PRESTOPUNDIT

Price Signals and the True Cost of Illegal Immigration. Let's do the math on massive illegal immigration. The math is actually quite simple. Illegal foreigners are paid far fewer dollars than they consume from the economy. If they have kids in school and/or the family visits the emergency room a few times, very quickly the family has consumed several times paid wages.

Rich folks with illegal nannies and servants are getting services without paying the true cost of labor -- in other words, illegal immigration is providing a government subsidy for the pampered lifestyles of the well to do. It is doing the same for wealthy firms of all sorts -- from agribusiness to international hotels to Walmart. The market tells us that the value of this illegal foreign labor is no more than a pittance -- indeed at the margin a good deal of this labor would be replaced by improved capital goods or simple technological innovation, if our borders were secure .. and if the government subsidy for this labor didn't exist.

Well, much more could be said. But I'll stop here and make a simple point about price signals. Perhaps the most important thing a person can learn about economics is that prices are signals.

A well-functioning economy is one where prices communicate -- signal -- costs. In that way you are not consuming more than you receive in the process of production. You are not planting 10 bushels of wheat in the fall and harvesting 5 bushels of wheat in the spring. But just this can happen when you falsify prices through subsidies or controls -- think government subsidized ethanol production, a case where more money (and energy!) goes in during the process of production than comes out the other end when ethanol is sold on the market.

What we have in the illegal labor market is case of grossly falsified prices. The true costs of illegal labor are not reflected in the dirt cheap prices rich people and businesses pay for illegal labor. They are getting a free ride, and the true costs are borne by others. But that is a story for another day.

UPDATE: And don't miss this. (Lots of wage data on income changes since the dramatic open borders policy revolution of the last 40 years).

UPDATE 2: Another angle on the true cost of massive illegal immigration.

UPDATE 3: "Based on estimates developed by the National Academy of Sciences for immigrants by age and education at arrival, the lifetime fiscal impact (taxes paid minus services used) for the average adult Mexican immigrant is a negative $55,200." And this: "This reduction in wages for the unskilled has likely reduced prices for consumers by only an estimated .08 to .2 percent in the 1990s. The impact is so small because unskilled labor accounts for only a tiny fraction of total economic output." More here.