Radically Economic Immigration Policy

Richard Freeman devises "radically economic policies" in an attempt to make open immigration, which he believes "could raise global economic well-being considerably," more palatable to opponents:

People Flows in Globalization, by Richard B. Freeman, NBER WP 12315, June 2006: ABSTRACT ...Despite its peripheral status in debates over globalization, the movement of people from low income to high income countries is fundamental in global economic development, with consequences for factor endowments, trade patterns, and transfer of technology. In part because people flows are smaller than trade and capital flows, the dispersion of pay for similarly skilled workers around the world exceeds the dispersion of the prices of goods and cost of capital. This suggests that policies that give workers in developing countries greater access to advanced country labor markets could raise global economic well-being considerably. The economic problem is that immigrants rather than citizens of immigrant-receiving countries benefit most from immigration. The paper considers "radically economic policies" such as auctioning immigration visas or charging sizeable fees and spending the funds on current residents to increase the economic incentive for advanced countries to accept greater immigration.

Introduction The policy debate over globalization in the past decade has largely bypassed the international mobility of labor. Restrict trade and cries of protectionism resound. Suggest linking labor standards to trade and it’s protectionism in disguise. Limit capital flows and the International Monetary Fund is on your back. But restrict people flows? That’s just an accepted exercise of national sovereignty! During the last few decades, when most countries reduced barriers to trade of goods and services and liberalized financial capital markets, most also sought to limit immigration. In this essay..., I argue that people flows are fundamental to creating a global economy and that the interplay among immigration, capital, and trade is essential to understanding the way globalization affects economies. I consider ways to reduce barriers to immigration that could improve the well being of workers around the world.

... [big snip]

More People Flows? Governments of receiving countries have hardened their stances against less-skilled immigrants and refugees in the past two to three decades, possibly in response to the increased immigrant flows. ... Surveys show that the majority of citizens in most countries believe that their country should restrict immigration more than it does... In European Union countries with large welfare states, the major stated economic factor underlying opposition is the fear that immigrants will burden the welfare state... Persons who might be adversely affected by immigrants in the labor market show modestly more negative attitudes toward immigration than others...

However, public opinion and national policies toward immigration seems to rest on issues well beyond gains and losses in the labor market. Some natives worry that immigrants will present a cultural threat to their way of life and reduce social cohesion... Another factor that determines attitudes toward immigration is that immigrants eventually become citizens and affect politics. In the United States, both political parties seek support from the growing Hispanic community and tailor their policies on immigration to appeal to that community...

Easing Immigration Restrictions The critical barrier to immigration is the restrictive policies of destination countries like the United States, Canada, Australia, the European Union, and Japan. If more persons immigrated to these countries, world GDP would rise and the inequality of wages among countries would presumably decline. ... How might the world increase immigration?

The most widely discussed policy reform is to increase temporary migration. ... Increasing the flow of temporary immigrants under greater legal protection could produce economic gains for receiving countries without risking some of the social costs, but in the past temporary immigration has often led to permanent immigration.

While these temporary migration policies could increase the number of immigrants somewhat, it would take “radically economic” policies to have a major impact on immigrant flows and to move world output toward the levels that an unfettered movement of labor would produce.

Radically Economic Policies The most radically economic policy would be to remove the bulk of restrictions on international migration, placing immigration on a par with free trade and with the now largely free flow of capital. The idea of being able to move to a different country to work freely seems radical in this era of substantial immigration controls, but it was common in earlier periods. Many immigrants came freely to the New World in the days of colonization (the exception being slaves and transported convicts). Although the United States restricted immigration of some groups from the nineteenth century on, not until 1921 did the country seek to limit numerically the numbers who came. ...

However, because most of the gains from immigration accrue to the immigrants rather than to the residents of destination countries ..., there is little incentive for destination countries to ease immigration restrictions. The only way I can think of to increase the receptivity of destination countries to accept more immigrants would be redistribute the benefits of immigration so that a greater share of the benefits flow to natives and a lower share of the benefits to immigrants. The “radically economic” policy here would be to use the price system to equilibrate the market for immigrants rather than to ration entry. An immigrant receiving country could charge admission fees or auction immigration visas or place special taxes on immigrants, and use those funds to redistribute the gains from immigration to existing citizens.

