Immigration and Unemployment – an excerpt from my book

I’ve just written a new section for my book on debt, dealing with unemployment and immigration. Here it is:

Today there is a more popular explanation of unemployment: it is due to immigration. A job guarantee offered to every citizen or permanent resident of a nation would destroy the argument that the immigrants are taking our jobs. Naturally, combining a full job guarantee with unlimited immigration could leave a country with more immigrants than its infrastructure and ecology could handle – the situation in which the paranoid media wishes to convince citizens of wealthy countries that they already face. The fair solution would therefore be to restrict free immigration to citizens of other countries implementing job guarantees of their own; others would have to apply for visas, which could be rationed.[1] But it may be impossible to convince those who fear immigration of the logic of this response. The notion that immigration is the cause of unemployment indicates a level of parochialism that defies even basic logic.

Suppose there are two miniature countries, Ystan and Zstan. In Ystan, there are 100 workers looking for work at a reasonable wage. Zstan is just the same. In Ystan there are only 80 jobs available at a reasonable wage. 20 workers will immigrate into Zstan looking for work. But suppose that in Zstan there are only 100 jobs available. The Ystani immigrants will compete with the native Zstanis for work. If the Zstanis suffer from parochialism, they will blame immigration for the new levels of unemployment in Zstan. But clearly immigration is only the effect of unemployment. Because there are a total of 200 workers in both nations and a total of only 180 jobs, 20 workers in either or both of the countries will have to be unemployed, regardless of the patterns of immigration.

The proper question is: why are there only 180 jobs in total? I have proposed an answer: unemployment is due to an excess of demand for IOUs over those being issued. In that case, it is open to either country to issue sufficient IOUs to absorb the wasted productive capacity composed of the 20 unemployed workers. Failure to take advantage of this opportunity results in unnecessary unemployment; its cause is ignorance – failure to understand debt – not immigration.

Others propose a different sort of answer, based on inevitable inefficiencies in the labour market, which supposedly keep real wages above the ‘market-clearing’ equilibrium level. If that explanation were correct, there would be no reason to suppose that an international labour market should necessarily be less efficient than a set of domestic labour markets. Allowing for the free flow of labour would not compound the problem of unemployment; it would merely allow it to move around.

The more subtle opponents of immigration argue that it should be the responsibility of each country to deal with its own unemployment rather than ‘exporting the problem’. But it is hard to see why a country should be responsible for unemployment that it did not cause. Supposing that unemployment is a monetary phenomenon, any government that controls its own country can choose its level of employment, simply by running large enough deficits to absorb unused capacity. Hence the proposal to have countries implement job guarantees and open their borders to other countries that do the same (a Eurozone-wide job guarantee would resolve the immigration puzzle and arrest a descent into fascism at a stroke).

But if unemployment is a matter of labour market inefficiency, a country can only be held responsible for failing to make its domestic labour market as efficient as possible. Again, the international nature of many markets greatly limits this responsibility. Moreover, it is impossible to measure the degree of responsibility of any country. It is impossible to determine the level of efficiency of any market; the true ‘market-clearing’ prices are beyond our power to calculate, and so we cannot tell how close to them the real prices are.[2] And how could we compare the efforts made by different countries, diverse in their history, culture, and distribution of natural resources, to render their labour markets efficient? It is only fair to require each country to make the same effort, not to bring about the same outcome; the latter may be achieved by various countries with different levels of effort. Why shouldn’t a country that has made every effort to render its labour market efficient and yet still suffers from high unemployment have the right the export to the problem to a country that can more easily handle the cost?

This is all premised on accepting the market inefficiency explanation of unemployment. For my part, I believe that the very idea of a market-clearing equilibrium for labour is nonsensical. A market-clearing equilibrium is usually defined as a stable equilibrium point at which the aggregate labour supply and demand curves intersect. I do not believe that there is an aggregate labour supply curve: a function yielding one level of employment that workers wish to supply as a value for each given wage-level as an argument.[3] If there is no such thing as the aggregate labour supply curve, there is no such thing as an equilibrium point at which it intersects the demand curve. If there is no such thing as an equilibrium point, then there is no such thing as the efficiency of the labour market, defined as its proximity to such a point. And so the proposition that countries are obliged to render their labour markets as efficient as possible before ‘exporting’ their unemployment is simply meaningless. Even if the claim were meaningful, we have seen that nobody could determine its truth.

Those who claim that their country has no obligation to take on the unemployed of other countries I therefore accuse of mere prejudice. Their feeling is that if there must be unemployment it had better be visited upon the lower sort of people rather than people like themselves. Their minds are a deformed moral tissue of resentments, born from a misplaced sense of entitlement. They must be educated before they cause horrors. If they can’t be educated, they must be fought.[4]

Better altogether, as Kalecki argued, to eliminate the unemployment in the first place; then there is nothing for the morally deformed to blame upon immigration. The job guarantee dissolves unemployment arising from monetary causes. If unemployment is due to other causes, the job guarantee will do no harm. It has a built-in safeguard against inflation. It allows those who believe they have better uses of labour to hire them out of the guarantee programme by paying above the living wage or offering other benefits. And the provision of public works is surely a good thing in itself. The job guarantee would, for instance, provide workers to help with mitigating and preparing for the effects of climate change (the Green New Deal). I wonder what those who think immigration is out of control now think when they try to imagine those effects. In sum, people who resent immigration should be just as much in favour of the job guarantee as everybody else, if only they could think clearly.

[1] See http://www.3spoken.co.uk/2014/10/how-labour-can-solve-immigration.html

[2] Full Employment at Any Price?, Part II.

[3] This is for the reasons spelled out in ch.19 of Keynes’ General Theory. I follow the interpretation expressed succinctly by James Galbraith (p.95). 

[4] A general introduction to morally non-defective ways of thinking about immigration can be found in Michael Dummett’s On Immigration and Refugees.

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One thought on “Immigration and Unemployment – an excerpt from my book

  1. Pingback: Shy Tories: Let’s Talk | Origin of Specious

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