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Immigration Policy: Purpose and Unintended Consequences

Tuesday, May 28, 2013

The immigration policy discussion and legislative proposals suffer from a huge gaping problem: nobody can articulate what the point is. What are the objectives? People want to come to the United States, work, pay taxes, start businesses, buy houses, and join our society. Why are we keeping them out?

Well, obviously, people who don’t work and want to come only to receive government checks and other benefits are a drain. But our immigration policies and proposals are not crafted to solve that problem. And it’s easy to solve: require a payment at the border, or post a large bond, say $10,000, which is refunded after five years or so of paying taxes, having a job and health insurance, and staying out of jail.  Obviously, we don’t want criminals and terrorists, but that desire hardly explains our laws or the proposals on the table.

The vague charge that immigrants will “take jobs” and lower American’s wages is not established at all in economics, and it doesn’t make much sense anyway.  It surely doesn’t explain why we keep out people who want to start businesses.  Our ancestors didn’t steal Native Americans’ jobs to get rich; they created new businesses and opportunities. Land and capital are plentiful in the United States, so why would we expect new immigrants to be any different?

Furthermore, whether an immigrant works in a US factory and produces a good which undercuts that good produced by a US worker, or whether the immigrant works at a factory in Mexico and produces the same good–probably cheaper–the effect on US wages is the same. By keeping the immigrant out, the factory just moves to Mexico.

Finally, even if keeping foreigners out boosted Americans’ wages, such a policy is a pure transfer. Would the US government send marines to Mexico, to steal a prospective migrant’s cow, or take his wages and send the cow or the wages as a subsidy to US workers? And then charge a sales tax on both the Mexican and the US product, raising its price and sending that as a subsidy to American workers as well? That’s exactly what restricting immigration to prop up wages accomplishes, as it is exactly what trade restrictions accomplish.  We send foreign aid and development assistance to lots of countries (well, to their governments, but the intent is to help people). We then try to impoverish them to our benefit.

Political and social arguments carry a little more weight. Face it, many Republicans are anxious about immigrants because they fear they will vote Democratic. A thirteen-year disenfranchisement seems well crafted to exploit that worry. Stories of extremists who immigrate who live off welfare, and commit acts of terrorism stoke fears that the melting pot is broken. But if that were the genuine concern, our immigration laws should favor hardworking, entrepreneurial immigrants likely to adopt our culture.  If we have so little faith in the power of our ideas, perhaps we should reexamine them.

If we worry about culture wars, and voting citizens who do not have the basic command of US history, political philosophy, legal and social traditions, that battle was lost, and should be won, in the disastrous public schools, not by keeping entrepreneurs on the doorstep.

Rudderless policies are even more prone to unintended consequences. Under the proposed e-verify system, all employers are supposed to verify the work eligibility status of all employees, including domestic works, in a gargantuan national database.

The result is fairly predictable. The only way to get around the e-verify system would be to make the worker fully illegal. So, rather than have a worker with illegal immigration status, but in the social security system and withholding taxes, we would move to an under-the-table cash economy.  And once the company moved to accommodate some illegal workers, why not avoid taxes, regulations, health insurance penalties, and all the rest of it by paying the Americans in cash as well?

The immigration law has a huge hole in it: How do people who want to come to work in the United States in the future come here legally? Even if the current illegal immigrants are allowed to stay, if we keep denying entry, new ones will keep coming, and we will be back in the same mess all too soon.  You can tell that this must be the plan, because otherwise we wouldn’t need to talk about e-verify.  If everyone who wants to come and work can, you don’t need to do fancy verification. You only need that if you conceive of a new, large stock of people in the country trying to work and being barred from doing so.

Immigration law should be like drivers’ licensed law or passport applications: setting out the procedure by which anyone who wants to move to the United States can go about doing so.

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John Cochrane is a professor of finance at the University of Chicago Booth School of Business, a senior fellow of the Hoover Institution, an adjunct scholar of the Cato Institute, and a research associate of the National Bureau of Economic Research