Labor Econ Versus the World

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0:00:07.6 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus. Joining me today is Bryan Caplan, professor of economics at George Mason University and author of many books. His latest is called “Labor Econ Versus the World.” Welcome back to the show, Bryan.

0:00:20.3 Bryan Caplan: Fantastic to be here, Trevor.

0:00:22.7 Trevor Burrus: So your book, it covers workplace issues and immigration, but it also goes into education, and then to marriage, and then to children. How is all of that classified as Labor Econ?

0:00:35.4 Bryan Caplan: Now, that’s a great question, ’cause the answer is, it all comes back to Gary Becker. Gary Becker, in a way, is the founder of the modern field, he defined the borders of the field. And especially, he was famous for defining, expansively, this economic way of thinking. But when you step back, there is a lot of logic to it. For example, you really can’t understand the labor market without understanding the marriage market, because so many of people’s choices about whether to work and what kind of jobs to have depend upon marital status, kids, and that sort of thing.

0:01:07.9 Trevor Burrus: Does that make the Labor Econ, though? As I know, it’s a different class when you take an Economics degree. But is there something different about labor than, say, studying the economics of widgets?

0:01:20.5 Bryan Caplan: Yes. The reason why I wrote this book, really, and what makes me so excited about teaching labor economics, which I do every single year, is that on the one hand, labor economics is really simple and obvious. You just take standard models and apply it to this particular situation. Another way, it’s very different, because people are so emotionally resistant to applying the standard models to labor that it just takes a lot of work to get people up to square one. The idea that people wanna hire fewer people when the wage is higher, it’s so obvious. If there wasn’t some kind of ideological block that prevented people from admitting this, everyone would admit it. It would be like saying when you raise the price of asparagus, people want less asparagus. And yet people really don’t like this idea, because it does mean that at minimum, a lot of their hopes and dreams about how regulation can fix the world are questionable and may be counterproductive, and indeed, a lot of what motivates me is I think that the regulations that are so popular are counterproductive.

0:02:21.0 Trevor Burrus: But they have some sort of point, in the sense that, not buying asparagus ’cause the price went up, versus not getting a job. These are very different; they feel very different, and I don’t think it’s irrational that they feel very different to the people involved, and then of course, they would say we’re talking about human beings, not asparagus.

0:02:38.4 Bryan Caplan: Of course they’re different, and actually, it’s because labor is more important than asparagus that I’d rather write a book about labor than asparagus. The key thing is, there are some very important similarities that are very hard for people to accept, such as when you raise the price of either labor or asparagus, expect that people will want to buy less. The difference is that when you raise the price of asparagus, there’s some asparagus that rots on the shelf, whereas when you raise the price of labor, then you actually will standardly get higher unemployment, which, again, I would say, actually is very different, in the sense that it’s not just a matter of money, and this is one of the main things that I focus on in the book. I try to take an interdisciplinary approach and say “Look, it’s not just that when someone is an unemployed that they aren’t getting their labor income. It also means that for most of us, our lives are deprived of a sense of meaning and purpose. You can get a lot of this during COVID, when your whole salary is being made up, at least a lot of us felt a great emptiness and loneliness, like, “What is the purpose of my existence? I just sit here in a basement by myself and money comes in, but I don’t interact with other people; I don’t feel like a part of anything anymore?”

0:03:45.4 Bryan Caplan: And yeah, it’s very tempting for people with elite professional jobs to say, “Well, sure, that applies to people like us, but regular people at McDonald’s don’t get any sense of meaning from their job.” This is totally wrong, actually, because the main sense of meaning comes from seeing other people and interacting with others; being part of a team. That’s the human universal that we really see throughout almost all of the economy. Again, there are, of course, some people who really do just work for money, and they would quit the day that they won the lottery, but that actually is not most people. Most people, if they do win the lottery, they wanna go back to work, because what else are they gonna do all the time? And if they go back and don’t like it, it’s just ’cause people treat them differently. It’s not because they actually want to sit around doing nothing except consuming luxuries for the rest of their lives. People feel a strong need to do something productive and to be part of a team.

0:04:35.0 Trevor Burrus: Some of the phenomenon that are discussed in the book, some of them are attempting to explain, at least to some degree, why sometimes, what you just said doesn’t seem to be true. I mean, if we take this basic assumption that labor markets are going to be something like asparagus markets. But then, we have, at least, the Card and Krueger paper, for example, when it comes to minimum wage, that people trot out all the time and say “See, look, these markets did not behave the way people thought they would behave. And so, we need to explain this through some other mechanism.” And you talk about the Card and Krueger paper, which you think is decent enough. But there could be something else explaining this.

0:05:13.8 Bryan Caplan: So, I knew Alan Krueger while he was still alive. David Card was my PhD macroeconomics teacher. It is a well-​done paper. It’s important to understand that it’s one paper out of a vast literature that has gotten an enormous amount of attention; it’s not clear to me that it is better than 50 other papers. I think the reason why it’s got so much attention is that it is one that gives the answer that people are desperately hoping for, even though it really is intuitively quite hard to believe. Well, in the book, I have an essay called The Myopic Empiricism of the Minimum Wage, where I say “Look, we actually have a whole body of evidence that is very consistent with the simple standard view that when you raise the minimum wage, it reduces employment,” just to go through some of the evidence that I reference. There’s a lot of research on European unemployment that blames it very strongly on European labor market regulation. This research passes some extra tests, like when European countries deregulate, their unemployment rates fall a lot; most notably in Germany, Netherlands, UK, which used to look a lot like regular European countries, and now have unemployment rates much more like the typical US level.

0:06:22.2 Bryan Caplan: But then again, there’s just the basic facts of, if you get a job application and they ask you for your salary expectations, no one in the world puts in a million dollars an hour. Everyone has some sense. If I put a number that’s too high, this is going to hurt my prospects. So when people say labor economics is counterintuitive, I say it’s not counterintuitive, it’s super intuitive. It’s counter-​emotional. It says something that people don’t wanna hear. But it’s more akin to saying “You’re gonna die one day” than “Water runs uphill.” “Water runs uphill,” that would be counterintuitive. “You’re gonna die one day,” it’s like, well, duh, but I don’t wanna hear it; it’s not very nice to say.

