Wednesday, December 27, 2006

Tight labor market good for wages

Obviously. But it's nice to see the WSJ, putatively the nation's leading free-market newspaper, admit it. The WSJ makes sense economically so long as the immigration issue does not need to be brought up:
Why are wages finally starting to show smart gains for workers? First, the labor market is tight with very low unemployment (4.5% nationwide), giving workers more bargaining power. Second, the big spike in energy prices in recent years raised the cost of living and offset nominal pay hikes, but energy costs have declined since Labor Day and those lower costs translate into higher real wage gains. Third, the surge in business capital spending that began in 2003 with the passage of the investment tax cuts has increased the capital to labor ratio that is a major driver of wage increases over time.

An end to third-world underclass immigration through the construction of a full barrier along the US-Mexico border (a move the WSJ supports in Israel and along the Pakistan/Afghanistan border), tougher employer punitions, and immediate response to local authorities by ICE, will continue the first and third wage-positive trends highlighted in above. Increasing the supply of menial laborers, on the other hand, depresses wages and accentuates the wealth gap.

The op/ed piece ultimately argues for tax cuts, so wage increases may be nothing more than a tool used in favor of the board's argument.

A better idea is to eliminate personal and corporate income tax entirely and shift to a national sales tax. By taxing consumption, the lucrative practice of making cash payments to illegal Hispanic laborers will cease to provide employers an economic benefit. And by providing citizens with an automatic poverty-threshold tax credit, the native poor will be able to utilize at least one meaningful asset--US citizenship. This will lead to a massive migration of capital into the US and will be a boon for manufacturing exporters. Fairtax estimates a 30% sales tax (23% for an apples-to-apples comparison with income tax rates) necessary for the plan to be revenue neutral.

Ideally, I want to see a national sales tax implemented in conjunction with Charles Murray's idea of direct wealth transfer uninhibited by the massive deadweight loss that riddles virtually every governmental program in operation and a merit immigration system. A national free-market where there is enough transfer that no one will live in destitution unless he chooses to do so, with the guarantee that only productive migrants will be admitted in.

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