Supply and Demand in the construction labor market

A look at immigration's impact on construction labor.

The business community and others supporters of a liberal immigration policy say that illegal immigrants are taking jobs that Americans won't do. Without the illegal immigrants, they contend, the United States would be facing chronic labor shortages.

A recent study by the Pew Hispanic Center about Latinos and the construction industry offers an opportunity to put these claims to the test.

According to Pew, 60 percent of new construction jobs between 2004 and 2006 went to foreign-born Latinos. Forty-six percent went to those who have arrived since 2000. Pew estimates that two-thirds of recently arrived Latino immigrant workers are illegal.

That means that, at a minimum, about 30 percent of all new construction jobs went to illegal immigrants.

So what happened to wage rates?

During the decade, the average hourly wage for production workers in all industries went up by 33 percent. For construction production workers, the increase was only 28 percent.

In fact, despite a 30 percent increase in demand, construction wages barely increased faster than inflation during this period, which was 25 percent.

Nowhere has the demand for construction labor increased faster than in Arizona. Yet, most construction jobs in Arizona now pay below the state's median hourly wage, which was not the case in 1990.

Even with increasing contruction labor demand, if you increase supply fast enough, the price (wage rate) doesn't go up as much as it does without the increasing supply.