Defining Ideas

The Case For More Immigration

Wednesday, March 6, 2019

Economists are almost unanimous in their view that when barriers to trade fall, the vast majority of residents of the country whose government reduces those barriers gains. They gain as consumers from the increased availability and variety of goods they can buy and from lower prices of imports, and their gains usually exceed by a big margin the losses to domestic producers who face new competition. That’s the main reason that the vast majority of economists favor free trade.

Does this reasoning carry over to movement of people rather than just movement of goods? Yes. In the remainder of this article I explain why that’s so, and discuss possible objections to immigration, whether those objections hold water, and ways of handling those objections. I’ll give the bottom line here: Virtually every objection to immigration to the United States has been exaggerated. For every objection, there are persuasive, evidence-based defenses.  

Consider first why immigration is good for immigrants and good for the existing American residents. The reason is one of the simplest and yet most powerful ideas in economics: both sides gain from trade.  If they didn’t gain, they wouldn’t do it. The vast majority of the adults who come here do so to work. So they produce something valuable here that is sold to someone here. Both the buyer and the seller gain.

These gains are huge. The reason is that people who come here from poor countries are automatically two to eight times as productive as they were in the country they left. Think about the person who leaves Haiti to come to the United States. Even if, as is likely, he has few job skills, those skills will give him an income in the United States that is a large multiple of what he could earn in Haiti. The majority of the gain goes to the immigrant. But we who are already here gain too. We gain from lower prices and more variety in the goods and services that immigrants produce. The American mother, for example, who wants to work outside the home, can more easily find someone to take care of her child. The person like me who loves nice lawns but hates mowing them can more easily find someone to do so.

Michael A. Clemens, an economist at the Center for Global Development, estimates that allowing a lot more people from low-productivity poor countries into high-productivity rich countries would increase world GDP by trillions of dollars. That’s not a typo. Both the immigrants and the pre-existing residents of those rich countries share the gains. And these gains, he notes, swamp the gains from free trade in goods. Even allowing tens of millions of people to immigrate from poor countries to rich countries would increase world GDP by at least a few percentage points.

Are there arguments against immigration? Yes. But in each case, there are targeted ways to handle these issues rather than reducing immigration.

Over and over, we hear five major arguments against immigration: (1) they’ll take our jobs; (2) they’ll cut our wages; (3) they’ll go on welfare; (4) they’ll commit crime; and (5) they’ll hurt our culture.

First, on jobs, there’s an unlimited amount of work to be done. Jobs are not scarce. If they were, wage rates would be zero. What is scarce is the amount of labor.

Consider something that happened in the United States, especially since World War II, that, in its effect on the U.S. labor force, resembles immigration:  the entry of women into the labor force. Between 1950 and 2000, 47.2 million additional women and 31.4 million additional men entered the labor force. If jobs had been scarce, we should have seen the unemployment rate increase by many percentage points. It didn’t. In fact, the unemployment rate for men, which was 4.8 percent in 1950, was down to 3.9 percent in 2000. The unemployment rate for women, which was 5.3 percent in 1950, was down to 4.1 percent in 2000. The same thing has happened with immigrants. We have close to a record number of immigrants—and, in 2018, the lowest unemployment rate in 17 years. (In January, the unemployment rate blipped up slightly, from 3.9 percent in December to 4.0 percent).

Another common argument against immigration is that immigrants will compete with U.S. resident workers, driving down overall wage rates. This argument is more plausible than the jobs argument. After all, a standard conclusion in economics is that when the supply of anything rises, the price will fall. Since wages are the price of labor, that should apply to wages too.

And it does. But all other things are not equal. Two realities complicate the analysis. First workers don’t just supply labor; they also demand labor, whether directly by hiring people or, more likely, indirectly by demanding goods and services. This increased demand for goods and services increases the demand for labor. Second, and possibly more important, not all workers are the same. Immigrant workers tend to be relatively unskilled and, for that reason, they complement, rather than substitute for, existing American workers.

In 2009, UC Davis economist Giovanni Peri and Colgate University economist Chad Sparber showed that, due to their limited knowledge of the English language, immigrants have a comparative advantage in manual jobs and so tend to specialize in those. In firms and sectors that hire immigrants, this produces higher demand for jobs of coordination and interaction typically staffed by natives whose language skills are superior. This specialization causes non-immigrants to move into jobs that require more communication in English, and pay in such jobs is typically higher than in the manual ones they left. For that reason, the economists conclude, “foreign-born workers do not have a large, adverse effect on the wages paid to less educated natives.”

Interestingly, in the economists’ debate about immigration, the most prominent critic of immigration is Harvard’s George Borjas. He wrote the entry on immigration in my Concise Encyclopedia of Economics. The only group of native-born Americans that he finds are hurt by immigration is high-school dropouts. His latest estimate, in 2016, is that immigration has caused their wages to fall by between 3.2 and six percent. College grads, by contrast, gain.

