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Speaking of illegal immigration
Posted by: McQ on Friday, June 08, 2007

An interesting point:
A conundrum in construction lies at the heart of a US jobs market puzzle that continues to baffle economists – including officials at the Federal Reserve.

After a year of sub-par growth unemployment is a mere 4.5 per cent. With jobs growth strong but output growth weak, productivity looks very poor.

Most economists think about these questions in whole-economy terms. But much of the explanation may lie in the single sector at the heart of the housing-driven slowdown: the US construction industry.

During the past year residential construction activity has plunged, but employment in this sector has hardly declined at all – at least according to the official statistics.

The Bureau of Labor Statistics payroll survey shows total construction employment and residential construction employment down just 2 per cent year on year in May, the latest month for which figures are available.

The absence of the expected drain of net job losses in construction is the single biggest reason why overall job gains remain so strong – 157,000 in May – and unemployment remains so low.
Large economic sector which has hit hard times due to a fall off in residential housing starts, but employment is down only 2%?

Not really. Officially, yes, but in reality, no.

Some reasons considered:
One is that companies are hoarding labour in expectation of a rapid rebound in the housing market. This looks increasingly implausible as the housing correction drags on.
Agreed. Number two?
Another is that there is a time lag in construction and big job losses are just around the corner.

There may be some truth to this. But the slowdown has already been under way for a long time.
Again agreed.

If it all fails to add up, the answer may be that the official statistics are not accurately capturing what is taking place in an industry that employs both a large number of small subcontractors and a large number of illegal immigrants. Specialty trade contractors – who work for small subcontracting firms – account for nearly two-thirds of all construction jobs. These workers tend to belong to small, often informal businesses.

The payroll survey is likely to understate the extent to which these workers have switched from the residential sector to fast-growing commercial construction.
Well not only that, it is also not going to report the loss of jobs to illegals who were most likely paid off the books and were the first to be let go.

It should fairly obvious that while both the commercial and residential construction industry boomed and the unemployment rate was 4.5% and after the residential side tanked and it remained 4.5% that the slack was being taken up by someone. While commercial construction might be good, its not good enough to absorb all the losses on the residential side. So the real job losses that came out of the slump had to effect someone.

Now, before I hear the complaints that I'm trying to justify illegal immigration, that's not the point. You'll see where this is going in a minute.

Anyway, what I've outlined above indicates an economy with a shortage of labor (we have 4.5% unemployment, which economists consider full employment and we also have a workforce of about 10 million illegals). And what does that usually do? It usually bids up the price of labor.

But with an illegal population willing to work for less available to businesses, what instead happens? This is one of the reasons many businesses in this country are not at all interested in stemming the tide of illegals or seeing any workplace measures for validating worker's citizenship in place. As long as illegals remain in the shadows but are allowed to work, the labor pricing mechanism will continue to underprice construction (and other) labor.

Why have businesses been able to get away with this for so long? Well, it's the Wal-Mart conundrum. With Wal-Mart you are basically asked if you are willing to pay more to keep a Mom & Pop business going. The usual answer, given the success of Wal-Mart, is 'no'.

Same sort of problem here: are you willing to pay the extra in construction costs it will take to have legal workers build your house or business?

It's a real life question that gets beyond ideology and goes directly to the old wallet and one of the things that makes the immigration debate so complex and may be among the major reasons government is so reluctant to deal with it. Any guess who's going to end up being blamed for rising construction cost and other rising prices?
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Previous Comments to this Post 

Unemployment rate can’t be trusted. Numbers are created under such rigid conditions as to render it literally useless in understanding the fate of the Labor Force. For more on this, here’s Barry Rietholz. - who has no discernible political posture. By the way.

I’ll have to quote, McQ, because otherwise I don’t know if you’ll read it -

One of the lesser noted aspects of the NFP report Friday was the drop in the Labor Participation Rates. It is the percentage of the total population that is either working or potentially working. In the US, it is about ~170 million people, and excludes children, retirees, non-employed (work at home moms, etc.). That Labor Pool measure peaked in 2000 at just under 67.4%. Following the market crash and recession, it subsequently fell about 1.5% to about 65.8%. This accounted in no small part for the falling Unemployment rate from 2001 - 05.

Now, a 1.5% or so drop doesn’t sound like a lot, but remember there are 143 million workers in the US. That drop equals about 3 million people. These are folks who are willing to take a full time job, have been unable to find work, and have exhausted their unemploment benefits.

The Labor pool drop appeared to have bottomed and reversed it self late 2005 (see chart above). The 5 year downtrend channel was broken, and a new uptrend — higher highs and higher lows — was beginning.

Until recently.

Augmented It has since started heading lower again. They do not count in the "official" Unemployment Rate statistics. However, BLS actually does measure these folks in their "augmented unemployment rate" — the jobless people who aren’t counted among the officially unemployed. That measure is 7.4%.

The gist is that the unemployment rate has been artifically low for the entirety of the Bush Admin. The labor market isn’t really tight - wages have been basically flat, and it only just started to change in late 2006. Your post mirrors that very fact, in a way, except it blames it all on illegal immigrants. But that situation isn’t any worse now than it was during the 1990’s, when we had a genuine economic boom, rather than one only visible in Larry Kudlow’s brain.

You know, somewhere beyond what you’ll admit here, that this economic ’recovery’ has sucked. You know that the worst right track/wrong track numbers in history can’t really be blamed entirely on "Iraq", or even more laughably, pessimistic media reporting. You know that’s what’s behind the popular anti-immigrant xenophobia, which dissapears during genuine, fully distributed economic booms.

Same sort of problem here: are you willing to pay the extra in construction costs it will take to have legal workers build your house or business?

Yes. That’s why we needed to have this immigration bill passed - to legalize the immigrants, and end the ability of businesses to employ them at black-market wages. That would end the bifurcation of the labor market.

But the right wing killed it. And they have nothing to replace it with.
Written By: glasnost
URL: http://
It’s not clear what effect illegal immigrants have on housing prices. The run-up in housing prices isn’t due to labor costs but to demand in the face of supply constraints. It’s not just that they “aren’t making land” but that regulatory restrictions (zoning, green laws, anti-growth initiatives, etc.) limits supply.

What increased demand? Immigration! The population in New York City and the state of New Jersey increased about 10% (if I remember correctly) over a decade because of immigration. Thus, a decrease in immigration might actually alleviate the housing bubble; and make housing more affordable.

This is not to discount the role of low mortgage rates and affordability mortgage products (hybrids, IOs, and option ARMS). That also provided the means to bid-up a limited supply. The liquidity pumped into the economy by the FED during the early part of the decade bid-up housing in the face of an over-regulated (SarbOx-ed) publicly traded corporate economy.

Thus, it is not clear how immigration, on balance, plays into the housing market. A more detailed analysis is needed.

Written By: Jason Pappas
What happens now to these unemployed illegals? Do they just go into hibernation until the next upturn? Do they sneak back to wherever they came from? And what happens when the next real recession hits? A million or so semi-literate, unemployable young males with no money, living outside the law, and with lots of free time on their hands.
Written By: timactual
URL: http://

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