Pricing entry into a country would simultaneously reduce the number of immigrants who want to come (many of who also cannot come under the rationing policies that receiving countries use) and would increase the number that receiving countries would admit. Auctioning immigrant visas would assure that those who expect to gain the most from immigration and would be willing to pay the highest amount would be admitted. Natives who wanted to bring relatives in the United States or firms who wanted to bring particular workers to the country could sponsor immigrants. On the other hand, since young persons with limited capital who could gain greatly from immigration might be unable to fund themselves, they would be better served by paying an extra amount from future income taxes...

Charging admission may strike some readers as crass and offensive, inconsistent with Emma Lazarus’s poem on the Statue of Liberty, but the proposal is not as radical as it might first seem. ... How much might immigrants be willing to pay for citizenship in an advanced country? Since increases in income from immigrating from a low-income country to a high-income country can be quite large, the amount of money that could be raised by putting a price immigration could be substantial, at the minimum on the order of the magnitude of the remittances that immigrants send home. ... on the order of $5,000 to $10,000 per year for workers who earned around the U.S. median income. This annual difference would cumulate over a working lifetime to $100,000, depending on the discount rate for future income. A fifty-fifty division of this gain would be substantial – if immigrants were charged $50,000 apiece, one million additional immigrants would produce $50 billion dollars in tax receipts.

Click to enlarge

This type of scheme does have potential deleterious non-pecuniary effects. Perhaps selling or auctioning immigrant visas would reduce the loyalty that new citizens feel to a country, or lead to greater illegal immigration, or antagonize groups in the country or outside in ways that would be harmful. Taxing immigrant A at higher rates than native B may strike many as unfair, particularly for immigrants in the lower parts of the income distribution. In addition, shifting some of the gains to immigrants to the natives of wealthy recipient countries could reduce the flow of remittances to the poor sending countries, which would lower well-being in those countries. Wealthier persons are likely to be complements to low-skilled immigrants and would thus benefit doubly from the immigration. But for countries with extensive welfare states, where natives may pay high taxes for systems in which low paid immigrants gain, some form of redistribution of the benefits of immigration may be necessary to win support for greater immigration.

Conclusion ...Greater mobility of labor across borders could raise the output and economic well-being of workers in developing countries more than many other policies associated with globalization. Recipient countries would experience modest gains as well, but because immigration can be economically and culturally disruptive, countries are unlikely to favor free immigration even to the moderate extent that they favor free trade. Because the gains of immigration accrue largely to immigrants from low-income countries, the key issue in getting citizens of advanced countries to look more favorably on immigration is to design policies that give a larger share of the benefits to receiving countries. Even with current immigration policies, aging populations and low birth rates in advanced countries coupled with huge disparities in pay around the world and increased education in developing countries are likely to lead to increased immigration in the decades ahead. People flows will become more important in globalization and should help reduce global inequality among workers around the world.

This might also help to attenuate the increased political polarization associated with immigration that Krugman discusses.

Comments

[Bruce Wilder]

Why does Mr. Freeman suppose a person with a particular human capital endowment (intelligence, talent, education, skills) would be more productive in, say, the U.S. than, say, Nigeria or India?

Is it something in the air? An additive to the water supply? Some other localized force of nature?

Mr. Freeman does not identify this X factor. He appears not to give it a thought.

Does he suppose that the low pay of medical doctors or electricians in India is because of a surplus of professional education? Just too damn much education in India, but if we just let those doctors and electricians come to the U.S., things would be hunky dory. The U.S. cannot possibly educate enough of its own citizens to be doctors and electricians.

