Is labor a substitute for capital or a complement? Complementary inputs go together like an artist needs a pencil or a mason needs a trowel. A substitute input might be when a robot replaces the fry cook at McDonalds or the Welder at HNI.
Are immigrants a substitute or a complement for US employers?
The economic advisors to Mexican President Calderon believe that workers are complements. "[Calderon] mentioned complaints by U.S. farmers that the crackdown on migrants meant they did not have enough workers to harvest their crops, and said "capital and labor are like right shoe and left shoe."
Labor economist, George Borjas, disagrees. "Ok. I've heard of capital-skill complementarity. In other words, capital and skilled workers are like right shoe and left shoe. Correct me if I'm wrong, but I thought that capital and low-skill labor were more substitutable. In other words, they are more like right shoe and right shoe. In the absence of the low-skill migrant labor, many U.S. farmers would have invested in labor-saving capital equipment."
I believe that there's a dual-labor market. There's labor market for skilled and unskilled labor. As technology advances the demand for skilled labor increases increasing the wages in that market. The opposite happens for the unskilled labor market. The supply of unskilled labor increases and wages decrease. Eventually wages will equate in both countries in the unskilled market.
Your question is somewhat misleading, Mike. There are many labor markets, just as there are many product or service markets. Some are substitutes for one another, others are not.
ReplyDeleteYour example of the robot replacing the fry cook at McD's is a good illustration. While capital, in general, is often used to replace low-skilled labor, it is just as often used to fill a "low-skill" gap. By that I mean, we frequently see firms inserting capital when they cannot find labor that has even rudimentary skills (reading, basic math skills, timeliness, etc.).
Granted, the capital augmented or substituted situation is more productive. But one may ask "more productive than...?"
In a globalized economy, it is the marriage of skilled labor (at whatever level) with capital (at the appropriate level) to allow productivity and the creation of producer and consumer surplus. At least, I think that's the idea.