Sell the Right to Immigrate-BECKER

Rich nations are facing enormous pressure to increase the number of immigrants because of their sharp limits on the number of legal immigrants accepted, and the huge numbers who try to cross borders illegally. This immigration pressure stems in major part from the very large gap between the earnings of workers at all skill levels in the United States, Western Europe, and Japan compared to the rest of the world. In addition, low birth rates in the developed world create excellent opportunities for young persons from poorer nations, and travel between nations has become much cheaper. The United States, the leading destination for immigrants, uses quotas that give preference to family members of persons already here legally, to applicants with greater skills, to persons who applied earlier, and some other criteria. Since I am a free-trader, readers might expect my preferred alternative to the present system to be 19th century-style unlimited immigration. I would support that if we lived in the 19th century world where government spending was tiny. But governments now spend huge amounts on medical care, retirement, education, and other benefits and entitlements. Experience demonstrates that in our political system, it is impossible to prevent immigrants, even those here illegally, to gain access to these benefits. I believe that with unlimited immigration, many would come mainly because they are attracted by these government benefits, and they would then be voting to influence future government spending and other public policies. Given these realities of free immigration, the best alternative to the present quota system is an ancient way of allocating a scarce and popular good; namely, by charging a price that clears the market. That is why I believe countries should sell the right to immigrate, especially the United States that has so many persons waiting to immigrate. To illustrate how a price system would work, suppose the United States charges $50,000 for the right to immigrate, and agrees to accept all applicants willing to pay that price, subject to a few important qualifications. These qualifications would require that those accepted not have any serious diseases, or terrorist backgrounds, or criminal records. Immigrants who are willing to pay a sizeable entrance fee would automatically have various characteristics that countries seek in their entrants, without special programs, point systems, or lengthy hearings. They would be younger since young adults would gain more from migrating because they would receive higher earnings over a relatively long time period. Skilled persons would generally be more willing to pay high entrance fees since they would increase their earnings more than unskilled immigrants would. More ambitious and hard working individuals would also be more eager to pay since the U.S. provides better opportunities than most other countries for these types. Persons more committed to staying in the United States would also be more likely to pay since individuals who expect to return home after a few years would not be willing to pay a significant fee. Committed immigrants invest more in learning English, and American mores and customs, and become better-informed and more active citizens. For obvious reasons, political refugees and those persecuted in their own countries would be willing to pay a sizeable fee to gain admission to a free nation. So a fee system would automatically avoid time-consuming hearings about whether they are really in physical danger if they were forced to return home. The pay-back period for most immigrants of a $50,000 or higher entrance fee would generally be short-less than the usual pay-back period of a typical university education. For example, if skilled individuals could earn $10 an hour in a country like India or China, and $40 an hour in the United States, by moving they would gain $60,000 a year (before taxes and assuming 2000 hours of work per year). The higher earnings from immigrating would cover a fee of $50,000 in about a year! It would take not much more than four years to earn this fee even for an unskilled person who earns $1 an hour in his native country, and could earn $8 an hour in the U.S. These calculations might only indicate that $50,000 is too low an entrance price, and that an appropriate fee would be considerably higher. But with any significant fee, most potential immigrants would have great difficulty paying it from their own resources. An attractive way to overcome these difficulties would be to adopt a loan program to suit the needs of immigrants who have to finance entry. One could follow the present policy toward student loans, and have the federal government guarantee loans to immigrants made by private banks. However, I objected to that program in a January 9th entry in this blog, and suggested instead removing the federal guarantees while retaining that education loans are not dischargeable through personal bankruptcy. The same approach would work for immigration loans since these are also investments in human capital. Of course, it would be difficult to collect from immigrants who return home, and that would lead to higher interest rates on these loans. But such forfeiture would be discouraged too if banks forced immigrants to make large enough down payments in order to get their loans. Countries that charge a sizeable fee would have an incentive to raise the number of immigrants accepted because they would bring in tax revenue that cuts the tax burden on natives. For example, one million immigrants per year who each paid $50,000 would contribute government revenue of $50 billion per year. Moreover, immigrants who would enter under a fee system would generally make little use of welfare or unemployment benefits, would pay hefty taxes on their earnings, and would tend to be younger and healthier. So the overall direct economic benefits from larger numbers of immigrants would be much greater than under the present admission system. This would help quiet anti-immigration rhetoric as it induces countries to take more immigrants. In addition, since anyone willing to pay the entry price could then legally immigrate, this approach should also cut down the number who enter illegally. Still, some persons will continue to try, especially if they want to avoid paying the fee, or only want to work for a short time in the United States. However, border and other immigration personnel would become more efficient in combating illegal entrants since they would have to deal with smaller numbers. It should become easier also to expel and even punish illegal entrants because they would get less sympathy from the American public than under the present system. After all, they usually could have entered legally, but tried to chisel out of paying. In summary, charging a fee to immigrate would raise tax revenue, increase the number of immigrants accepted, and also raise the quality of those accepted. It is a win-win situation for countries accepting immigrants, and for the vast majority of persons who would like to immigrate.

