A new Trump administration rule turned the minimum wage debate into a political 'Twilight Zone'

  • A new Trump administration rule would have increased the minimum wage for some immigrant workers.
  • Conservatives applauded the move as a way to deter companies from hiring workers from aborad, while progressives argued it was an under-the-radar way to keep people out of the country.
  • But the argument used by the Trump administration —  that foreign high-skilled workers steal American jobs and reduce Americans’ wages — don’t make sense.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Michael D. Farren is a research fellow with the Mercatus Center at George Mason University.
  • Jack Salmon is a research assistant with the Mercatus Center.
  • Visit Business Insider’s homepage for more stories.

This year has seen no shortage of whiplash-inducing news stories, and now it’s gotten weirder. In a plot twist of Twilight Zone proportions, conservatives and progressives have flipped sides on the minimum wage.

In this bizarre middle ground between science and superstition–which we unfortunates call “2020”–a federal judge in the Northern District of California just struck down a new Department of Labor (DOL) regulation that made it a lot harder for American businesses to hire highly skilled foreign workers

The DOL argued that the rule — which forcibly inflated these workers’ minimum wage tin an effort to make these immigrant workers less hireable — was needed to protect Americans from foreign competition during the COVID-19 pandemic. The agency can choose to appeal, though the presidential transition presumably complicates that.

In a flip of traditional attitudes, conservatives applauded the higher minimum wage regulation while progressives howled in protest. But putting aside any amusement at the awkward political maneuverings, the rule itself is fundamentally flawed. Two of the DOL’s premises — that foreign high-skilled workers steal American jobs and reduce Americans’ wages — don’t stand up to scrutiny.

At best, the rule is a lose-lose for our own workers, customers, and economic growth. At worst, it’s an ugly reminder of some early rationales for minimum wages.

Anti-employment regulation

The new Department of Labor regulation increased the prevailing wage requirement for high-skilled temporary workers operating under a variety of visas and those filing for Permanent Employment Certification (PERM). 

Under the original rule, a foreign software developer in New York was required to earn at least $78,811 per year in order to qualify for these vias. The new rule increased that requirement to $116,251—a 48% increase. Even more shocking, the rule was rolled out with only two days’ notice.

Approximately two-thirds of H-1B workers, one of the visa types affected by the new rule,  are employed in computer technology-related jobs, the unemployment rate for which was just 2.4% in November. Meanwhile, the unemployment rate for university graduates is just 4.2%. This suggests that, despite the recession, high-skilled jobs generally have returned to “full employment,” meaning that there’s no surplus of skilled US workers for this rule to protect.

Moreover, low-cost foreign labor doesn’t suppress US wages. The existing rule already required employers to pay H1-B workers at least the average market wage based on their training and experience. In fact, 78% of such workers actually earn more than that. This means that employing foreign workers can increase the average wage in these professions over time. Unsurprisingly, empirical evidence suggests that skilled foreign workers actually drive up domestic employment and wage levels.

Far from being a threat to the economy, high-skilled foreign workers are a source of future growth and innovation—and they are currently helping keep the US economy’s head above water.

For example, 55% of the “unicorns”— billion-dollar-valued startups — had at least one immigrant founder. The list includes Zoom, Tesla, SpaceX, and Instagram. That helps explain why the US Chamber of Commerce, a coalition of tech companies, and more than a dozen US colleges filed suit opposing the DOL’s new rule.

Add this all up and it’s clear that the DOL’s prevailing wage rule was worse than unnecessary. It was harmful, and even more so when the US is trying to recover from the deepest recession in over 80 years. 

Furthermore, the rule affected thousands of medical professionals, physicians, and medical suppliers working under visas and delivering care to some of our least-served and hardest-hit communities. Increasing the cost of health care workers is an especially bad idea during a pandemic.

Switching sides

Progressives tended to oppose the rule because the higher cost to employ foreign workers will reduce opportunities for immigration. Conservatives tended to like that it (seemingly) gave American workers more employment security and higher wages. But it’s really just a minimum wage mandate applied selectively, with the two sides essentially repeating each other’s standard minimum wage arguments.

This isn’t the first time ideologues have used wage requirements to exclude some workers in favor of others. Princeton economic historian Thomas C. Leonard has documented how nativist and exclusionary sentiments in the early 20th century assisted the creation of the early minimum wage laws. Led by ‘progressive’ social reformers like Paul Kellogg and Sidney Webb, these wage rates were often set artificially high to keep immigrants, “inferior races,” women, and disabled persons out of the labor force.

This is not to say that all minimum wage proponents are (or were) racists or sexists. Most genuinely want to help people earn more money. But raising the cost of workers naturally motivates employers — not all of whom have the luxury of large profit margins — to seek alternatives. 

More than once, this fact has been weaponized to achieve misanthropic social outcomes, with exclusionary-minded radicals on the left and the right shaking hands over the idea of shutting someone out.

So we should be grateful that the district court judge ruled that the DOL’s rushed implementation violated the Administrative Procedures Act. But regardless of any appeals or the final outcome, this episode is a reminder that we should beware the exclusionary motivations that could be lurking behind minimum wage mandates.

Michael D. Farren is a research fellow and Jack Salmon is a research assistant with the Mercatus Center at George Mason University.