Sep 09 2010

Updated: Immigration – NOT and economic debate…

Published by at 9:55 pm under Immigration,Labor Market,Resources,Wages

Because if it were, there would be no debate at all. Immigration, from an economic standpoint, is simply the flow of labor from one geographic region to another. I’m not talking about the kinds of immigrants who arrive in America or Switzerland or the UK as refugees fleeing political, religious, gender or racial persecution. Such asylum seekers have motives that are entirely non-economic for fleeing their homelands. I’m talking about the millions of people every year pack up their homes and seek a new life in a new country for economic reasons.

America has been called the “land of opportunity”, and for nearly five centuries now the opportunities the New World has had to offer have attracted immigrants from all corners of the globe. First it was the Spanish and the Portuguese who came in conquest in search of gold and silver. Later came the pilgrims seeking religious freedom, and after that the Irish, Italian, Germans, Russians and countless other Europeans seeking the economic opportunities offered by the construction of railroads, homesteads on the Great Plains and gold in the mountains of the West. Chinese arrived by the millions from the 1850’s through the turn of the 20th century, and over the past hundred years America’s racial, ethnic, religious, linguistic and cultural fabric has been enriched by the arrival of millions upon millions of people seeking the economic opportunities America has had to offer. The opportunities of the 21st century no longer involve the hope of striking gold or working on the railroad, rather they exist in industries such as software engineering, medicine, scientific research, finance and, yes, agriculture and construction.

It is interesting to me that in the United States today, American citizens and politicians seem to be as angry as ever about the seemingly endless flow of “illegals” flooding across the American border, bringing with them crime and contributing to unemployment among American workers already struggling to find jobs during the country’s deepest recession in decades. If you believe politicians like the governor of Arizona, Jan Brewer, this “invasion” of illegals from south of the US border is simply tearing apart the fabric of American society. Her state has even gone so far as to pass a law requiring police officers to require anyone who they suspect of being “illegal” to present proof of their legal status upon the officer’s request. Other attempts by states to crack down on illegal immigration include laws forbidding landlords from renting apartments to illegal immigrants and on a national level there is a major push to change the US constitution, in which the 14th Amendment states that any child born in the United States is automatically a US citizen. Imigration opponents claim that millions of Latinos enter the US illegally to have babies, which they call “anchor babies”, who become US citizens and then, supposedly, later in life, help their parents become legal US residents.

The protest against illegal immigration has dominated the right wing agenda in America lately, and has brought angry Americans to the street for rallies across the country aimed at sending illegals “back to where they came from”.

The irony of the whole situation is that today, in the midst of the Great Recession, immigration rates are falling rapidly. The number of immigrants entering the United States illegally has actually fallen by 67% in the last few years, from 850,000 per year between 2000 and 2005 to under 300,000 in 2009. Even more ironically, the number of illegals leaving the United States now actually exceeds the number entering the US, meaning that the total number of illegal immigrants (around 11 million in 2009) is decreasing and is lower now than it has been for much of the last decade. The Washington Post presents the facts:

From an economic perspective, the backlash against illegal immigration to the United Sates right now is perplexing and frustrating. Americans currently find themselves in a dire economic situation in which over 8 million people have lost their jobs, the unemployment rate is stuck at a historic high of nearly 10%, and discouraged workers have dropped out of the labor force at alarming rates, meaning that almost one in five Americans is either unable to find work or has given up the search. Clearly there is much to be upset about.

But all the facts above send a clear message to potential illegal immigrants to America, as well as to those who are already here! The message is, “DON’T COME!” (or for those who are already here, “maybe this is a good time to leave!”). Some of the decrease in the flow of illegal immigrants can probably be attributed to tougher border security and increased enforcement of the existing immigration law. But it’s more likely that the decrease in the illegal population is an economic phenomenon. Here’s why:

America purportedly practices a system of economics known as a free market. The fundamental characteristic of the free market system is that resources are allocated efficiently when they are allowed to flow from markets in which they are in low demand to markets in which they are in high demand. Price is the signal that tells resource owners where their resources are demanded the most. When we are talking about immigration, the resource that is flowing from market to market is labor. In a free market economy, there should be no government controls over the free flow of labor from one market to another. When the price of labor in one market (say the apple industry in Washington State or the construction sector in Arizona) is higher than in another market (say the corn industry in Mexico or the retail sector in Guatemala), the signal sent by this imbalance of wages is that more labor is demanded in Washington and Arizona and less is needed in Mexico and Guatemala.

The imbalance of wages between the US and its closest neighbors leads to a natural inflow of labor from low-wage countries to the higher wage industries in the United States. It’s a form of osmosis, which according to Wikipedia is “the movement of water across a partially permeable membrane from an area of high water concentration to an area of low water concentration… which tends to reduce the difference in concentrations”. Instead of water, immigration is osmosis of labor. Labor is more abundant in Mexico and Latin America than it is in the United States. The flow of labor across America’s “semi-permeable” border with Mexico simply “reduces the differences in concentration” of labor between the US and its southerly neighbors.