Freeman: "GDP would rise and the inequality of wages among countries would presumably decline"

"presumably"?? That would because doctors and electricians in the U.S. would earn less, but doctors and electricians would earn more in India? Does that latter thesis seem plausible? Why is it that doctors and electricians are so poorly compensated in India? X, again.

Roughly one-third of immigrants in the U.S. are from Mexico and Central America. How has that emigration benefitted Mexico and Central America? Who has it benefitted in the U.S. Wal-Mart gets their stores cleaned at night, real cheap. Mexico gets remittances, and, of course, is relieved of the burden imposed by having a critical labor surplus of janitors and day laborers.

[Movie Guy]

Richard may be one of the leading labor economists in the USA, but he's over the top with this idea.

The U.S. Government will replace the illegal alien coyotes and take direct payment?

Over my dead body.

[Nelson]

Why does Mr. Freeman suppose a person with a particular human capital endowment (intelligence, talent, education, skills) would be more productive in, say, the U.S. than, say, Nigeria or India?The U.S. is willing to pay more for labor than Nigeria and India do. The U.S. has a better infrastructure to make use of these skills. The U.S. has stronger property rights and a more capitalistic economic system that provides a solid foundation for wealth generation. Because of its economic and legal system, the U.S. has far greater ability to maximize economic benefit per unit of labor input than either Nigeria or India.

The U.S. Government will replace the illegal alien coyotes and take direct payment? Over my dead body.And I'm sure the coyotes are grateful that you'd give your life to protect their jobs.

[Bruce Wilder]

Thanks, Nelson. I knew that. Tell Freeman.

[Nelson]

To be fair to Freeman, it's a lot easier to change our policies than to change other countries' policies. Maybe if immigration becomes more "above ground" the ties between our peoples and our countries will strengthen and the source countries will be more willing to try and emulate our system and we'll be in a better position to help them. Also, nothing drives home the point of "this country needs improvement" like people leaving it by the thousands.

[Fred Hapgood]

> Why does Mr. Freeman suppose a person with a
> particular human capital endowment (intelligence,
> talent, education, skills) would be more productive
> in, say, the U.S. than, say, Nigeria or India?

Anyone who visits any of a very long list of contemporary countries is likely to end up meditating on the mystery of the difference between the productivity of the people he or she meets in country X compared with the productivity of the citizens of X our traveller knows who migrated to the US. What the nature of this secret sauce is certainly an interesting question, but I hardly think Freeman should be taken to task for assuming it, since it is a matter of everyday observation.

[Fred Hapgood]

The real problem with Freeman's interesting proposal is that it assumes some way of dealing effectively with the flow of illegals, now running at 500,000/yr. It is far from obvious that the country is willing to pay what it would cost to secure our immense borders and/or the costs of laying off a tenth of the labor force or the political costs of accelerating naturalization rates to a rate that promised to soak up the illegal population. Maybe. There are lots of good reasons to try to eradicate illegal immigration but it won't come cheap. And this is not the ideal moment for the federal government to start shouldering huge new financial obligations.

[johnchx]

Fred Hapgood wrote: "The real problem with Freeman's interesting proposal is that it assumes some way of dealing effectively with the flow of illegals..."

There actually might be a way around this. Instead of charging a "fee" at the point of entry, we simply impose an income tax increase, with a corresponding deduction for individuals who can document their native-born status. Of course, this would require some kind of national birth registry, along with fraud detection and prevention measures, but this is probably an order of magnitude (or two) easier and cheaper than gaining true physical control of the U.S.'s borders.

[Winslow R.]

" Instead of charging a "fee" at the point of entry, we simply impose an income tax increase, with a corresponding deduction for individuals who can document their native-born status. "

It would likely lead to a massive increase in drug dealers and prostitutes as an 'unrestricted' flow of immigrants sought jobs in the black market.

[Joe Rotger]

What....?
Free flow of immigration equated to free flow of capital and trade is the only concept worth mulling over...

$50,000?
Contraband, boot-legging come to mind.

Does he really think that an illegal alien expecting to get a part time job at the corner of a street is going to somehow be able to even think about forking out $1000?

