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An economic case for free immigration

In the times of crisis, many are tempted to blame immigrants. “Immigrants take our jobs; they permanently depress our wages” is what you usually hear from anti-immigrant people. It sounds like common sense. What else could happen if we allow more people from other countries to compete with us in the job market? Students who have learned just basic economics would find this argument quite compelling. If the supply of labor increases, doesn’t basic economics predict that wages will fall? But the hidden assumptions for that conclusion are that you are holding demand relatively constant, and that the “new” labor is the same kind as the “old” labor. Are these assumptions realistic? First, the immigrants who increase the labor supply also raise the demand for goods and services, which in turn increases the demand for labor that produces these goods and services. Second, most immigrants that come to the US are either very highly skilled or low skilled compared to the native-born population. Therefore, they act as complements rather than substitutes for the native-born labor. This means they don’t simply change the quantity of labor (i.e. shifting the labor supply to the right), but also alter the quality and the structure of labor. The result is greater specialization, leading to higher productivity and growth.

The case for free immigration is no different from the case for free trade from the economic point of view. Allowing people to freely trade with each other enables them to specialize in what they do best. Allowing more people to come to your country to work and trade extends the market and brings about more specialization. A lonely Robinson Crusoe cannot produce much. He must do many tasks at the same time and cannot specialize in the tasks that he’s especially good at. Letting him trade with people from nearby islands would improve his productivity markedly, since he then could focus on catching fish and exchange the fish for more coconuts, clothes, construction materials, etc. than he could produce by himself. Introducing more people to Robinson’s island would have the same effect. With more people on the island, Robinson for example could (by selling his fish) hire some people to build him a house rather than do it himself, which would take him relatively more time and effort since he does not have a comparative advantage in building houses. He thus would have more time to catch fish and exchange for more goods and services, raising his own living standard. The immigrants and other people on the island would similarly benefit from the immigration. The more important aspect of the benefit, however, is the benefit to the consumers. Remember that Robinson, like most of us, is a producer and a consumer at the same time. The immigration of other people would raise his living standard, not only because he might become more productive (and earn more income as a result) but also because he could consume cheaper and higher quality products, resulting from the island’s higher stage of specialization.

Of course, all of these do not imply that all people would benefit from immigration all the time. A fisherman emigrating from another island would compete directly with Robinson. In the short-run, the new fisherman would put a pressure on Robinson’s income and, in the case he’s much better than Robison at catching fish, may even put Robinson out of job. But the result is everybody else would benefit from the rise in fish quantity and quality. And in the long run, it may be even better for Robinson himself since he eventually would probably find a way to better serve his customers. In response to the new competition, he might choose to focus on some market segment (a kind of fish for example) to differentiate himself from other rivals. He might try hard to excel at some certain aspects of his products, either quantitatively or qualitatively. The outcome would benefit not only the consumers, who would then enjoy more product diversity, but also Robinson, who would become a more valuable producer. The consequentialist argument for freer immigration, like the argument for free trade, is not that there would be only benefit and no cost at all. The argument, rather, is that the benefit would be higher than the cost (i.e. what the whole economy would gain overall would exceed what Robinson and the likes would lose in the short run). Of course, some people would dispute this argument and demand hard evidence. They believe that when poor people from other countries come to the US, the loss to the native rich residents would be so high that it would exceed any gain to the economy. Luckily, evidence seems not to back their claim. Below are some extracts from a recent article on The Economist:

In a recent report Sharun Mukand of the University of Warwick calculates the effect of movement by half of the developing world’s workforce to the rich world….. If migration closes a quarter of the migrants’ productivity gap with the rich world, their average income would rise by $7,000. That would be enough to raise global output by 30%, or about $21 trillion. Other studies find even bigger effects. A 2007 paper by Paul Klein, now at Simon Fraser University, and Gustavo Ventura, now at Arizona State University, reckons that full labour mobility could raise global output by up to 122%

Rich-world residents nonetheless worry that migrants will gain at their expense. Yet in a survey of research on the topic Francine Blau and Lawrence Kahn of Cornell University find that few studies turn up a negative impact on native wages. In a recent paper on western Europe Francesco D’Amuri of the Italian central bank and Giovanni Peri of the University of California, Davis find that immigration encourages natives to take more complex work. Such “job upgrades” are responsible for a 0.6% increase in native wages for each doubling in immigrant labour-force share.

These pieces of evidence may not convince all people. Many of these estimates are, after all, just estimates, based on some hypothetical models that may err. But remember that America had virtually open borders for over a century, and the country had grown into a superpower, thanks in big part to the human labor and talent brought by immigrants. The US, after all, has been a country of immigrants since its birth. The burden of proof therefore shouldn’t fall on those who believe that people should be free to come to this country to work and seek new opportunities, but on those who want to deprive their fellow human beings of their liberty to engage in voluntary exchange.

Update: this is only a basic case for free immigration, focusing on productivity and income. A deeper look will raise other valid problems that need further examination, such as the use of social services/welfare by immigrants, security issues like crime and terrorism, overpopulation and environmental issues, etc. I will discuss these problems in the next post.

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