0:07:00.5 Trevor Burrus: When you talk about that with the European stuff, which I’ve found very interesting, but the general belief seems to be, have you spent a lot of time in Europe that they might accept that this causes more unemployment; you know, 10%, often, in many of these countries, which is quite high; it’s sort of like the stable line in normal times. But what they get instead are better wages, better jobs, six weeks vacation; all the kind of happiness indicators that maybe as a society, they’re making this trade-​off. They’re saying, “Okay, there’ll be some more unemployed people, and we have happier workers,” and, you know, I know a lot of Europeans who are pretty happy workers. So, is that a valid trade-​off? Or I guess the second question too is, should we even be collectively deciding to make that trade-​off? [chuckle] And then, is it a valid one, if that?

0:07:53.6 Bryan Caplan: Right. This is a very tempting argument, just to say “Look, the Europeans have realized that if we’re gonna regulate labor markets, it’s gonna cause high unemployment, but it’s totally worth it, because the people with jobs will have a better situation, and the people without jobs, we’ll just put ‘em on a welfare, no problem. They’re gonna do just fine.” And what I say is, this totally ignores a large psychological literature on what unemployment does to human beings, as well as a similar literature on how important your cash income actually is. And the punchline of this is, first of all, that unemployment by itself causes immense misery. You can see that even if you go and make up all of the earnings, unemployed people seem to be very unhappy, and it fits with the story where employment is a key part of people’s sense of purpose, identity, it’s their social group, it’s being part of a team. So, just saying “Who cares if you’re thrown out of work, we’ll put you on welfare” is not actually a thoughtful answer. I mean, honestly, it’s one that I think more economists would be sufficiently psychologically blind to find appealing, but if you just think more like not just a human being, but just bring in other disciplines, you’ll realize “Well, look, it’s not just about the money, it’s also about having something to do with your life and feeling useful.”

0:09:05.3 Bryan Caplan: So I’d say actually, the European system is very bad for human happiness overall, especially when you look and you see that the extra payoff that people get from higher wages in terms of happiness just isn’t that much. So really, what you’re doing is you’re focusing on something that is not actually that important for human wellbeing, which is just pure cash, and doing this at the expense of allowing people to go and find meaningful employment. It’s also very important to understand that the very best way to get a better job is to get a not so good job first. I mean, it’s the way of the world, like your first job isn’t going to be your dream, but it is what qualifies you for promotion. It’s what qualifies you to apply to other jobs, so you get a lot of basic training. Again, we don’t call it that, usually, we don’t think that you go to McDonalds, and the key part of your compensation is basic job training, but the fact that we don’t still label it doesn’t mean that it’s not happening. Of course it’s happening. It’s, Oh wow, you have to show up for a job. You have to be on time. People think it’s a big deal whether you’re on time or not. Alright, that’s good to know, and if I internalize that, that’s gonna be very helpful for me in the future.

0:10:14.1 Bryan Caplan: And then top of this, it’s also worth pointing out that just measured by even dollar income, almost all European countries would have considerably lower pay than you would usually see in the US. The main thing that you will see is that they often will have higher benefits. Part of this, again, is just regulation. But again, the worker pays for these higher benefits, so like “Fine, I’ll have lower wages, but then I get extra vacation.” If the law wasn’t around, I could have bargained for that on my own, if I really wanted that. And then on top of it, it’s also true that when you have really high rates of taxation, it is a nice way to effectively slip people in tax income just to go and give them goodies rather than cash. Again, when you have really high tax, it’s more common for employers to give you free or subsidized housing, and the governments then, in many countries, will not treat that as income. This is not a sign of, you’ll just say, a more joyful lifestyle, so much as “Gee, if I have to pay 60% marginal tax rate, is there some way that you could go and give me the money without really giving me the money officially?”

0:11:16.1 Bryan Caplan: And so, yeah, that’s a lot of what the European system is like, and also, of course, with the US system when we had much higher tax rates. I remember around, I guess it’d be ’81, my dad got a company car suddenly. If you look at the tax rates of the time, you can go, ah, well, why’d they give him a car, since, well, this is a company car, and you don’t need to drive your own car around anymore, and the company pays for it. The company pays for repairs. The company pays for all the stuff, and we’re not gonna look very hard if you drive it to all of your own activities and take your family on a vacation or whatever; that’s not a big deal. Just enjoy the company car.

0:11:53.3 Trevor Burrus: Did they take it away when the tax rates went down?

0:11:54.8 Bryan Caplan: Yes they did. We only had that company car, I don’t think we even had it for a year, actually.

0:11:58.2 Trevor Burrus: It’s about one or two years. Yeah, I think ’82 is when it went down.

0:12:00.6 Bryan Caplan: Yeah, there was a very brief period when you just start handing out non-​taxed or untaxed goodies to employees rather than a raise, because it’s an especially good time to try to trick the tax man. I mean, to say like, it’s not that… There’s no real trickery afoot, they just have some stupid rules, and then people say, “Hey, can we do this? Okay, let’s do it.”

0:12:24.9 Trevor Burrus: But in addition to compensation, or aside from compensation, there’s a lot of these things with minimum wage, benefits package, marginal tax rates, but there’s a lot of regulations that kind of hamper the fluidity of a labor market, and sometimes, in some European countries, it’s very difficult to fire people, which has some interesting effects. I have my sister-​in-​law, who lives in Australia, which has a very, very constrained labor market. If you go to Australia, one thing you might see, for example… Well, you see very few people serving tables, except for extremely high-​end restaurants, even middle-​tier restaurants have a go to the counter and get a flag, and then go to your table, and then someone brings it, which I suspect is to be blamed on minimum wage. But my sister-​in-​law works at a very sort of boutique headhunting firm that works to match workers up to openings with psychological tests to make sure that it’s exactly the right person for the job. And I suspect that this whole industry has something to do with the inability to fire people, that you need to figure out some way to hire the right person.