And, it's sure not going to hold him back from trying to cross the border illegally. So, what's the point?

In the case of the much needed doctors, nurses... Von Brauns... wouldn't the additional barrier reduce their number to the detriment of the recipient society?

Wouldn't it make more sense to offer $1,000,000 per doctor?
Maybe $4,000,000 for the Von Brauns?

I can foresee the international political nightmare that this blatant uncivil enticement to professionals from emerging countries would bring about?

Following this trend, why not allow immigrants to arrive in parts?

We have several alternatives:
-All their organs arrive in an ice-box, the recipient country pays a hefty fee to the immigrant’s family in exchange; or
-Immigrants arrive with a kidney and a lung in an ice box in exchange for the recipient country’s citizenship.

I’ll leave it open to figure out a few of the more creative alternatives.

Finally, we know that the same reason that attracts labor, higher wages at the recipient’s end, is siphoning investment and outsourcing out of the US into emerging countries to take advantage of lower wages.

Faced with this unavoidable fact, job erosion and loss of market share, wouldn’t recipient citizens be more favorably inclined to accept more immigration as an alternative to allow the work to stay closer to home?

[midwesterner]

The problem with this argument is that it is a purely economic agrument. It does not discuss the cultural and soveriegn issues that arrise. For instance, even if I wanted to move to Iran could I? My religion certainly would not be accepted by the Iranians. How about moving to Ukraine where most people do not speak English? How would I work with these people doing high end functions? Throughout history immigrants move for many reasons, economic issue, political strife, religious freedom. Often these are during periods of extreme problems and whole villages would move to say the US and start over. Could this work? Possibly, but this ignores the the sovereign issues and protections that people have in a native state. How would you vote? Would you even have a right to vote? Why would mass movements of people move to Communist China where rights are generally limited? Maybe if a world government existed this would be possibel but under our current system this is unlikely. Additionally there is Samuel Huntington's idea of a clash of civilizations. A perfect example is fundamentalist Islam vs. Western tradition. How would the intigration of these peoples work. One would hope that closer contact between people would bring a better understanding of each other. History, however, says otherwise. Jews and Muslims have lived side-by-side for centuries and they certainly don't get along. How about Turks and Kurds, or Turks and Armeinians? Mass movements of people would only exaserpate these issues. The economy may be ready for the movement of labor but people, i.e. labor is structurally or culture ready for it.

[Blissex]

The whole discussion is based on the premise that:

«The economic problem is that immigrants rather than citizens of immigrant-receiving countries benefit most from immigration.»

which sounds to me rather completely wrong. Because the asset owners of the immigrant-receiving countries may well benefit most, as an expanded labour supply not only raises output but makes labour's terms of trade weaker, resulting in a lower share of the expanded output for labour. It is not difficult to imagine that in some cases asset owners can capture more than 100% of the benefits pertaining to the immigrants country. Indeed asset owners (in particular business owners) seem to realize that, as they often lobby hard for liberal immigration policies or for merely perfunctory immigration restrictions.

«there is little incentive for destination countries to ease immigration restrictions.»

Problem is, as Thatcher might say, ''there is no such thing as countries'' (the ''national interest'' is a rather ambiguous term which is often used to advocate policies benefiting specific groups), but there are things like interest groups that have greater or smaller vested interests and influence...

Extreme example, but far from implausible example of how the benefits of immigration can flow: a native worker is employed for US$20,000 and generates US$40,000 in turnover.

The employer replaces him with an immigrant who can generate the same $40,000 turnover, and who is very happy to be paid US$10,000, as she would be getting only US$4,000 in her country, and a US$10,000 lifestyle in the USA is a lot better than a US$4,000 lifestyle in her country, or at least endurable for a while, even if not at all as good as the US$20,000 lifestyle the previous employee had.

The company is US$10,000 better off, and the immigrant is US$6,000 better off; the GDP of the immigrant-receiving country has not perceptibly changed (and neither that of the original country of the immigrant, as such), and the native worker is US$20,000 worse off (but for the unemployment insurance if any).

