Why Rich People Love Poor Immigrants

David Lee explains why rich people love poor immigrants:

Soon after the Immigration Act of 1965 was passed, real wages of low-skilled workers soon stopped growing and have gone nowhere ever since. The incomes of the rich, however, accelerated upward. Both events can be explained by the mass immigration of cheap labor. The combination of these events presents an immediate threat to democracy.

The ratio of the top 1% of incomes to unskilled income has quadrupled since 1972, to a level far exceeding the previous peak in 1928. The graph in Figure 2 shows that this ratio has gone up and down with the immigrant fraction of unskilled workers in the economy since 1774.

The failure of unskilled wages to keep up with the trend is what we would expect because the labor market was flooded with unskilled immigrants in the decades after 1825, and again after 1965. The laws of supply and demand dictate that when the supply of labor goes up, wages go down, assuming the demand for labor does not rise by a proportional amount.

The incomes of the rich have benefited dramatically because high-income people generally supply the managerial expertise that directs and controls the labor of the people. (I include investors and business owners in the term “managers”.) The supply of skilled managers did not increase very much during these surges of low-wage labor. But the demand for managers went up because the number of workers in need of management went up. Also the amount of management needed per worker went up because of the lower “self-management” skills of the workers. The laws of supply and demand work on the demand side in this case.

Everyone has some management talent, but the people we call “managers” have significantly more management talent than the average person.

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