by Timothy Lee
Mon, Oct 15th 2007 9:27am
Business Week has a lengthy article about the controversy over "worker shortages" and immigrants in the IT industry. The tech industry argues that they're unable to find enough workers with the appropriate high-tech skills. Industry critics counter that the worker shortage is overhyped, and that companies are really just trying to drive down wages for high-tech workers. Frankly, I think both arguments exhibit a woeful ignorance of basic economics. In a competitive market, which the IT labor market certainly is, there's no such thing as a "shortage." Rather, there's a shortage at a particular price. If the number of jobs exceed the number of workers at a given wage, wages will get bid up and some employers will choose to let some non-essential jobs go unfilled. Conversely, if there are more workers than jobs, wages will fall, causing some firms to expand more aggressively than they would have at the higher wage. The number of jobs isn't fixed, it varies depending on how high salaries are.
So the critics are right that restricting immigration would lead to wages being bid up. But those higher wages come at a steep cost: a smaller, less innovative technology sector. Many of the jobs that companies don't fill when wages rise are jobs that would have led to the creation of innovative new products and services. Restricting the supply of IT workers, then, will result in fewer products and higher prices for consumers. Moreover, the wage-enhancing effect of immigration restrictions are likely to be only temporary because many immigrants go on to found companies of their own, which in turn leads to the creation of new jobs. Deny them a job today and they won't create several new jobs a decade from now.
As Dean Baker has pointed out, the argument for liberal immigration of skilled workers is exactly the same as the argument for free trade in manufactured goods. In both cases, one short-term result is greater competition and possibly lower wages in the affected industry. But those short-term savings get passed along to consumers, and the long-run result is a more productive and dynamic American economy. Moreover, the evidence indicates that the wage-depressing effect of skilled immigrant workers is pretty small. After a decade of hand-wringing about the effects of H1-B visas, a recent survey found that computer science students get an average salary of $53,051 fresh out of college. That's a lot more than the average recent college graduate makes, and it suggests that there are still plenty of jobs available for native-born IT workers. Would it be nice if IT salaries were even higher? Of course, but those higher salaries shouldn't come at the cost of a less-innovative IT sector.
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