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Wednesday, June 21, 2006

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.

    Posted by on Wednesday, June 21, 2006 at 12:21 AM in Economics, Immigration, Policy, Politics | Permalink  TrackBack (0)  Comments (14)


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