0:13:34.0 Bryan Caplan: Right, so, Europe is notorious for difficulty in firing people; the US is notorious for employment lawsuits. In both cases, it’s basically the same idea, where it’s like, “Well, do I wanna give this person a chance? What if they don’t work out?” In some systems, it’s like “Gee, it’s gonna be really hard to fire this person,” and another one’s ” [0:13:51.2] ____, fire anyone you want, but maybe they’re gonna come and sue you, because they’ll say that you treated them unfairly.” So, these are, you know, some other really important regulations I talk about. In terms of the pure logic of them, when I teach my students, I’ll often say, “Imagine if anytime you went out on a date with anyone, you had to marry them at the end? And how would that change your behavior?” It’s like, “Gee, I wouldn’t wanna go out on dates,” right? And I’d also want to have a lot of things that are date-​like while they’re explicitly not called dates, or maybe we’ll go and have a group activity which is not at all a date, but it serves many of the same purposes. You can see these are all the ways that people would avoid getting trapped with someone in a bad match. And then, when you put it that way, it’s like, why do we even have these rules? Like, if all that’s gonna happen is people try like hell to avoid getting stuck, why not just be honest and say, “Look, good matches are hard to find.”

0:14:46.7 Bryan Caplan: And to go in with an attitude of being ready to point fingers and recriminate is just not a functional way for any society to function. It’s not a good way for social interaction or romantic interaction, and it’s not good for labor interaction. And again, it just comes back to, if you know you’re stuck if you give someone a chance, you don’t wanna give them a chance. So either you’re talking about where you’re just super cautious about hiring in the first place, or maybe you’ll go and hire family members, where you have extra economic leverage. You can call up your sister and say “Hey, that nephew of mine is a real jerk. I want you to go and yell at him when he gets home, to go and tell him that he’s expected to pull his own weight at the family restaurant or whatever.” So there’s that. But there’s also just saying “Eh, let’s just… [0:15:33.8] ____ Not hire many people,” or, most obviously, and this is where the counterproductivity of the laws becomes very clear, it’s like, hmm, well, who is demographically likely to sue us? Well, the people that people think need to be protected are likely to sue you, because they are protected.

0:15:51.7 Bryan Caplan: Who’s safe? Safe people would be straight white males under the age of 40, then they can’t sue you for racial discrimination, gender discrimination, age discrimination, sexual orientation discrimination. They actually are, in fact, the safest people to hire. I mean, an example problem I’ve often given to students is, imagine this law, suppose we have the regular minimum wage for white workers, then we have double the minimum wage for black workers. What do you think about that? And almost everyone is like “No, that would make people not wanna hire black workers. But really what discrimination laws amount to? It’s a system where some workers carry almost no legal liability, and others carry a lot of legal liability. And then, the Kafkaesque feature of all this, of course, is someone who really just was truly prejudiced would just not hire you in the first place. He wouldn’t hire you and then fire you for no good reason. So in fact… [chuckle]

0:16:48.2 Trevor Burrus: Well, yeah. I mean, I’ve always thought the Becker thesis, this idea that the market will solve discrimination kind of. At least it’s something like the Jim Crow South seemed to underplay, how much people’s discrimination was worth to them, and that therefore, you couldn’t wait around, as an African-​American, being like, “Well, I’m waiting for them to go out of business.” So the people who hire African-​Americans will outcompete the people who don’t hire African-​Americans, but the people ended up being really, really racist, many of ‘em, down in the South. And two, you can’t really wait around for that, so, Is there much value in that kind of libertarian argument about discrimination?

0:17:28.8 Bryan Caplan: I think there’s great value, actually. Well, here’s the thing, is we really just don’t have any good labor data from that period, as far as I know. But in all of the countries and periods that we haven’t been able to study, it actually is quite easy to explain gaps in earnings between races and genders just using some very simple observable measures of productivity, of education, training, experience, occupational choice, you know, you can go very far in understanding the gender gap just by looking at differences in college majors between men and women, with men being a lot more likely to do STEM, women being a lot less likely to do STEM. I mean, even the Jim Crow south, if you imagine going and just imposing a discrimination law on a very racist population, is the result gonna be the same? “Oh my god, I guess I have to go and hire people that I don’t like,” or “No, now I’m even less inclined to go and hire people that I don’t like.”? It is important to understand that in the Jim Crow South, the differences in productivity between black and white workers would have been extremely large because of what comments would call premarket factors.

0:18:29.3 Bryan Caplan: It could very well be that employers are judging you unfairly, and you get the whole society is so unfair that when you arrive, like, the odds that you’re a Black engineer in the Jim Crow South are vanishingly low doesn’t mean that engineering firms are mistreating you relative to what you’re able to do. You’re gonna say, most obviously, the government has been treating you really badly during this whole time. In terms of whether it is actually likely that pure private discrimination with no support from government would have done a lot. So, it’s really hard to get data from places where we can do a really good test, but here is what I think is very striking. I think it’s almost sure that South African apartheid, the levels of racism were quite a bit higher than they were in the Jim Crow South. It’s hard to know for sure, but that seems very possible. And yet, what was apartheid all about? Was it a system where they said “You can discriminate if you feel like it.”? No. Apartheid was about saying “You must discriminate, whether you want to or not, in favor of white job applicants.” That was the system.

