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January 25, 2013

Should Immigrants Pay at the Gate?

Countries have many arbitrary ways of deciding who gets in. Here’s one idea that actually makes sense. By Gary S. Becker.


Hoover senior fellow Gary S. Becker presented what he called a “radical solution” to the challenge of immigration in a lecture at the Institute of Economic Affairs (London). Here are highlights of that talk:

Some of my libertarian friends—with whom I agree on many policies—have suggested that the United States go back to its policy in the nineteenth century and allow unlimited immigration. They point to the great benefits this country has obtained from immigrants. I strongly believe that immigrants have been a huge source of value for most countries, especially the United States. My wife is an immigrant, my parents were immigrants, and there’s hardly an American, if you go back only a few generations, who does not have immigrant ancestors.

But the world is very different now, mainly because of the increased role of government and the welfare state. Some, probably many, people would be willing to move to a rich country, if they would receive many benefits, such as welfare. Briefly, the welfare state is a major reason why a return to the unlimited immigration policies of the past would be unwise.

One might try to impose rules that limit how soon immigrants can collect welfare benefits, but they would be very hard politically to implement. In addition, legal immigrants become voters and influence the outcomes of elections, so there is much concern about the political affiliations of immigrants and how they would influence government spending and vote on various policies.

Immigrants who expect to stay permanently would express their motivation through a willingness to pay.

If it is unwise to return to a policy of unlimited immigration, what should be done about reforming immigration policy? The United States’ policy toward skilled immigration illustrates the difficulties with the present approach. For example, the United States has H1B immigrants who come in on special visas as skilled workers and stay for up to six years. Congress has pushed back the quota so that only about seventy thousand H1B immigrants can enter every year. The quota is usually filled by the end of January. Many more skilled individuals want to immigrate to the United States under this and other programs, but they cannot. The current approach does not seem to be the right one.

A SIMPLE PRICE

I have a very simple proposal. You might say it is naively simple. Governments should sell the right to immigrate. The government should set a price each year, and anyone who pays that price would be accepted, aside from obvious cases such as potential terrorists, criminals, and people who are very sick and would be a big burden on the health system. But aside from these cases, this proposal allows anybody to immigrate who could make the payments.

U.S. policy in the nineteenth century permitted anybody to immigrate at a zero price. But no country has ever adopted a system that allows everyone to immigrate if they can pay a positive price. I will try to convince you that this proposal makes a lot of sense—that it meets the objections not only of individuals opposed to admitting large numbers of immigrants, but also of those like myself who would like to see more immigration. This idea is not perfect, but it would be a major improvement over the present system.

I will come to the size of the immigration fee a little later. First, let us see how a fee would shape the immigration pool in beneficial ways. For illustration, we can pick a number: $50,000 for the United States, or its equivalent in other countries. First, who would be most willing to pay? The list obviously would include more skilled individuals because the gain to skilled people from moving to a rich country is substantially greater than the gain to the less skilled. Skilled workers coming from India or China to the United States boost their incomes by at least $20,000 to $30,000. For example, a graduate from Indian Institutes of Technology—very fine schools in which to train as engineers—would increase their incomes by more than $30,000 a year by coming to the United States. In this case, a $50,000 fee to enter would be earned very rapidly, typically within two years.

It’s not realistic—or even desirable—to go back to unlimited immigration, however much immigrants have contributed to society.

Young people, too, would be attracted by a fee system since they anticipate collecting higher earnings over many years. Many young people have lots of good ideas, are energetic, and want their families to do better in the future.

A country wants immigrants who make a commitment to their new country. Some immigrants will be disappointed; they will go back. But a country hopes that those who stay, raise their children, and otherwise settle down will commit to the land they enter, even when they still preserve some of their original culture. Immigrants who expect to stay permanently would be more willing to pay a sizable fee than those who want to come for a short time.

A FREE RIDE? FAR FROM IT

Opponents often claim that immigrants get a free ride. They come in, so the argument goes, make use of free health services, get an education, and cash in on other benefits. The system I propose eliminates any chance of a free ride: immigrants pay for the right to enter and add to tax revenue. This is no small consideration in the United States, Britain, and many other countries, where the financial crisis has made raising government revenue increasingly important. Many countries are piling up large deficits. Immigrants under my proposed system not only would pay to get in but would also generally work. As I have shown, they would be younger and more skilled than much of the workforce, thus making only minimal use of welfare benefits, and even those who did use these benefits would have contributed toward their cost. Seeing immigrants pay their way will not necessarily eliminate all opposition to immigration, but it will reduce the hostility.

What about illegal immigration? Immigrants come illegally when they cannot enter legally. Some people living in a country unlawfully will reason that if they legalize their status by paying the entry fee, their opportunities will get much better. As illegal entrants, they are limited to low-paying, low-skilled, off-the-books jobs and are mired in the underground economy. Not all illegal immigrants in the United States would pay the fee, of course, but those who want to make a long-term commitment to this country, and create better opportunities for themselves and their families, are likely to do so.