Comments

[Joshua Rosenau]

While charging money is not an awful solution, I fail to see how an auction model would really help reduce illegal immigration. I'll probably blog this later, so I'll just give a precis of the argument. I know people who went through the immigration procedure, and the uniform opinion is that the current system places very high costs, if not in cash, then in time. The procedure at foreign embassies is time consuming (opportunity costs) and often requires travel and extended stays in distant cities. Similar conditions hold after successfully acquiring permanent resident status, as someone tries to get citizenship.

If we want to reduce illegal immigration, we need to find a way to deal with the fact that it's possible to make vastly more north of the Rio Grande than it is south. The people entering without visas are not in a position to pay vast amounts of money. Any solution that increases the cost of immigration won't make a difference.

[praktike]

Is it true that if you invest a certain amount of money in a business or property in the United States, you can get a green card?

There was a Chinese-American entrepreneur here in Pittsburgh who claimed that he could attract investors for his real estate project by tapping into his network in China, in exchange for which these folks would be able to immigrate.

Anyone know if this is a fairy tale?

[immigrant]

Might be good to differentiate between people who immigrate physically, as in reside and supposedly contribute to US economy/society, and those who seek US legal status, which many elites around the world do, for a variety of reasons. Unless all we're after is their money.

[Palooka]

It seems foolish to exclude highly educated, desirable immigrants because of an inability to pay. Perhaps these indidividuals could secure a loan to pay their entrance requirement. Maybe the US Government could loan the money to qualified applicants.

I still don't see much of a reason for charging a fee, however, when the same results can be achieved through a merit-based immigration system. Educated, law-abiding individuals with high demand skill sets should be given priority, period. No need for a fee, in my view.

Illegal immigration could be halted easily, if there was the political will to do it. The majority of the American public wants this, but have thus far been unwilling or unable to demand it of their leaders.

I have only one major issue with Becker's latest post--the fee system would NOT greatly change the number wanting to enter illegally (most of those individuals are poor, uneducated, and therefore unable to pay the fee), but maybe, as Becker suggests, Americans would be less tolerant of it (though they are intolerant of it now!).

[Corey]

You know, I don't even have to argue against this nonsense. Becker needs to take the Ellis Island tour and come to terms with just how unsuitable his own immigrating ancestors were for inclusion in his vision of America.

Why not just confiscate their art and gold teeth at the border and send them to labor camps to work off their "entrance fee"? It is absurd and evil to handicap new immigrants with $50K in high interest consumer debt. The practical effect of this is identical to indentured servitude. It is illegal under the 13th Amendment. We fought a war over this, remember?

"Since I am a free-trader, readers might expect my preferred alternative to the present system to be 19th century-style unlimited immigration."

No, actually, I would have expected you to ditch the automony rhetoric when it comes to anything that might threaten the comparative advantages you have secured for yourself in the "free market". And I would have been right.

[Dave]

The pay-back period for most immigrants of a $50,000 or higher entrance fee would generally be short-less than the usual pay-back period of a typical university education. For example, if skilled individuals could earn $10 an hour in a country like India or China, and $40 an hour in the United States, by moving they would gain $60,000 a year (before taxes and assuming 2000 hours of work per year). The higher earnings from immigrating would cover a fee of $50,000 in about a year! It would take not much more than four years to earn this fee even for an unskilled person who earns $1 an hour in his native country, and could earn $8 an hour in the U.S.