0:19:28.2 Bryan Caplan: And if you look at the arguments that people gave, it really was along the lines of “Look, sure, there are some good white employers who care about our white race, but there’s other ones that are just greedy, and all they wanna do is just hire the best worker for the job, and they don’t care about race.” It wouldn’t make any difference at all to them if white workers live in poverty. “These horrible jerks; let’s go and pass laws to make sure that they can’t do that kind of thing.” So it was a pretty extreme case, and yet it still seems like that was… A very big part of the system is just trying to make sure that people must discriminate, like it or not. Again, my very favorite example, and I do have an essay in Labor Econ Versus the World on this, is mandatory discrimination against illegal immigrants. So I would say that illegal immigrants are probably one of the very least popular groups in modern America. It’s one of the groups where people in the grocery store will talk bad about without looking around their shoulder to make sure that there’s no one who’ll be offended by it. They’ll say, “Oh, these goddamn illegal immigrants.” Like, I’ve heard this kinda thing, just standing in line at a grocery store in liberal Northern Virginia, and nevermind other parts of the country.

0:20:30.5 Bryan Caplan: And yet, if you were to say, “Well, given all this resentment against illegal immigrants, we don’t need to have any government regulations preventing their employment, because who would hire them, given this high level of resentment?” And yet almost everyone would say, “Oh, come on! We know that there’s some greedy employers who don’t care about our country, who don’t care about native-​born workers. They’ll go and hire them at the first chance they get. We have to have these laws. We have to have strict enforcement.” And what I say in this essay is, this really does teach this lesson of Gary Becker maybe better than any other one, which is like, no one I’ve ever met thinks that employers will just pass up the opportunity to hire illegal workers for lower pay, as long as it’s legal. Almost everyone thinks “If we want to go and stop this, well, you have to make it illegal, we have to punish it, there needs to be enforcement,” even if most employers are regular Americans with their regular bigotry against illegal immigrants. Still, if you’re choosing between living that bigotry and making money, we know there’s just a ton of people who will just say, “Well, whatever. You know, like, the guy is the best for the job; I’m hiring him. Well, whatever.”

0:21:36.9 Trevor Burrus: Get that inference, I think, is often lost. You said it when talking about apartheid, but even in Jim Crow South, the existence of mandatory discrimination, like, legally prescribed discrimination: “You cannot hire a Black person or serve them,” implies the existence of businesses that wanted to do that, ’cause otherwise, it would be a worthless law. And a flipside on apartheid, and for illegal immigrants, definitely.

0:22:04.2 Bryan Caplan: You know, it comes down to there’s a lot of heterogeneity in human behavior. Even in the most racist societies, a bunch of people are like, “Yeah, whatever.” Just like you can go to societies we think of as very religious, and there’s a bunch of people there who actually, very quietly, are like, “I don’t care for any of this stuff. This kinda stuff is stupid. I don’t like… ” You don’t say it really loudly, because you don’t want everyone to get mad at you. But when nobody’s looking, it’s okay. “Huh, nobody’s looking. Alright, let’s make some money!”

0:22:31.7 Trevor Burrus: So let’s talk about immigration. The reasoning seems pretty clear. We’ve talked about this as a normal good. Behaving very much like markets; labor markets behaving very much like other types of markets. So, we open the borders tomorrow, all Bryan Caplan’s, you know, your dream world. And then, there’s a significant number of immigrants who come over very quickly; maybe not as many as people think, but a significant amount.

0:23:01.4 Bryan Caplan: Yeah. Probably more. [chuckle]

0:23:02.5 Trevor Burrus: So there you have it. Yeah. You have a supply, just absolute shock. If I went to a farmers market, and just airdropped farmer goods over it in a biplane, the people working in that market would be pretty upset that I just airdropped a bunch of free produce onto their market. Why would that exact same thing not basically happen with immigrants?

0:23:29.7 Bryan Caplan: In a sense, it does. But it’s important to remember; so, suppose that we could go and just get an infinite amount of asparagus for free. Would this not be a wonderful thing? To end world hunger? I mean, it’s gonna be monotonous, but nevertheless, no one ever starves to death. You know, the problem with understanding economics really comes down to this. For any change, you can always think of people who gain and people who lose. So even for something like a COVID vaccine. Who loses from that? Well, morticians are losing out. So on the one hand, a bunch of people live; on the other hand, it’s bad for morticians. What’s the net effect? Who knows? And I say, actually, we do know. There’s a very good heuristic that we can apply here to understand what’s really going on, and the heuristic is this: The secret of mass consumption is mass production. The secret of mass consumption is mass production. Always keep your eye on production. If the total production of humanity rises, then average human living standards go up, even though of course, in the real world, there’s losers for every positive change that you can think of.

0:24:30.9 Bryan Caplan: Now, in the case of immigration, the positive change is immense, precisely because the productivity of immigrants in countries that get them is much higher than in countries that send them. What this means is that when you move people from a country like Haiti, where workers have low productivity, to a country like the US, where workers have high productivity, you don’t just enrich the US while impoverishing Haiti. You enrich humanity by using labor in a much more effective way. And yes, are the people directly competing with the Haitians going to be worse off? They probably will be. But it’s important to remember that there’s all the customers of the Haitians. They’re producing all this stuff, which means that there’s someone else that actually gets to benefit from this. So really, the best way to think about the labor market effects of a bunch of immigrants who are in your exact occupation, who do just what you do; they are bad for you. However, they’re good for everyone that consumes those services, and on the other hand, all the occupations that you are not in, whose products you consume; immigration to those areas is good for you. And then the question is, what’s the net effect? The net effect comes down to what’s the total impact on human production? And it’s really easy to see.

0:25:42.0 Bryan Caplan: So, this is really obvious for something like agriculture, where you can just look at a Mexican farmer, see what he grows in Mexico, move him to US agribusiness, see he grows 10 times as much food here, and then realize, “Wow, that enriched humanity a large amount, because now, that worker contributes so much more.” Same in manufacturing; you take someone from primitive home production in a poor country to a modern US factory, production skyrockets. And again, Are there some people who lose out? Always. Even morticians lose from COVID vaccines. Let us never forget their horrible plight. At the same time, let’s keep the big picture of yeah, isn’t it more important that a million people don’t die than that the morticians keep doing well? What it is that gives humanity the highest overall living standard is crucial. And then, the only part of the increase in productivity that’s a little bit puzzling or a little bit hard to grasp is, how does it really raise human productivity if you move someone from Haiti, where he shines shoes, to Miami, where he shines shoes using exactly the same kit? Like, it’s the same number of shoe shines per day, so how has productivity gone up? Until you remember, “Oh wait, the whole point of a service is to save human time.” And when you save the time of people whose time is more valuable, you have, in that way, enriched humanity more.

