"Penny Foolish" - Yes!

Let's say that two Mexicans live in the same town.  One chooses to cross the border into the United States to work picking tomatoes while the other decides that the low wages earned by tomato pickers is not enough for him to leave his friends and family and work. In other words, the expected wage was in the U.S. was less than his opportunity cost. If the wage increased by, say, $1 per hour more, he too would cross the border to work in the U.S.

An ordinance is then passed in the U.S. - call it the Assist the Mexican Immigrant ordinance, or AMI - mandating that tomato consumers must pay a penny more per pound for their tomatoes - an insignificant sum for sure - and the proceeds given to the tomato pickers . Are the existing tomato pickers made better off by this ordinance? No.

At this new wage the tomato pickers are earning economic rents (a wage in excess of their opportunity cost), which induces more people to move from Mexico to become tomato pickers. This influx of supply depresses the base pay earned by the tomato pickers to the point that they are no better off than before. In fact, it may induce more skilled Mexicans to cross the border - those with higher opportunity costs of their time - thus driving the less skilled out of their jobs. This competition makes the current tomato pickers worse off, not better.

Here's the aptly named story.

In 2005, Florida tomato pickers gained their first significant pay raise since the late 1970s when Taco Bell ended a consumer boycott by agreeing to pay an extra penny per pound for its tomatoes, with the extra cent going directly to the farm workers. Last April, McDonald’s agreed to a similar arrangement, increasing the wages of its tomato pickers to about 77 cents per bucket. But Burger King, whose headquarters are in Florida, has adamantly refused to pay the extra penny — and its refusal has encouraged tomato growers to cancel the deals already struck with Taco Bell and McDonald’s.

All the more reason to eat at Burger King.

Comments

[Jim Moss]

What a heartless analysis you have made! Your logic of labor supply and demand only holds water if we consider workers commodities to be bought and sold at the lowest possible price.

But workers are human beings. This means that they have the right to earn a fair living for a fair day's work. If employers have the decency to always pay a fair wage, even when they can get away with paying less, a glut of workers will not cause wages to drop.

You make it sound as if companies will be forced to drop their wages if more potential workers come across the border. But they can keep wages up and improve other benefits, if they are properly encouraged by a conscientious consuming public.

Whose side are you on, anyway?

[Mark Steckbeck]

No Mr. Moss, I'm arguing that people respond to incentives and that raising the wages of existing tomato pickers in this country only makes it more attractive for others to be tomato pickers in this country.

Would I like it that existing tomato pickers who lead obviously money poor lives had more money? I won't make that judgement; only that if you wish to improve the living standards of others you cannot simply shift more money in their direction since there will be plenty of takers for the cash above their opportunity cost of obtaining it.

[Jim MossJ]

Again - the logic of your argument makes sense to me. What I'm hoping for is a sense of justice and compassion that rises above the cold economic theory that you espouse.

If employers and consumers in this country had the morality and the will power, we could easily insure a living wage for all our workers - and even for the glut of immigrants who you claim would rush in to take advantage.

Such a collective change of heart might take an act of God to happen - but then again, I'm a theologian and not an economist, so I believe that it's possible.

[Mark Steckbeck]

I don't make up human nature. What I do is try to better understand it and explain it so that we make fewer mistakes in trying to improve the human condition, even among the poor, by shortsighted programs and policies like the one I criticized in this post.

[Jim MossJ]

I would like to hear your solution to the problem.

[Fredex]

"rises above the cold economic theory"

The experience of attempts to do that presents a horrific history.

[evagrius]

Perhaps you should resolve the problem by picking the tomatoes yourself.