On Thursday, thousands of fast food employees and allied union members walked off the job and protested in cities across the country. They were agitating for a hike in the minimum wage, from the current $7.25 an hour to $15 an hour. That isn’t going to happen. Congress, however, is considering legislation that would flood the labor market with low-skilled workers. The low wages paid by fast food employers could be depressed even further.
Labor is a market, subject to the same laws of supply and demand that guide the rest of the economy. Employers will pay no more than the amount necessary to attract enough workers to do the job they require. This is the same phenomenon that pushes a consumer to shop around to pay the least amount for a product or service they desire. It is a law of economics, but it might as well be a law of physics.
A McDonalds in North Dakota, which is in the grips of an oil boom, for example, starts workers at $15 an hour and gives them a $300 signing bonus. The abundance of jobs in the area has forced the employer to pay more to attract the necessary workers. Employers rarely pay the statutory minimum wage of $7.25. The average hourly wage at McDonalds nation-wide, for example, ranges from $7.69 to $10.89. Employers pay what they need to attract and retain labor.
Congress is currently considering a version of immigration reform that would grant immediate legalization to 11 million illegal immigrants while also opening new avenues for low-skilled workers to come to the US. By dramatically increasing the supply of legal, low-skilled workers, Congress would supply employers with an important tool to keep wages down.
The Congressional Budget Office analyzed the Senate Amnesty bill and found that, in the first decade, the legislation would depress wages and increase unemployment. The result is intuitive. There are already tens of millions of Americans looking for work. Adding tens of millions more people to the labor pool makes the competition for the available jobs even more fierce. How many people would accept one penny an hour less than someone else to secure a job?
This goes a long way to understanding why business groups are so aggressively pushing for “immigration reform.” In recent years, corporate profits have come largely from trimming costs and becoming more efficient, rather than increasing sales. A dramatic expansion in the labor pool makes it easier to keep costs down. This isn’t cynical, it is reality.