This happens because there is still only one employer, but now there are two employees competing for the same job. Eventually, all salaries will go down, because the mere threat of losing some more jobs to immigrants will be enough to reduce the leverage of most existing employees.

Eventually the employer may invest some of the extra $10,000 saved into expansion, and if this is not in Bangalore or Shanghai, some new jobs will be created.

But it will take time, probably years, and it is unlikely that the expansion will end up restoring the relative scarcities of labour and capital that existed before.

Unless of course one believes in Say's Law and/or rational expectations, in which case not only this will happen, but everybody gets a pony too.

Someone argues that after all immigration is just like a demographic boom: precisely, and demographic booms mean that the leverage of those in the expanded cohort goes down a fair bit.

This is absurdly simplistic, but it communicates a sense of a particular case.

Laughably unqualified statements like:

«The economic problem is that immigrants rather than citizens of immigrant-receiving countries benefit most from immigration.»

seem to me designed to mislead by omissions of some details that are vital to a discussion in a political economy sense.

As to the specific proposals, the idea of auctioning citizenship has been often considered, and implemented in many countries in the past, and in some in the present. Indeed several if not most first world countries already in effect auction citizenship to the wealthy, for fancy prices.

The idea of auctioning work permits for low salary jobs sounds to me however rather crazy and impractical, also because like all taxes/charges there is the question of incidence: will it end up being paid by the immigrant or by the employers via higher wages, and in which proportion? My feeling is that employers would hate anything like that, and unlike immigrants they have huge political influence.

Besides as the paper only partially notes the political implications of a naked ''immigration fee'' or ''immigrant tax'' would be ugly. For example, Congress loves to tax immigrants because they cannot vote.

The only merit of this proposal is its paradoxical nature: it would at least make clear the insider/outsider nature of the labour market.

Selling green cards, or giving them for free to citizens, is not much different from selling prestige degrees to those who can afford the expenses and the tuition or selling internships to those who can afford the donations required...

http://www.danielgross.net/archives/2006/06/11-week/index.html#a000888
http://www.businessweek.com/magazine/content/06_25/b3989109.htm

Other countries like Australia have a more indirect approach: they rate (legal) immigrants via a point system that in effect estimates how much tax an immigrant is likely to pay; the more taxable you look, the better the chances of getting a work permit. Nothing as crude as a direct link though.

Singapore, characteristically, does it different: work permits are very easy to get but only for jobs offering pay below a low threshold, as the Singapore government thinks that its citizens should not be doing poorly paid jobs.

[Blissex]

«Finally, we know that the same reason that attracts labor, higher wages at the recipient’s end, is siphoning investment and outsourcing out of the US into emerging countries to take advantage of lower wages.
Faced with this unavoidable fact, job erosion and loss of market share, wouldn’t recipient citizens be more favorably inclined to accept more immigration as an alternative to allow the work to stay closer to home?»

That's indeed one of the two most persuasive pro-immigration arguments (the other being the ''moral''/''unselfish'' argument).

The problem as always with these discussions is the use of (implicit or explicit) generalities like the laughable «immigrants rather than citizens of immigrant-receiving countries benefit most» of the article's author.

The improper generalization in your otherwise sensible argument is implicit in the phrase «allow the work to stay closer to home», as this is true only if all jobs are equivalent, in the sense of equally likely to be outsourced or attract immigrants.

This is however manifestly not the case, and to a fairly significant degree.

What matters as always is that the distributional impact of outsourcing and immigration may well be very different not only across factors but also withing categories of workers and asset owners.

The workers that are often threatened by outsourcing are not those threatened by immigration, and the asset owners who benefit from exporting capital are not necessarily the same who benefit from importing labour.

For example, if programming jobs were not disappearing abroad, highly paid programmers working long hours would definitely be happy that lots of Mexican immigration makes hiring maids and gardeners a lot cheaper, and allows greater and cheaper staffing of stores and catering businesses.