I gasped when I read this. It seems to completely disregard the higher cost of living after immigrating. An unskilled worker earning $8/hr can barely survive in the U.S., nevermind pay back a $50K loan. Assuming 2000 hours per year, that's $16K gross income. After tax, rent, food, and other expenses, that worker would be lucky to have $1k/yr to apply to the loan. Which, by the way, would also be accruing interest. And can someone please explain to me how an immigrant earning $40/hr can pay back a $50K loan in less time than a college graduate earning $40/hr?

[Dave]

Corey said:

It is absurd and evil to handicap new immigrants with $50K in high interest consumer debt. The practical effect of this is identical to indentured servitude.

An excellent point that I missed!
As a wealthy businessman, I would be thrilled to put up the $50K each for a bunch of poor immigrants in exchange for 20-year work contracts. Naturally, I would provide them with room and board (in shacks near my fields/mill/factory/whatever) as well as a couple hundred bucks a month for spending money.
Heck, I'd even make it a 10-year contract, if they were willing to give up the monthly allowance.

[Palooka]

"You know, I don't even have to argue against this nonsense. Becker needs to take the Ellis Island tour and come to terms with just how unsuitable his own immigrating ancestors were for inclusion in his vision of America."

There was no welfare state then. Different scenario entirely. Should American really let ANYONE who wishes to enter do so. Should America really desire the tired, unwashed masses when we live in the era of the welfare state? Is that what you suggest?

"An unskilled worker earning $8/hr can barely survive in the U.S., nevermind pay back a $50K loan. Assuming 2000 hours per year, that's $16K gross income. After tax, rent, food, and other expenses, that worker would be lucky to have $1k/yr to apply to the loan."

I think you're getting the picture here. Those unskilled workers are left out, because they are more likely to be a net negative to the system. I don't favor this fee idea, but I do favor putting some sense into our immigration policy. Importing an underclass, which doesn't pay in, and which uses many resources, isn't the brightest idea. Not that I don't sympathesize with those who wish to make a better life for themselves and their families. But when is America going to realize the obvious--that America is a great country, but we can't ALL live here.

There is some problem, however, reconciling Becker's assertion that fees would work for political refugees as well, as you point out someone making meager wages will have limited capacity to repay loans (even if he really, really wants to avoid political or religious persection). I am not a fan of this fee scheme, but if one wanted to retain it, the fee could vary with earning potential for those seeking refugee status, or just abandon the fee for this class altogether.

[Dave]

Palooka:
I think you're getting the picture here. Those unskilled workers are left out, because they are more likely to be a net negative to the system.

Yes, but that's not the picture that Becker paints in his essay above. He claims that those workers would be included and could pay off the debt in "not much more than four years".

[D. Hauptly]

Three comments:
First, the proposal bears some similiarities to indentured servitude, particularly in making immigration an explicitly economic choice. It differs in important ways as well(the government is presumably indifferent as to how one earns the money to pay its fee so the immigrant is not in real servitude).
Second, what does one do with the unsuccesful immigrant? Send him or her back? The sending nation may not want its failures returned.
Third, are there some instances where the US wants to pay someone to come rather than charge them or would this be resolved by businesses paying the immigration fee for the individual?

[Jay Cline]

Commenting only one Becker's premise that a 21st century wealthy welfare state may be the only reason some immigrants do come here, we see this migration already every summer. I live in a Northern city in a state that provides quite a lot health and human services. It is a perennial news story about the number of out-of-state people using the benefits that the taxes of the permanent residents pay for.

[scott cunningham]

Why not, instead of assigning a price to the right to immigrate, issue credits equal to some tolerable level of legal immigration? If you issued randomly issued right-to-immigrate credits, then the secondary market would result in the highest productive individuals selecting to immigrate (ie, those with the higher expected returns on employment in the US), and the profits generated by selling credits could be a source of revenue for the source country. Of course, then the host country foregoes the tax revenue, and since Dr. Becker was animating this discussion by noting the strain put on the treasury by immigration, I suppose that is the answer. But, a market would result in full citizenship, I assume, and thus the immigrants would be paying taxes upon arrival, so that is mitigated some. Just wondering why Dr. Becker finds it superior for the US to charge a price, rather than issue credits, since the latter seems to work so much better when used elsewhere (like in tradeable pollution markets).