Considering the boost in wages for skilled immigrants, even a $50,000 price to enter the country could be repaid rapidly.

Naturally, readers will worry about poor potential immigrants who cannot afford the entrance fee. I do not want to exclude these individuals, particularly poor, ambitious immigrants trying to help not only themselves but their children. They are willing to work hard and save a lot because they take the long view. You want to encourage them to immigrate; it would surely be a foolish policy to bar the door to them.

That means one has to think creatively about how to help poorer aspirants finance an immigration fee. One approach is similar to student loans. An immigration loan program would be a way to enable poorer immigrants to invest in human capital by moving to a country that offers them greater opportunities than they had before. Immigrants might finance their loans by signing contracts with companies that pay the fees directly for them. In return, an immigrant could commit to working for the company for a certain period. If an immigrant decides to move to another company, he would have to repay the loan (or contract with the new company to repay the loan).

Such systems already help immigrants finance their education. Students from Brazil, for example, study at American universities. Their government has a program under which it finances a student’s education, say in economics at Chicago. The student has to agree to return to Brazil and work for a number of years in certain fields (for example, at a central bank or university). Students who return but do not want to go into these fields have the option of repaying the loans.

HOW WOULD IT WORK?

First, of course, one has to determine a price, which is mainly dependent on two variables: how many immigrants a country wants to admit (that would be a decision for voters) and how the number of applicants would vary with price. If the number of applicants did not vary much with price, a country would get more revenue and not many fewer applicants by setting a high price. If the number of applicants varied a lot with price, a country would have to take that into account.

I have made some rough calculations for the United States, which has been admitting about a million legal immigrants a year along with an unknown number of illegal immigrants. What equilibrium price would lead to one million immigrants wanting to come here legally? At a zero price, many more than one million would want to immigrate—probably three million or more. That is a measure of the excess demand to immigrate. Let us suppose that the previously suggested price of $50,000 would attract one million immigrants. Collecting that fee would yield $50 billion a year in government revenue—not enough to eliminate the federal deficit, but a significant sum. At a 5 percent interest rate, this annual revenue has a present value of roughly $1 trillion, the kind of money that might convince some critics that immigration would not be such a bad idea.

Perhaps the equilibrium fee should be higher. As I mentioned before, many immigrants boost their earnings substantially by coming to such countries like the United States, compared with prevailing wages in India, China, Pakistan, or elsewhere. Those with high skills might increase their incomes by $30,000 a year or more. These immigrants could borrow money and pay off their loans quickly, with money left over.

People with lower skills would gain much less, but even an unskilled worker can make much higher wages in the Unites States than, say, in Pakistan or Mexico. The gains would amount to perhaps $5,000 to $10,000 a year, so that even an unskilled worker could pay off his or her loans reasonably quickly.

Poorer immigrants are willing to work hard and save a lot because they take the long view. You want to encourage such people.

My guess is that more than one million immigrants would be willing to come each year to the United States at a price of $50,000, if they can get help in financing the entrance fee. Yet, although the revenue potential is great, the main purpose of the proposal is not simply to raise revenue. The proposal provides a criterion by which a country can select immigrants who offer the greatest advantages, such as more skilled, younger, and committed immigrants.

Many details would have to be worked out. Some people have argued that companies should buy the right to immigrate for their employees. But it is better to let individuals buy the right to immigrate than to put that in the hands of companies. One also has to take into account the immigrants who come with children and spouses, and how to set prices for families. In addition, the United States might want to establish different fees for different skill levels.

REMEMBER THE MARKET

Men and women in many parts of the poorer world want to immigrate to rich countries, particularly the United States, the United Kingdom, Germany, and Switzerland. Many arbitrary rules are used to limit the number allowed in, leading to excess demand to immigrate.

When companies have excess demand for their products (for example, when fewer cars are offered for sale than people want to buy), companies raise the price they charge. Conversely, as in recent years, amid a greater supply than demand, the car companies have lowered their prices, offering zero percent financing and cash discounts. This is how markets operate. Think of immigration as a market.

Based on the market concept, the price to immigrate to many rich countries is too low (zero usually), so governments should try to find a price that equilibrates the desired number of immigrants and the number who want to enter. Doing this, countries will get more of the type of immigrant they hope to attract—and keep.


Gary S. Becker, who won the Nobel Memorial Prize for Economic Science in 1992, is the Rose-Marie and Jack R. Anderson Senior Fellow at the Hoover Institution and University Professor of Economics and Sociology at the University of Chicago. He is an expert in human capital, economics of the family, and economic analysis of crime, discrimination, and population. His current research focuses on habits and addictions, formation of preferences, human capital, and population growth. He writes commentary for The Becker-Posner Blog and is one of the initial fellows of the Society of Labor Economists. In addition to being a Nobel laureate, Becker is a recipient of the 2007 Presidential Medal of Freedom.


Special to the Hoover Digest.