0:26:54.5 Bryan Caplan: If you save Bill Gates five minutes of time, you’ve done a lot more for the world than when you save five minutes of my time. Same thing with whenever people hire nannies, or gardeners, or food delivery people, or anything else. Even if you look and say, “Well, I don’t see the productivity increase,” like, well, you’re not paying attention. The productivity increases the time that was saved of the customer. So for all of these ways we can see the raise in productivity and focus just on hunting for people who happen to lose, like, you can always find them because they’re always there. The Industrial Revolution hurt some people. The internet has hurt a whole lot of people, and yet, think about the overall net effect. That is the right perspective.

0:27:32.8 Trevor Burrus: But doesn’t it make some amount of sense, at least politically? And I know you’re not a politician. [chuckle]

0:27:39.5 Bryan Caplan: A student of politics; a scholar of politics, Trevor. You know that.

[chuckle]

0:27:44.3 Trevor Burrus: But to at least mitigate from a standpoint of you said… This kind of reminds me of… If we did do… There are things that you could change, very drastically, in the world that probably you should change, not just labor regulations, immigrant regulations. We should probably radically like readjust the Washington Metro system, for example. And there are probably many stops that should be moved or changed in some way, but I also understand that if we took away the Clarendon metro stop, there would be a lot of people who’d be very hurt by that in terms of their property values, so should we try to mitigate the effects of what is overall a good thing? If it is in fact a good thing to change this around, by compensating those people who are hurt immediately, so, in this way, Does the kind of welfare state workers’ comp for, say, native Americans without high school education, who might be hurt the most by an influx of immigrants. Does that make sense in some way?

0:28:44.8 Bryan Caplan: It depends upon how careful you are to actually target losers, and how careful you are to not wind up killing the source of the gains in the process. So, in my book, Open Borders: The Science and Ethics of Immigration, I talk about something that is called keyhole solutions. And this says “Look, alright, so I’ve been trying to go and sell you on this big policy reform; I can see you’re still kinda skeptical. How about we go and we craft a narrowly tailored remedy for exactly the problems that are bothering you?” Just for the sake of argument. Right now, this really comes down to like, I don’t even have to agree with this, but I can say “Look, if this is the price of letting immigrants in, maybe it would be a good idea to say that immigrants have to pay higher taxes, and then we use the revenue that we get from immigrants to go and compensate natives who are losing out.” I would say that as long as you keep it narrowly tailored, this is not a crazy idea anyway.

0:29:37.7 Bryan Caplan: In the end, I think it comes out to, you know, not only unfair, but also, it just sets a bad precedent, and it’s quite arbitrary, because there’s a whole lot of things where we never even bother to think about compensation. You know, like if it is the price of reform, then great. In practice, I don’t think that reform often works that way. I think most reform, actually, is more big bang, where it’s just like “Well, we’re getting rid of rent control. If you lose out, sorry, tough luck. Alright, moving on.” That’s the way that you actually get reform, generally, in the real world. Every now and then, there’ll be like a little buy-​out for some especially vociferous people that manage to be blockading the process, and then you go and throw them a bone.

0:30:16.8 Trevor Burrus: Yeah, taxi drivers on Uber.

0:30:19.0 Bryan Caplan: Yeah, yeah.

0:30:20.2 Trevor Burrus: Do we owe them something?

0:30:21.2 Bryan Caplan: Yeah, so basically, nothing’s being done for them, as far as I know. And yeah, that’s really for the best, because again, otherwise, yeah, we’d have to go and compensate the morticians when we’re going, and saying “There’s a COVID vaccine, sorry. Fewer people are dying, so yeah, sucks to be you.”

0:30:36.5 Trevor Burrus: It is a slippery slope that goes pretty far. Okay, so, Person Bryan Caplan’s universe, we have fewer labor restrictions. We have basically open borders, so we have 100,000,000 new Americans here.

0:30:52.7 Bryan Caplan: Depends on the time…

0:30:53.2 Trevor Burrus: Conservatively.

0:30:53.8 Bryan Caplan: Yeah. I think over 10 years, that’s pretty reasonable, honestly, but I’m not worried.

0:30:58.8 Trevor Burrus: So now, we need to make sure that they become good workers, and that they come here coming from, say, Haiti. So we need more schools, and we need more universities, and we need all these kind of things to make them into better workers, which, I mean, that gives jobs to more teachers and stuff, so isn’t that next to where we should be spending our money on things to help the productivity of the new Americans who maybe didn’t have the education that they would have had here in Haiti, for example?

0:31:27.0 Bryan Caplan: Well, Trevor, it sounds like you might have read another one of my books, The Case Against Education. I do devote a section in Labor Econ Versus the World to this topic, the part is called Education Without Romance. What I would say is, this is a separate issue; it doesn’t logically follow from anything else that I’m saying, but rather, I have a contrary perspective on education that winds up meshing ultimately with what else I’m saying, but again, you can believe everything else I’ve been saying about labor markets and Labor regulation and immigration without buying what I am now about to tell you about education. Of course, I think I’m right about education too. And it comes down to this: I don’t think the schools actually do much to prepare people for the labor market. I don’t think they actually train people in useful skills very well. It is true that educational credentials are well-​paid in, especially, the US economy. But I think the main reason is that it stamps you or certifies you as being a good worker rather than transforming you from a bad worker into a good worker.