Making it harder for immigrants to come into the United States does little to protect American jobs. One thing I teach my students is that in a world where labor is not able to be imported (i.e. one where immigration is stemmed or slowed down), we should expect to see capital exported. A higher border fence with Mexico or more immigration police or a repeal of the 14th Amendment may reduce the number of people coming to the United States to find work, but these barriers to immigration will do nothing to stop the flow of capital to Mexico and the rest of the low-wage world. If Americans want more jobs to be done in America, then they should embrace those who are willing to do them, otherwise those jobs can be exported to where the wages are lower and people are willing to do them. If labor is immobile, capital will grow legs!

The immigration debate is not an economic debate. It is a political one. From a purely economic perspective, with the efficiency of free markets as a guiding principle, the free flow of labor across national borders improves overall efficiency of both the countries from which the immigrants come and the country in which they arrive. American workers are only marginally affected by the presence of illegal immigrants in the United States. Several studies have shown that while employment among certain Americans is affected slightly, there is no evidence that illegal immigration puts downward pressure on American wage rates. Jobs that might not even exist in America without immigrant workers willing to work for low wages do get done thanks to immigration, and the American economy is stronger and healthier because of this.  Without immigration, those jobs will still get done, just not in America! Or, if the jobs can’t be exported, they’ll get done but at a much higher cost, raising prices for American households and reducing the real income of the American people.

In economic terms, increased immigration allows the United States to have a comparative advantage in the production of a broader range of goods and services than it would have without immigration. Since in a global economy, what a nation’s economy produces is determined by what it can produce at the lowest opportunity cost, the more low-wage labor America has to employ, the larger it can expect its economy to be and the greater number of exports it can expect to sell to the rest of the world.  Immigration is overwhelmingly positive for the American economy, even illegal immigration. If it weren’t illegal, it would happen anyway, just more of it, which again would only make the US economy stronger and its output greater.

Again, these are all mute points in the current American debate over immigration, because the fact is that the net flow of illegal immigrants is actually negative right now. NPR reports,

Signs are pointing to stabilization on the border… as a still-sputtering U.S. economy and high unemployment continue to contribute to the over-the-border slowdown. Estimates suggest that the U.S. economy has lost 8 million jobs in the downturn, including 4 million manufacturing and construction jobs over the past three years.

The free market offers the perfect solution to the illegal immigration debate in the United States. Let it be! If America doesn’t need more labor, then labor will not come to America, and some of that which is already here will leave. But once the US economy begins to recover and the demand for labor begins to grow once more, let it be! Instead of building higher fences and hiring more border police, find ways to make it easier for workers to enter the country and fill the jobs for which they are demanded. America will be stronger for it! After all, if we don’t embrace the inflow of labor, we better be prepared for an outflow of capital. And as even my first year IB Econ students can tell you, a decrease in the labor force and the amount of capital in a nation is a recipe for economic contraction, recession and declining standard of living among that nation’s people.

Is that the America we want to see in the future? Would America be the land of freedom and opportunity today if it had kept out immigrants throughout its history instead of embracing them and incorporating them into American society and the US economy? I doubt it. So, America,  end the debate… because from an economist’s perspective, it was over before it even began!

Update:

Several people have left comments on my Facebook page about this post. Here are a couple of those comments:

From reader #1:

Good post! I’m curious since you didn’t specifically mention the main argument I’ve seen: Illegal immigration results in immigrants who consume more value in public services than they return to the public funds. What’s your take on that angle?

And from reader #2:

Very good and well thought out post. However, I disagree that it isnot an economic issue. In fact the major problem is that it IS an economic issue. Over 80 percent of their wages go back home – out of the country – and I’m not just talking about Mexicans. Additionally they go to the emergency room for most of their medical issues, even the common cold. They can have a $10,000 visit and never pay a penny – we have to pay for it. They get welfare, food stamps and much more – and we have to pay for it. Most of them have false IDs and Social Security cards so they pay no taxes.

Granted some of them do the jobs that most Americans won’t do – agriculture, sweat shops, etc. – but they cost us much more than they provide. 60 percent of the criminals in California jails are illegal and we have to support tham at an average cost of $30,000 per year each. Their families also collect welfare. Thousands of car accidents are caused by illegals each year who have no insurance – driving our insurance rates sky high.

Illegals are DEFINITELY an economical issue. By the way what is the first word in ILLEGAL alien – their very existance here is illegal. Also they are not illegal immigrants. An immigrant is one who goes through the proper channels and supports this country. The illegals do not do that. They protest that they are mistreated and insist that they be treated as citizens. Try to enter their home countries illegally and see how you are treated. America is heaven to ‘our’ illegals compared to virtually any other country in the world.

So, I felt obliged to reply to these comments, so here is my response!

Reader number #2, you have some fair concerns, but it should be pointed out that the industries immigrant workers support do pay taxes, and the revenues these businesses generate for the US economy using low wage immigrant labor is taxable income. Without the availability of cheap labor, many of these industries would fall to foreign competition or would simply pack up and move their operations to foreign countries. Without the income generated by these industries, the US tax base would shrink and there would be less to spend on all sorts of public goods for US citizens.

