terms, labor helps capital earn more money and vice versa. Thus, it’s not surprising that capital investment follows labor. The United States has an ample supply of labor. Well educated healthy human beings in the prime of the lives. For decades foreign interests have been investing in U.S. companies.

Take shovels. A ditch digger using his hands can only dig so fast. Providing him a shovel will increase his productivity. The shovel alone, without the worker, accomplishes nothing. The same is true with a Mauldin 1550C paver, a McCullough chainsaw or a meat packing plant. Businesses are going to build a meat packing plant near areas of labor or they’re going to encourage laborers to relocate near their investment.

Rubenstein provides some examples to support his contention:
Real world examples of capital replacing well-paid labor abound. Automated switches have replaced most telephone operators. Cars are increasingly produced by robots guided by few workers rather than labor-intensive assembly lines. Thanks to serve-yourself gas pumps, we have fewer attendants but more gas stations.

What Rubenstein ignores is that automated switches replaced some telephone operators because using automates switches was cheaper. I can guarantee you that if it were cheaper to hire workers to rout telephone calls, then PacBell would be hiring right now. The same thing with robots on assembly lines. They were implemented because they were cheaper than labor-intensive assembly lines.

Take the shovel example. The increased productivity that a shovel yields is more than the cost of the shovel. If one could hire a guy to dig a hole at less than the cost of a shovel, then I mean come one, why buy the shovel?

California agriculture was at the forefront of mechanization during the 1960 to 1975 period—roughly from the end of the Bracero program which allowed the importation of Mexican farm workers to the onset of mass illegal immigration. Today, the harvesting of fruit and vegetables in California's Central Valley is among the most labor-intensive activities in North America

The reason it’s a labor-intensive industry is because the businesses find it cheaper to use labor than to develop mechanization to do the work. It’s that simple.