Trump’s Border Wall and Labor Costs

Donald Trump’s promise that he would bring manufacturing jobs back to the U.S., come hell or high water, was amongst many reasons why he won last week’s presidential election in a stunner. Manufacturing output, however, has actually surged in the U.S. over the past generation; it’s just that as a country, we do not make cheap stuff anymore. In addition, sophisticated technology and increased automation, especially within the automotive sector, together have made a huge contribution to the decline of manufacturing employment here in the U.S. The end result has been the long stagnation of wages, which have frustrated many Americans.

Nevertheless, if Trump gets his way and he builds that wall, or even succeeds in only launching his other immigration ideas, wages across many sectors could rise in the short term. After all, if millions of undocumented immigrants leave, the result will be a far more difficult hiring market for employers – many of whom are already worried, according to a recent Bloomberg report. The flip side for many companies is that if revenues cannot keep pace with increasing wages, then many hiring managers could decide to keep head count low - hurting more families in the long run.

With the national unemployment rate dipping below 5 percent, many companies are now having a difficult time finding good help. There is one big caveat, however; the competition for workers is mostly within sectors requiring either low-skilled labor or highly skilled employees. For the vast majority of Americans who are searching for work somewhere in that vast middle range, competition for that coveted job is still fierce. Turnover is currently high in several sectors, including retail. Hence many chain stores have started hiring for the upcoming Christmas season as early as this summer, even with the offer of a free lunch during shifts, as highlighted by the Wall Street Journal.

What about the wall itself? Do not expect a green-lighted border wall separating the U.S. and Mexico to cause any economic stimulus. Construction companies are thriving, with the result that unemployment within this industry remains under 6 percent, compared to over 27 percent in early 2010. The need to pay high wages in order to plan and develop such infrastructure in remote areas, which already serve as an effective natural and geological wall, will dampen enthusiasm for a project that could cost as much as $12 billion to build.

As Americans await “Trumponomics” with fear, cautious optimism, or with an “I told you so,” the stubborn fact is that this country will still depend on the service industry as the foundation of its economy. A tight labor market may provide some temporary relief for workers in this sector discouraged by low wages. But in the end, more reforms are needed if employees working within this sector will feel as if they have a stake in the U.S. economy.

Image credit: Ken Lund