But what if, quite understandably, that drop in wages concerns you? Can we get the substantial gains from immigration while still protecting the American workers who are most vulnerable? Yes. The U.S. government could charge hefty fees to immigrants, on the order of $5,000 to $10,000 each, and use the proceeds to help low-income Americans by, for example, expanding the Earned Income Tax Credit, or reducing the bottom tax rate from, 10 percent to, say, eight percent. Alternatively, the government could fund the help for low-income Americans by imposing an income tax surtax on immigrants for their first five years in the labor force.

What about the idea that welfare draws in immigrants who don’t intend to work and that increasing the amount of immigration allowed would add to this problem? Even free-market economist Milton Friedman was strongly concerned about the effects of immigration in a country with a welfare state.

Fortunately, we can handle his concern. The reason is that most of the U.S. welfare state is aimed at the elderly, not the poor, and most immigrants are young. Expenditures on Social Security, Medicare, and the nursing home component of Medicaid vastly exceed expenditures on narrowly defined welfare, food stamps, housing subsidies, and the part of Medicaid aimed at the non-elderly poor. Moreover, one important provision in the 1996 welfare reform law, pushed by Republicans in Congress and reluctantly signed by President Clinton, was a ban on giving welfare benefits to illegal immigrants and a requirement that even legal immigrants wait five years before getting benefits.

Interestingly, even illegal immigrants benefit the U.S. Treasury by paying taxes using fake Social Security numbers. Because the numbers are fake, those who pay them will never receive Social Security based on those taxes and so those taxes are pure profit for the U.S. government. In fact, in 2005, the Social Security Administration’s chief actuary, Stephen C. Goss, estimated that without all the taxes paid on invalid Social Security numbers, “the system’s long-term funding hole over 75 years would be 10 percent deeper.” Even legal immigrants help the Social Security situation, for the simple reason that most are young. A Social Security simulation over a decade ago concluded that if net (legal) immigration were to rise from 900,000 annually to 1.3 million, the Social Security funding gap would fall from 1.92 percent of total payroll to 1.67 percent.

Let’s say that doesn't satisfy you. There’s still a solution that has nothing to do with restricting immigration: change the law so that the waiting period for benefits is, say 10 years or even 20 years, instead of five.  

One of the main concerns voiced by opponents of immigration, especially President Trump and his supporters, is that immigrants will bring increased crime. If we count illegal immigration as a crime, then this is true of illegal immigrants by definition. But the crimes most people worry about are violent crimes like murder, rape, and assault, and crimes against people’s property. In a July 2015 study for the American Immigration Council, Walter Ewing, Daniel E. Martinez, and Ruben G. Rumbaut pointed out that between 1990 and 2013, the foreign-born share of the U.S. population “grew from 7.9 percent to 13.1 percent” and the number of illegal aliens grew from 3.5 million to 11.2 million. And the violent crime rate over those same 23 years? It fell by 48 percent. The property crime rate fell by 41 percent. Moreover, they found, in 2010, 1.6 percent of immigrant males between ages 18 and 39, were in prison, compared to twice that percent, 3.3 percent, of the native-born.

What about the breakdown of crime between legal and illegal immigrants? In a study released this week, political scientist Michelangelo Landgrave of UC Riverside and Alex Nowrasteh of the Cato Institute find that the incarceration rate for illegal immigrants was 756 per 100,000. This is substantially higher than the 364 rate for legal immigrants, but substantially lower than the 1,471 rate for native-born Americans.

Some people worry about the effect of immigrants on our culture. But one important measure of the extent to which immigrants integrate into our culture is their ability to speak the English language. According to a 2007 study by the Pew Center, while only 23 percent of first-generation Hispanics spoke English fluently, 88 percent of second-generation Hispanics were fluent, and 94 percent of third-generation Hispanics spoke English fluently. If that’s not enough, there’s an easy solution: restrict immigration to only those who pass an English proficiency test. I guarantee that people in El Salvador, Mexico, and India would burn the midnight oil figuring out how to speak fluent English.

Substantial increases in immigration would create huge gains, mainly for immigrants but also for native-born Americans. Most of the objections to immigration, when examined closely, have little basis. But even for those who worry more than I do about these objections, there are good solutions that would preserve the benefits of immigration to residents and immigrants and would allow us to expand the number of immigrants allowed.

Some people might, understandably, be worried about completely open borders. But that’s why this article is titled “The Case for More Immigration,” not the “The Case for Unlimited Immigration.” The U.S. government currently allows a little over one million immigrants a year. A reasonable step would be to double that number for a few years and see what happens. My prediction is that almost all adult immigrants would work, U.S. residents would benefit, and the crime rate would fall.