The RAISE Act Won't Raise Wages for Americans

In his successful election campaign last year, Donald Trump tapped into a genuine and serious set of concerns among many Americans about the impacts of both trade and immigration on their economic well-being.  The faith among policymakers in Washington—that relatively open trade and immigration were an unmitigated good for Americans—required turning a blind eye to economic research and real world evidence that showed that both create winners and losers in the American economy. And Donald Trump promised to stand up for the losers. 

One of the great frustrations of the first six months of his presidency, however, is that President Trump continues to endorse policies that won't help and could hurt many of the very same voters who put him in office. The latest was his eager embrace of the so-called RAISE Act, legislation introduced this week by Republicans Tom Cotton and David Perdue that would cut legal immigration to the United States in half. The president invited both senators to the White House to unveil the newest version of their bill, claiming that restricting immigration would “reduce poverty and lift wages.”

The RAISE Act is based on the assumption that by restricting immigration and reducing the labor supply in the United States, employers would be forced to raise wages for Americans. In doing so, it purports to address perhaps the biggest public policy challenge of the 21st century—how to lift wages for many Americans who have not seen a significant pay raise in decades, and how to shrink the growing gap between the top earners and those in the middle and the bottom.

Wage stagnation has multiple and overlapping causes that are maddeningly hard to disentangle—automation, trade and import competition, the weakening of unions, poor enforcement of labor laws, the shrinking real minimum wage, outsourcing of investment by large corporations, the growing returns to the highly educated and, yes, competition from large numbers of immigrants, especially for Americans with only a high school education or less. Wage stagnation is not confined to the United States—all the advanced economies have seen similar trends—though it has been worse here than almost any other similarly developed country.

But such a complex story lacks a simple villain or a simple policy solution. Enter Stephen Miller, the president’s senior policy advisor, who had a clearer explanation yesterday. “You’ve seen over time, as a result of this historic flow of unskilled immigration, a shift in wealth away from the working class to wealthier corporations and businesses,” he said at a White House briefing. Restricting immigration, particularly of those with low education levels, would increase employment opportunities for Americans, he argued. 

Unfortunately, as the British writer Alexander Pope first put it: “A little learning is a dangerous thing.” And Miller, like so many of those around the president, has absorbed just enough to champion bad ideas.

The sponsors of the RAISE Act promise that, by cutting immigration in half and in particular by stemming the flow of low-skilled immigrants, the result will be “an increase in wages for working Americans, who are long overdue for a raise.” The evidence for such a claim is scant, to say the least. A new paper by Michael Clemens of the Center for Global Development and his colleagues takes a deep dive into one of the more notable labor market “shocks” created by restricting immigration—the U.S. elimination of the bracero program in 1964, which cut off an annual supply of roughly 500,000 Mexican farmworkers. The sudden reduction in supply of workers had no effect on farmworker wages, however, even in states that saw their farm workforce decline by as much as one-third. Instead, farmers opted for automation and other labor-saving tools. That research is not the last word, of course. But the bulk of economic studies suggests that, of the various factors holding down the wages of Americans, immigration is a rather insignificant one (though, to honor the complexity again, the effects appear to be larger for some groups, such as African-Americans with less than a high-school education).

And Trump’s embrace of the bill blithely ignores the potential downsides of restricting immigration so severely. Many U.S. employers today are complaining they can’t find workers with the skills they need, retarding business expansion. The United States is already losing highly-skilled and entrepreneurial immigrants to other countries that are eager to open their doors to the immigrants this country is discouraging (and despite its focus on “merit-based” immigration, the RAISE Act would do nothing to help here).

Perhaps the most surreal moment in the bill's unveiling was when Trump advisor Stephen Miller invoked Detroit to make the case for immigration restrictions, worrying that if a new business opened in the city “the unemployed workers of Detroit are going to have to compete against an endless flow of unskilled workers for the exact same jobs.” Note: Detroit’s population has fallen by nearly two-thirds over the past half century, the same period of mass migration that Miller cites as the cause of so many ills. Formation of new businesses across the United States is at historic lows, and Detroit continues to lose companies faster than it is creating them. One of the clearest bits of data on immigrants is that they start new companies at a much higher rate than native-born Americans. If ever there was a city that needs more immigrants, not fewer, it is Detroit. 

The RAISE Act is just the latest version of Trump’s penchant for simple solutions to hard problems. “Repeal and replace” on Obamacare would have left millions of Americans with less health care coverage. His trade proposals for restricting imports would harm many American workers, and sidestep the real challenge of making America more competitive internationally and ensuring that trade rules are enforced fairly. His slash-and-burn budget would cut retraining programs and other initiatives that help Americans gain a leg up in a fast-changing economy. 

Trump’s campaign identified real problems that have been too long overlooked. Now if only he could embrace some real solutions.