While you’re right that illegals do not pay income taxes and therefore are “free-riding” in a sense, it must be recognized that if they were here legally, they also would not pay income taxes, and in fact would be eligible for billions of dollars in federal tax subsidies and other transfer payments due to their low income (minimum wage?!) that they are not able to take advantage of due to their status as illegals. So couldn’t you argue that they’re costing American taxpayers LESS because they are here illegally?

And I don’t understand your argument that since they make up 60% of California’s prison population they are somehow taking advantage of the American taxpayer. If those spots were not occupied by “illegals”, are you suggesting there would be 60% fewer prisoners? Last I heard California was shortening sentences to make room for the long line of convicts who there is simply not room for in the state’s prison system! Wouldn’t taxpayers have to pay $30,000 a year for any prisoner, regardless of his nationality? I mean, if they were Americans they’d also cost $30,000 a year to support, right?

Reader #1, with regards to the lack of contribution to public funds, you must remember that most Americans earning below $40,000 per year effectively pay no income tax, and depending on the number of children they have and other factors may even be eligible for an earned income tax credit of thousands of dollars. Illegal immigrant workers earning minimum wage (or close to it), if they were to become legal taxpaying workers, would instantly add millions of low income workers to the tax system and thus add billions of dollars to government expenditures on EICs and other tranfer payments, as opposed to contributing positively to the country’s public funds like you suggest they might. I mean, sure, an immigrant working in Silicon Valley is a valuable contributor to the tax base, but one working for minimum wage on a farm will add nothing to the tax coffers, legal or not!

In addition to the earned income tax credit, as legal American workers they’d be eligible for welfare benefits, unemployment benefits, Medicaid, food stamps, subsidized school lunches and countless other transfer payments that would place a larger burden on the American middle and upper class tax payers.

Reader #2, illegal immigrants are not the only people in America who take advantage of the emergency room. Poor white Americans, not to mention the 49 million of us who are without health insurance, can walk into an emergency room just like the few million illegal immigrants can and walk out without ever paying a bill. Do you also want to kick the nearly 50 million uninsured Americans out of the country because they might take advantage of the Emergency room? Is a poor illegal immigrant any more likely to drive without car insurance than a poor American citizen? I don’t know, but I’d be interested to see some data on that.

Public schools are paid for by property taxes in most states. Immigrant workers supporting a family on minimum wage are never going to contribute much to property taxes, just as low income American households who rent their homes or own homes of low value will not pay much in property taxes. Yet their children still receive an education, don’t they? Should we deny all Americans who do not pay much in property tax access to public education? Besides, if a family or an individual pays rent, whether they’re citizens or illegal immigrants, their landlord is paying property taxes which go towards supporting public schools. Therefore anyone, legal or illegal, who pays rent is indirectly supporting public schools… so what difference does it make whether the renter is an American citizen or not?

Reader #2, one of the only reasons that 80% of illegal’s wages are sent home is because the US makes it so difficult for them to bring their families into the country with them. I think you misunderstood the whole point of my blog post. I did not intend to present an argument for more ILLEGAL immigration, rather I intended to present an economic argument for more LEGAL immigration. I think immigration reform that makes it easier for labor to flow across borders between the US and its immediate neighbors would alleviate much of the anti-immigration concerns of citizens like yourself. Yes, illegal immigration is ILLEGAL, so let’s make it easier for immigrants to come here legally, then we’ll have fewer criminals on our hands, and more valuable human capital to contribute to the strength of and increase the growth potential of the American economy.

I’m approaching this issue from a purely economic standpoint here, and from an economic perspective the benefits of more flexible international labor markets overwhelmingly outweigh the costs. Look at the EU and the 27 member countries which allow labor to move easily and efficiently across national borders. If immigrant labor was really as harmful as America claims it to be, then why has Europe embraced open borders and its economy has grown to exceed the size of the United States in the last decade? Sure, many Brits hate having Eastern Europeans in their cities “taking their jobs” and corrupting their culture. But the British economy (and those of Eastern Europe) are better off because of it.

Anyway, thanks for reading the article!


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

2 responses so far

2 Responses to “Updated: Immigration – NOT and economic debate…”

  1. Gudrun Danoskion 30 Nov 1999 at 1:00 am

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  2. kenezenon 09 Apr 2011 at 4:58 pm

    If I accept your logic of immigration and the economic effects, then we're discussing market efficiency. One would conclude that outlying reasons for this movement of population was the better efficiency of American government structure, business and capitalistic free enterprise superior to much of Central America.

    I would, based on that logic, offer a far better solution to the differences between your logic and the logic of others.

    let's create the "United States of the America's" much like our ancestors. Immediately allow any Central American nation that wants to become a State or States within the United States to join. Their President becomes Governor and council becomes the legislature subject to immediate vote after joining. Several would at first and, others would come once they could not compete with the now component parts of the United States of the Americas.

    This method would expand America's space and resources and relieve the new citizens of far less opportunity in their current situation. It would be a "win-win" situation.