Immigration Reform-BECKER

After extensive debate, the United States Senate last week passed a comprehensive immigration bill. I believe the bill is a mixed bag of good and bad reforms that pleased none of the vocal interest groups. As I have argued before (see my blog entry on October 16, 2005), the United States would benefit greatly from immigration of many engineers, computer experts, scientists, and other highly skilled men and women. The increased value of skilled workers in the economy is reflected in the growth in the earnings during the past 25 years of more educated and other skilled workers relative to earnings of the less educated and skilled. The higher value placed on skilled workers is due both to the development of computers, biotech, and other technologies that favor skilled workers over less skilled workers, and to the advantages in a global market of producing skilled goods. Large-scale immigration of more educated and other skilled workers would help satisfy the economy's thirst for skilled workers. By increasing the supply of skilled workers, such immigration would also reduce the widened earnings gap between more and less skilled workers. Skilled immigrants have many other advantages: they have very low crime rates, they are young and employed, they do not draw unemployment compensation benefits or social security benefits, they contribute a disproportionate amount in taxes, and their children generally do well in school. By "large-scale" I mean one million or more skilled immigrants per year. This may seem like a lot, but currently the United States takes about 1 million legal immigrants each year. With a total population of over 300 million, this country should not have difficulties in absorbing one million skilled immigrants annually. The Senate bill does provide for 200,000 temporary guest workers per year plus a much smaller number of employment-based visas each year for the next 10 years. These "temporary" workers would in fact have an easy road to citizenship. Even if all these slots were filled by skilled workers-and the bill gives little if any priority to skilled workers- the numbers admitted each year would be far below my goal of a million skilled workers per year. So the Senate bill is on much too small a scale, and gives insufficient emphasis to skilled workers, which is where immigration reform should be centered. The hardest challenge to immigration reform is to decide what to do with the 8-12 million illegal immigrants already here. The bill proposes a three-tier policy. Illegal immigrants who have been in this country for 5 years or more (estimated at over 6 million persons) would be granted immediate amnesty. Illegal immigrants who have been here between two and five years (several million more illegals) could with somewhat greater difficulty arrange to receive amnesty and lawful work permits. The roughly two million illegal immigrants here less than two years would not get amnesty, and they would be deported if apprehended. It will be a nightmare enforcing this provision since it will impossible to determine for many immigrants whether they have been here illegally two years or more. Those who have been here less than two years have a very strong incentive to claim that they have been here much longer. One can imagine the lawsuits and other enforcement problems in trying to determine the length of stay for person who crossed illegally, and have held jobs in the underground economy where they were paid in cash with little record keeping. In addition to these practical difficulties, amnesty is a bad approach conceptually. Granting amnesty now attracts additional illegal workers in the future since they anticipate future amnesties that would legalize their being here. The previous major amnesty of illegal entrants in the 1980's was not forgotten in the immigrant communities. These communities are kept closely informed about all the details of new proposals on immigration. As Posner indicates, amnesties are common in other areas, and are used, for example, to collect back taxes. The attractions of amnesties are due to what economists call "time inconsistency". Amnesties do encourage violation of tax and other laws, and ex ante are undesirable. However, after the fact, amnesties are useful in order to get more tax revenue, recognize the large numbers of illegal residents already in a country, etc. So this conflict between what is desirable when formulating policies, and what is desirable after policies have been in effect for a while, is what explains the popularity of amnesties. Despite the after the fact advantages of tax amnesties, immigration amnesties, etc., countries are likely to be better off if they could avoid having them at all. An approach better than immigration amnesties is to adapt to the illegal immigrant case my suggestion to sell the right to immigrate (see the blog entry on February 21, 2005) . Under this plan illegal immigrants already here could legitimatize their status, but they would be subject to an additional penalty by being forced to pay a fee, or fine, to the federal government. The exact amount would have to be determined, but suppose it would be $10,000-$15,000. Any illegal immigrant who could pay that fee would be granted immediate legal status similar to that granted by the Senate bill to those here five or more years. If ten million illegal immigrants each paid $10,000, that would aggregate to $100 billion, or about 5 percent of the total federal government budget. Immigrants who did not buy their legitimacy would be subject to arrest and deportation, in the same way as the Senate bill would treat those immigrants who have been here less than two years. Selling the right to stay to illegal immigrants would be recognition of the reality that America is highly unlikely to deport more than a small fraction of the millions of illegal immigrants who are already here. Requiring illegal immigrants to pay a fine to buy the right to stay would not give them a free ride, but would impose a cost on their being here illegally. By contrast, the amnesty approach in effect tells illegal immigrants they can stay without cost even though they broke American laws that determine who has the right to come here. At the same time, many illegal immigrants would jump at the opportunity to pay to stay here if that would legitimatize their immigration

Comments

[Nelson]

How come no one ever frames the problem of illegal immigration as a undemocratic wealth transfer from the tax base to employers of illegals?How come opponents of illegal immigrants would rather deport them than change the laws to allow someone to come over without waiting 20 years to work and pay taxes legally?

[John Norak Aitek]

I have been to America many times to do business and it is clear from my observations that, like in Australia, lack of immigration can hurt business.

Businesses today are highly competitive. We have to think of ways to lower costs and increase productivity. We need all the skills and labor we can get our hands on.

The reasons for allowing open borders immigration is purely economic, but the people who tend to dislike immigration tend to hate it for noneconomic reasons.

Immigrants are a great resource that businesses can tap into, and I myself have made most of my wealth tapping into the skills of migrants. Some people think I am exploiting migrants, but I like to think of myself as helping them. Because business is non-coercive and voluntary, there are no losers. I have seen some of my workers working their way from being dirt poor to be able to buy a large house and drive a Lexus. The American Dream is attainable, but some people are born in political environments that restrict them. Nevertheless, the will to work is there, and like a petrochemical firm searching for oil, I search for immigrants because I know they hold a vast pool of human capital waiting to be unleashed for productive purposes.

In an ideal world there would be open borders immigration and minimal if not no welfare.

[Dan 3L]

"In an ideal world there would be open borders immigration and minimal if not no welfare."

John, you are exactly right--but these two items go together. The problem is we currently have open borders (w/o proper management) but w/ an extensive welfare state.

[John Norak Aitek]

Dan: "Finally, politics aside, doesn't illegal immigration posses a huge problem for policy planning? A 10% inaccuracy in the number of people using the roads, water, sewage of a city makes a huge difference."

Policy economists can make predictions on labor movement. They do this already for migration within a country. There is bound to be some error as there is a random component to the movement of humans. Just as it may be unpredictable to know how many people will move from Mexico to the US it may be difficult to know how many people will move from New York to Florida. The best way to reduce uncertainty is to put walls up everywhere and restrict people's movements to within their own houses. This certainly won't be good for the economy as trade opportunities won't be realized and will be lost. This is exactly the same argument for immigration from Mexico to the US. The reason why economic gains can be realized by a person who drives from the suburbs to the city everyday is the exactly the same reason why economic gains can be realized from a migrant from Mexico traveling to the US to work. Labor is moving to where it is more productive.

[Matt Howard]

Mr. Becker,

A quick follow up to your interesting post.

Would placing a cost on illegal immigrants to make their life in the U.S. legitimate have the counter-effect of incentivizing illegal behavior, such as indentured servitude / slavery? I am thinking in terms of corrupt individuals paying off another's "debt" in turn making them indentured (e.g., immigrant children working off debts of illegal family members).

Thanks for your thoughts.
Matt

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