0:32:25.7 Bryan Caplan: Selfishly speaking, it doesn’t really matter exactly why that degree in engineering gets you a job in finance. But socially, it matters a lot, because if this story that I’m telling you, often called the signaling model, is right, that education pays because you get stamps on your forehead. If everybody gets a lot of stamps, this doesn’t mean everybody gets a good job. It means that you need even more stamps in order to get those good jobs. This is called credential inflation. In my work, I actually wound up reading a lot of sociologists, who are much more interested in credential inflation than economists for some reason. But really, it comes down to, the education of the American workforce has risen dramatically, but the actual skill required to do jobs in the American labor force has not actually increased very much. There are plenty of jobs that are basically stagnant, other jobs that are actually easier than they used to be; like, being a cashier is easier than it used to be. Waiters used to have to do math. Waiters used to actually take out a piece of paper and add up your bill, and then make change. That’s not how it works anymore.

0:33:27.6 Bryan Caplan: So anyway, what I say is that we just have a very misguided view of what education does. Of course, it does teach some useful skills, but I say that most of the reason why education pays off in the real world these days is because it certifies you, stamps you; it signals. And if I’m right about this, then we cannot expect to get a big increase in productivity of immigrants or anyone else just by having them get more school. Rather, what we really need is for people to get real experience on the job. The slogan that I like for what I have to say about education is this: People like to think about education as being job training. In reality, it is a passport to the real training, which happens on the job. This is how people actually get good at doing stuff, is by doing it, not by sitting and listening to a professor, who has never even done the job they’re going to do, talk about an unrelated topic, obviously. [laughter]

0:34:20.7 Trevor Burrus: Now, I’ve read The Case Against Education, and we’ll put the Free Thoughts we did with that in the links here with the…

0:34:28.7 Bryan Caplan: Great idea, Trevor. Brilliant!

0:34:31.9 Trevor Burrus: Thinking about your essays this time, when I was reading ‘em, some of which predated the book. It struck me; if we go back to the Gary Becker discrimination conversation, the biggest hole in your argument is the $100 bills; I wouldn’t call ‘em $20 bills lying on the sidewalk for businesses to nonconform, and people to create alternative educational foundations, ’cause credentialism isn’t per se bad, like you can have a runaway, that’s fact, right? Where you get a destructive equilibrium, where suddenly, everyone’s getting stickers on their head, but it’s not per se bad; you could have good credentialing and bad credentialing. So why aren’t there a bunch of upstarts to make good credentialing, and a bunch of businesses to say, “We don’t care anymore about your master’s in English. We’re going to hire people who cost less, but can do the job just as well.”

0:35:27.3 Bryan Caplan: In the case of the master’s in English, probably, the market already has that covered. There’s some new research…

[overlapping conversation]

0:35:34.5 Bryan Caplan: Probably the best paper ever written on this just came out saying that those kinds of master’s degrees have no payoff in the labor market at all, or maybe a negative payoff. [chuckle] But it’s a fantastic question, because it really gets to the heart of what the Beckerian critique of discrimination really says. So, there’s one version that just says, “Look, employers know exactly what you as an individual are like. And whatever your true self is, there’s an employer out there who will look into your soul and see whether you’re good or bad, and then will treat you accordingly.” So that’s one story. Another story though is, “Look, you can’t expect people to have that level of finely grained knowledge of every human being. Rather, what employers are doing is they’re looking for the predictable signs of productivity. So if they can look at you and say, “Well, typically, someone who fits this profile is gonna be this good. I’m gonna make that person an offer, and it’ll probably work out,” that is a more reasonable version of Becker’s story. It still will predict that you should not expect that if two groups are equal in productivity, that the lower productivity group is going to be… Rather that the group that is less popular is going to wind up doing worse.

0:36:45.5 Bryan Caplan: But at the same time, it does mean that you can be stuck in a situation where if you can’t somehow persuade employers that you’re different from your profile, then you might do poorly. Or on the other hand, if you can trick employers into thinking… Or if you can get a profile that is actually misleadingly positive, you can actually get a better job than you really deserve, which almost everyone who’s looked at the world and seen that as well. So yeah, I think what’s going on in the real world is that on the one hand, it is true that more educated workers are, on average, better. But at the same time, there are what I call diamonds in the rough; people who are really good but don’t have the right credentials. And yeah, for them, actually, it’s really hard for them to get paid for their productivity. Why? Because their application isn’t a stack of hundreds of applications. Employers don’t have the time to go and examine every individual person, every individual candidate. They’re really looking for a reason to throw away most of the stack of applications so they can narrow it down to a reasonable group.

0:37:41.1 Bryan Caplan: And so, if an employer gets 300 applications, they throw out 270, and you say, “Hey, I know for a fact there were four awesome people that you just threw away.” They say “Well, can you tell me which four?” “No. I just know it’s four out of 270 are great.” “So yeah, well, that’s totally useless to me.” And that is, I say, why you really do need to get these credentials, because if you have the ability to get them, but you don’t, then the world really does hold it against you. You might manage to somehow talk your way into a better job, and actually, during the last year, I’ve been telling everybody, “Look, if you wanna get a better job, now is the time! If you wanna go and skip some stupid credentialing, and just say “Hey, just talk your way into a better job,” maybe you’ll fail, but there’s never been a better time, since World War II, probably, to just go up to an employer and say “Look, I know I’m not a traditional candidate, but I’m really into this stuff, just give me a chance, you won’t regret it. I’ll work for peanuts for the first month.”

0:38:42.4 Bryan Caplan: Just try anything to go and talk your way into a better position, especially if you find the work you’re doing to be soul-​crushing, you don’t like it, there’s some other industry you wanna be in; now is the time just to find someone that’s willing to give you your big break, ’cause this is when employers are really open-​minded compared to normal times. They’re not getting the usual giant stack of applications and then throwing almost all of them away. Now, it’s like “Huh, it could work. Alright, we need someone to sit in that chair. Let’s try him.”

