Hoover Daily Report

A Market Solution to Immigration Reform

via Wall Street Journal
Friday, March 1, 2013

Since the recession formally ended in June 2009, the American economy has been growing at a rate of 2%, about one percentage point below its long-term average. To improve this performance, the U.S. needs more people with skills, vision and a drive to improve themselves—qualities that lead to innovation, business creation, increased employment and higher wages. One quick way to get such people is through immigration. A market approach would do this.

We propose that, instead of the current maze of rules and formulas, the U.S. should sell the right to become a citizen. Setting a price of perhaps $50,000 would attract those who place the highest value on citizenship.

Today, about 70% of immigrants who enter the country legally come in through a system that gives strong weight to people with relatives currently living here. Family preference isn't without merit—but the U.S. system currently gives much lower preference to workers with skills than do countries like Germany.

To ensure that not only the wealthy could gain citizenship, the sale of immigration slots could be coupled with a loan program that allows people to borrow the fee and to pay it back out of their earnings over an extended period. To minimize default, the loan payments would be automatically withheld from their paycheck, just as income and payroll taxes are today.

There are several benefits to a market-based immigration system. First, it would attract skilled, productive, entrepreneurial people, disproportionately young, who more likely to be positive contributors to the economy. Bringing in more skilled workers would be a force toward reducing inequality.

Consider a software engineer from India who moves to Silicon Valley. He can increase his earnings substantially, and even with the higher cost of living in the U.S., it would not take him too long to cover the $50,000 fee. Especially in the high-tech industry, foreign-born men and women have launched many businesses or invented products or processes that employ other U.S. workers, increase productivity in the economy, and raise Americans' standard of living.

Second, current citizens could provide loans or pay the fee of immigrant relatives who matter the most to them. This would encourage the best kind of family reunification.

Third, because the current system for legal immigration favors relatives of those already here, immigrants tend to come from relatively few countries. Opening immigration up to the rest of the world is fairer and would be of greater benefit to the U.S.

Finally, selling the citizenship right would bring in much-needed revenue for the government. About one million immigrants arrive legally each year. That is $50 billion in the system we propose.

People who are now here illegally could become legal by paying the fee. This isn't "amnesty"—yet for most of the illegal immigrants here, the deal would be a good one. They would no longer have to worry about being detected and sent home. Removing this cloud of uncertainty would encourage them and their children to undertake the kinds of investments in human capital that make sense to other citizens.

Of course, some illegal immigrants might choose to stay underground to avoid paying the fee. For that reason, the sale of slots must be coupled with strong enforcement of the laws. Employers should be fined for employing illegals but be given safe harbor if they run a simple Social Security number check before they hire anyone.

In addition to raising revenue, selling slots has advantages over a "point system" immigration reform that some propose. A point system requires that the government choose the number of points to award to skills, family ties, age, time living in the U.S., and other factors that are extraneous to economic growth. This means politics will influence the points awarded.

Yes, the price of a slot may also be subject to politics. If it is high, the U.S. will have fewer and more skilled immigrants. This probably means Republicans would favor a higher price and Democrats a lower price—each wanting immigrants they believe would vote for them. Still, selling slots won't create major misallocations among those who come in, once the price is determined.

One concern about the system we propose is that there are already many who have been in the green-card queue for a number of years. They could be allowed to stay in that queue, with the purchase of immediate citizenship merely offering another option.

Another issue is that some want to come only temporarily or may want to try things out before committing to paying the fee to enter permanently. One solution would be to allow people to pay an annual fee, renewable for up to three years, at the end of which time they would leave the U.S. or commit to pay the citizenship fee. A guest-worker program could fit into the temporary migrant category.

This proposal may seem radical at first glance, but it would enhance the country's stock of human capital, spur economic growth, help with federal budget problems, and be a more open and fairer system than the one we have now.

Mr. Becker, a Nobel laureate, is a professor of economics at the University of Chicago. Mr. Lazear, former chairman of the president's Council of Economic Advisers (2006-09), is a professor at Stanford University's Graduate School of Business. Both are fellows at Stanford's Hoover Institution.

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