We’re led to believe that it’s a “mystery,” why, even as the U.S. economy has expanded for nearly a decade, wage growth has remained essentially stagnant. The New York Times mooted six possibilities in February: declining unionization; restraints on competition; a lagging minimum wage; globalization and automation; sluggish productivity; and outsourcing.
Another possibility, of course, is that the labor supply has increased at a rapid enough clip that employers have not needed to raise wages to retain workers. Immigration is a possible contributing factor here: At about 45 million people—more than 13 percent of the U.S. population—the foreign-born population is at record levels, according to Pew. About 1 million new legal immigrants enter the United States each year.
And as the brilliant Harvard economist George Borjas has demonstrated, immigration (particularly low-skilled) has pushed down wages, mostly at the lower end of the American economy. Simply put: Employers don’t need to compete for workers when there is an ever-growing supply of immigrants willing to work for paltry sums. That might also explain the conundrum of falling U.S. labor participation rates: Americans simply aren’t incentivized to work when employers are offering them such a lousy deal.
Japan, meanwhile, provides an instructive counterexample. The East Asian nation is famously hostile to immigration; less than 2 percent of Japanese residents are foreign born. The workforce is shrinking, meanwhile, as Japanese baby boomers retire—typically at a younger age than their American counterparts. The Japanese retirement age is 62, and with healthy savings, Japanese boomers are often able to stop working earlier than their strapped American counterparts. (Though some have elected to keep working, in part because labor markets are so buoyant.)
The upshot? The Nikkei Asian Review reported on Monday that, “Japanese workers appear headed for their biggest wage increase in two decades as companies led by the logistics and retail sectors compete for a slice of the country’s ever-shrinking workforce.”
More:
“Businesses lifted wages by an average of 2.41% this year, according to data collected by Nikkei as of April 3. This raise … topping last year’s average increase by 0.35 percentage point, the first such growth in three years. In value terms, monthly pay rose by an average of 7,527 yen ($70), also the highest since 1998.”
There’s a reason we call it a labor “market.” It displays one of the basic truisms of a market economy: Reduce supply, and costs—in this cases, wages—increase.
