NCPA - National Center for Policy Analysis


August 30, 2007

The flood of foreign labor pouring into the United States, the European Union and other hospitable environs has brought political strains.  But there is little chance of stemming migrant inflows, as long as the countries supplying immigrants embrace policies that effectively mandate labor dumping, says Steve H. Hanke, a professor of applied economics at the Johns Hopkins University and a senior fellow at the Cato Institute.

Mexico is the world's largest labor dumper and the source of much of the contentious U.S. immigration reform debate.  The source of the problem is Mexico's statist economy, which can't produce enough jobs.  Rather than modernize the economy, Mexico's politicians sweep the country's surplus labor force into the United States:

  • Mexico's 47 consulates in the United States, more than any other country has, facilitate the sweeping by issuing passports and offering assistance when Mexican immigrants run into trouble.
  • Thus 30 percent of Mexico's labor force is working in the United States, and in 2006 they sent home $23 billion -- 12 percent of Mexico's exports.

Turkey has a similar story.  Burdensome laws and regulations put Turkey's labor market 146th on the ranking from Doing Business 2007.  Adding to the labor market's regulatory burdens is the tax system:

  • According to the Organization for Economic Cooperation & Development, in Paris, the tax wedge -- the difference between labor costs to the employer and an employee's take home pay -- is 42.8 percent for a family with two children and one working parent.
  • This is the largest wedge in the OECD, 15.3 percentage points higher than the OECD average.

Turkey has swept 5.5 percent of its labor force into western Europe.  Employment in the formal sector -- on the official labor rolls -- of the Turkish economy accounts for only 22 percent of total employment.

Source: Steve H. Hanke, "Labor Dumping," Forbes, September 2007.

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