0:39:13.1 Trevor Burrus: Well, your hypothetical about, you know, 270 applications and finding the four who are diamonds in the rough; it seems to be the question of whether or not that is worth it, is very much related to employment policies, and this goes back to my sister-​in-​law example; the employment policies of a given country, so if at-​will employment means, if they don’t work out, well, fire them. But if we need to find that diamond in the rough, but we can’t fire them, then you might make sense to hire someone like my sister-​in-​law, or start a business that helps people find those diamonds in the rough, which I still think that that business model could be viable. We just don’t know how to do it yet; it might be easier to do it now.

0:39:54.5 Bryan Caplan: Right. Yeah, so, I would actually say like everything you’re saying is true, and government does make it harder for employers to feel safe giving someone a chance if they don’t fit the usual profile of a worker. Although I am a very psychologically-​minded economist, so I’m not the kind of economist “Oh, psychology, what do they know?” They actually know a lot. They study how human beings think and feel, and you can go and make fun of them and say “Well, the study was debunked,” but what about all the studies that weren’t debunked?

0:40:19.8 Trevor Burrus: Yeah, I would give a higher estimation of psychologists, maybe, than how you do. [chuckle]

0:40:24.4 Bryan Caplan: So like, here is one very basic thing that psychologists and sociologists at work have found, which is human beings do not like firing other human beings. Most people are quite squeamish about it, which means that if you go and give someone a chance, even if it’s totally legal to fire them if they start disappointing you, there are a lot of businesses that will say “Well, I mean, he’s not absolutely terrible, and now that we know his kids, and we know the name of his dog, and… ” There are a lot of people who really do not just instantly go and fire people because they’ve realized that they’ve made a mistake. Part of this, actually, can be explained by a totally standard economic model. When you hire someone and you think they’re at the 50th percentile of expectations, and then they work for a month, and you’re like, “No, he’s only at the 47th.” Well, you don’t wanna go and fire someone to go and pick up those extra 3 percentiles of quality. But if you think they’re at the 50th, they turn out they’re at the 15th, that’s where you say “Gee, yeah, I think we’d be better off going back to the drawing board, but then, well, but it’s kind of mean to do it to this guy, and like, I don’t know, he’s gonna have lot of trouble getting another job.”

0:41:30.7 Bryan Caplan: In the book, I talk about a rather perverted hiring strategy, or rather, firing strategy that’s called dehiring, which seems to be very common now in American businesses. So it’s like, you got a worker, you either feel sorry for them, and so you don’t wanna fire them, or maybe you’re worried that they are going to sue you, and so you don’t wanna fire them. Instead, you go up to them and you say “Look, this isn’t working out. You’re a fantastic worker, but this just isn’t a good match, and I strongly encourage you to find another job in the next three months. And if any prospective new employer calls, I will tell them the absolute truth, which is you are so super wonderful, and we’re just heartbroken to lose you.” And of course, the real story is, they are celebrating; they’re skipping for joy. [chuckle]

0:42:16.6 Trevor Burrus: Well, why don’t they lower their wages? That’s the question. I know it’s a confounding one in labor economics, but it does seem to make these behaviors you’re talking about, and the fact that people don’t have their wagers, what makes the markets inefficient in many, many ways.

0:42:32.0 Bryan Caplan: Correct. I can’t remember if I actually talked about it much in this particular book, but, again, part of the reason is regulation. If you’re at the minimum wage, you can’t lower it further. Or if you have pro-​union laws, then it may be really hard to go and do something like this; you’ve already had your arm twisted into going and signing it through your contract, with equal wages for everybody else. But anyway, there’s also a lot of psychological evidence on how it is that people respond to this kind of thing, and it seems the problem is this: When you cut the wages of a worker, especially when you cut their nominal hourly wage. So, cutting hours or going and cutting bonuses doesn’t seem to be nearly as jarring, but when you cut their actual officially hourly wage, this makes people very upset. A normal reaction to this is for their productivity to fall further, such that you really could be just chasing the rabbit down the hole, where it’s like, “Well, you’re not very good; I’m gonna cut your wage.” Well, now, his productivity’s worse; cut his wage further.

0:43:35.2 Bryan Caplan: This is especially hard, of course, if you wanna cut the pay of your entire workforce, such that it’ll be quite hard to figure out who’s actually not doing their job anymore, or if there’s all sorts of hidden ways that workers could get back at you; they could be shoplifting, or they could just be rude to customers. So, I think this is another important part of it, is like people’s sense of identity, their sense of meaning and productivity in life are wrapped up in their jobs, which means that you can hurt their feelings fairly easily. Right now, that is partly just human psychology, and I can’t blame government for basic human psychology. What I will blame government for is amplifying the problems that already exist. So even if government did nothing, I’d say there’d be a general tendency to avoid cutting nominally hourly wages, general tendency to avoid firing people. But then, what government regulation does is take these basic, somewhat dysfunctional human urges, and then codify them and say, “No no no, you have to do it this way,” which ties employers’ hands, but it also probably helps reinforce the sheer sacredness of the norm.

0:44:42.5 Bryan Caplan: So if it’s legal to cut your hourly nominally wages, maybe 5% or 10% of firms will do it in a year. And if 5% or 10% of firms do it in a year, then maybe they’ll say, “Well, I’ve heard about that; it’s not the worst thing you could possibly do.” Whereas if it’s illegal or almost illegal and then you do it, it’s like, “Holy moly, these people are monsters, and I hate them. And how can I get my revenge?” [laughter] And you don’t want your workforce to be plotting revenge against you; that is not a recipe for a good, well-​functioning business.

0:45:09.8 Trevor Burrus: This is probably true. So in Caplantopia, one of the things that you say at the beginning, you talk about some standard beliefs that people have that so many of which we’ve addressed about immigration education. Another one is that the primary reason for the increase in the quality of our lives as workers, such as the weekend and vacation and benefits, is because of government regulation. But we have all these regulations now. And so we open the borders, we take away a ton of labor restrictions, we take away funding for education. What do we see…

0:45:52.4 Bryan Caplan: Sounds great, Trevor!

