Tyler Cowen over at Marginal Revolution argues that increased low-skill immigration will not depress wages of American workers, in part because the alternative to immigrant workers is not American workers, it’s offshoring. His commenters suggest that Cowen is ignoring non-tradable goods such as “construction and allied maintenance/decoration trades, as well as in food and transport.”
But I’m not sure it’s that simple. Sure, you can’t outsource waiters. But people don’t need waiters, they need food. And you can certainly outsource food production. If restaurant service becomes more expensive because it’s starved of low-cost labor, a certain amount of restaurant consumption moves to buying food (and lest you start to get the impression that I’m talking about the arugula-munching upper-class here, note that just as much fast food consumption can be replaced by Hot Pockets with no loss of convenience).
Similarly, you can’t outsource much construction, but if the demand for new factories, new office space, and indeed new residences are offshore, then onshore construction takes a hit. And, hey, if you make the incentive powerful enough, I bet that we can figure out how to outsource more and more construction — build buildings from modular pre-assembled pieces that are built in places where labor is cheap. Outsource architects. Etcetera.
People have powerful incentives to figure out how to make this happen.