0:45:53.3 Trevor Burrus: I mean, how great does this get, though? I was trying to figure out how pollyannish I thought you might be. Like, how great, you say, well, right now, it’s a little bit different, but you say we have 3% growth rate. I mean, do we radically advance society in a much faster pace, in a way that would kind of blow everyone’s mind? You’d put some amount of money on that bet, I think.

0:46:13.9 Bryan Caplan: I mean, for total GDP, I think almost any economist would say “I’m scared,” but total GDP is gonna go through the roof, because your population is the biggest determinant of total GDP. At least in the short run, if you can get a large increase in population, then you’re almost certain to get a large increase in GDP. It’s a super reliable predictor, and it’s not hard to understand why; more people equals more stuff getting made, and that’s what GDP comes down to. So yeah, I think it would actually be easy to go and double the size of the US economy relative to trend in 20 years. I think that would be really easy, actually. And again, like almost all of that from the immigration, because it’s just getting a lot more people here. And again, not by going and draining GDP of other countries, but by increasing the GDP of the world by moving people from low-​productivity countries to high-​productivity countries. Right now, I’m crafting a bet on the Ukrainian diaspora.

0:47:13.0 Bryan Caplan: Again, I think it’s quite likely that in 10 years, the migrants that are leaving, well, the higher GDP than Ukraine does, because Ukraine is the poorest country per person in Europe, and if you move 20% of the workers in Ukraine to countries where they are earning six times as much, that’s enough. That’s enough to go and have the diaspora outearn the country, which I think it has been true for Cuba for quite a while; like, all the Cubans outside of Cuba earn a lot more than the Cubans that are still in Cuba, even though most of them did not actually leave. Anyway, so immigration is what gives us the really big bang, in terms of the change in all of our living standards. So obviously, immigrants are gonna have much higher living standards, but yeah, I think that there will be a large increase in living standards for people in the US as well, because remember, someone has to buy all that stuff that the immigrants make. Some of that, like the agriculture and the manufacturing, might get exported to the rest of the world, and so, a lot of the benefit leaks out to other countries. But on the other hand, for the services, basically all that almost has to be done domestically, so, who’s gonna eat in all the restaurants that the immigrants create? It’s gonna be maybe… Yeah.

0:48:24.8 Trevor Burrus: Well, remember the education component too, ’cause I was running this through my head, so, let’s say we have… By not subsidizing college, it doesn’t mean people stop going to college, aside from even primary education, but it means that probably the people who shouldn’t go to college become much less likely to go to college, which means they don’t incurred that and then have four years or six years of productivity loss. And so, some of those people go and start a restaurant or start a business, and then they have workers who are available, ’cause the immigrants came.

0:48:56.4 Bryan Caplan: Oh yeah.

0:48:57.6 Trevor Burrus: And this is all getting very, very…

0:48:58.8 Bryan Caplan: Yeah, it is. And by the way, you’re right to think about six years as being the amount of time that a marginal student would take to finish a four-​year degree, and if they’re going full-​time. This is one of the many dirty secrets of higher education, which is that most people don’t finish a four-​year degree in four years. Probably the easiest way to think about it is just the number of years of education that people right now are spending learning stuff that they’re never gonna need to know, and they could be working instead, so basically, just picture increasing the number of years that the average American works during their career by two or three years per lifetime. And that is, again, talking about… What would that be? So something less than a %10 increase in total labor supply, but a whole lot, and it could be worse; remember that if you, say, as the parent of a college student, you’re probably supporting that kid while he’s in school. Wouldn’t it be nice if he could become self-​supporting at an earlier age? And yeah, that sounds pretty good.

0:49:57.7 Bryan Caplan: And again, if I’m right about all this credential inflation, this does not mean that these less educated people then go and get crummy jobs; rather, it means that they basically just fast-​forward or leapfrog to the same jobs they would have had otherwise. So yeah, it’s really a society where people just achieve financial independence at a much younger age, where your opportunities as a consumer are vastly greater. Just think about all of the products that you might be receiving, and then, honestly, a lot of it, you need to think about the services. So you probably know it’s quite common in Latin American countries for a middle class family to have some personal servants, which, in the US, we think of as a clear mark of being upper class. And a lot of what would happen with immigration is that this would become a part of life for not just really rich Americans, but for a much wider segment of society; it would be very normal for a middle class family to say “Yeah, we have a full-​time nanny. It’s a really great deal for us, a great deal for her.”

0:50:57.2 Trevor Burrus: Sounds like I could stand to live in that world.

0:50:58.5 Bryan Caplan: Yeah.

0:51:00.6 Trevor Burrus: I mean, I’m not talking about the maid, I’m just talking about the untapped human potential getting tapped. That sounds pretty nice.

0:51:06.0 Bryan Caplan: Right. It means to me, honestly, this is the excitement, to me, of any kind of vibrant and growing economy is the excitement of being in Silicon Valley, like in the early 2000s, the excitement of being in, say, like New York City in the early years of the Industrial Revolution, or being in Eastern Europe after the collapse of communism. It’s like, “Well, gee, things are really gonna change, and we have this crippling, crushing system, but it’s all we know. What now?” And it’s like, “What now? Something better! I don’t know what, but it’s gonna be great! Let’s just see what happens! I’m so excited! Wow! Big things are happening!” I mean, to me, especially after COVID, it’s just like, I’m so tired of this crushing rule falling away, and you’re like, can’t we just have something different to talk about, and just watch something grow and expand? And like, I’d just be surprised by what happens in a pleasant way. Or the last time you’re just pleasantly surprised, like, “Wow! Wow, look at that! Wow!” It’s like, “Oh, I didn’t expect that to happen. Oh well.” But then, there’s other things. I mean, this was the excitement of early Silicon Valley; I wasn’t there, but I know people who were, and it’s just a really fun time, and just to imagine that being our normal way of life sounds a lot better to me than what we got now.

[music]

0:52:38.7 Trevor Burrus: Thanks for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at lib​er​tar​i​an​ism​.org.