[scott cunningham]

Another problem that needs to be kept in perspective is imperfections in Latin American capital markets. Hernando de Soto discusses this in his book, _Mystery of Capital_. Poorly defined property rights appears to be at least partially responsible for these capital market imperfections. So, how could an individual with PDV expected profits greater than $50,000 get the capital they need to purchase the right? This is another reason why it seems like an actual market might be superior, because then the price of the credit would to adjust to reflect those imperfections, and both increase immigration of "high type" immigrants, lead to a net decrease in illegal immigration, and thus free up policing resources.

[scott cunningham]

Nevermind - I overlooked Becker's discussion of the loan programs at the end of the article.

[J.S.]

But how in the world will you prevent illegal immigration? It seems like your plan will only INCREASE the desire for illegal entrance since the savings would be at minimum $50,000. I just don't see how this would prevent the poor people who are coming because they have almost nothing from still trying to get across illegally.

J.S.

http://voicesofreason.info

[Kendall]

I often hear people say they would be happy to have open borders, if not for the welfare state. That strikes me as a reasonable position, but shouldn't we also consider that immigration policy and welfare policy are not independent of each other in a public choice framework? In particular, if more immigrants came to the U.S., would that not put greater pressure on politicians to reduce (or at least not increase at so fast a rate) the size of the welfare state?

A pragmatist in favor of smaller government must choose which policies are most politically feasible, and looser immigration standards seem more palatable on the present political scene than reductions in government benefits.

I am not suggesting that we repeat immigration restrictions immediately -- that would be fiscally disasterous, as noted in the post -- but a slow loosening over time seems not unreasonable to me, given the public choice ramifications.

[David]

Here's the one I find most offensive:

"I believe that with unlimited immigration, many would come mainly because they are attracted by these government benefits, and they would then be voting to influence future government spending and other public policies."

First, I seriously doubt that many people will leave their countries and uproot their families just for the possibility of getting ... workfare! Come on.

Second, Becker says very plainly that he does not want poor immigrants because they might vote for future gov't benefits. So I guess Becker's U.S. is kind of a mini "Club for Growth": if you believe at all in government, don't bother applying. (Unless you need the courts to enforce your contracts or the police to protect your gated mansion). Becker seems to have given up on convincing the "masses" with the logic of his arguments. Instead, he'd rather just keep them out.

[Paul]

I wonder how many of those that made the American economy great would have been excluded from the US had Becker's proposal been in place in the 1800s.

It is possible that the poor and hungry make the best immigrants and the ones most likely to contribute to American society. Those who already have succeeded in their home countries and can afford $50,000 to immigrate may not necessarily be those most likely to contribute to American society.

I also think Becker mistakenly assigns certain characteristics to those able to afford the $50,000 that they might not have. Youth? Why isn't it likely that they will be older given that $50K would take some time to save? Skilled? Maybe - but why not those who have come by enough money to immigrate through other means such as political connections? That is a LOT of money in a country like El Salvador - beyond even the means of a skilled worker for the most part. More ambitious and hard working? Why? Poor folks like Carnegie seemed to have sufficient ambition and willingness to work.

Just my two cents worth.

[scott cunningham]

This blog has stimulated some fierce (but ultimately friendly) discussion among my fellow grad students. We are not decided yet whether this would reduce illegal immigration or inadvertantly increase it. I look forward to Dr. Becker's comments later.

My thinking is that there are Type I and Type II errors, assuming the USA wants the most productive and brightest of immigrants (call them "high types") but does not want the worst of the lot (call them "low types"). I get the order reversed usually, but I believe that a Type I error is to allow low types in, and a Type II error is keep high types out. Dr. Becker's proposal seems as though it will lead to a pooling equlibrium where high types select into the United States because the present-discounted-value expected benefits of immigrating are presumably greater than $50,000. A highly productive worker can earn more than this, he notes, in a few years or so, so this is probably not unrealistic. And given that Dr. Becker has noted, in his policy prescription, government sponsored loans, this deals with imperfections in developing country's capital markets (if anything, government-sponsored loans will probably end up increasing the likelihood of getting some low types, since my impression is that the state is less risk-averse in its loaning practices).

But the question my friends and I were debating about is whether this will lead to a net reduction in low types immigrating. That is, we can see how it would lead to high types legally immigrating, but we weren't sure whether it might have an increase/decrease in the number of illegal immigrants.

My thinking was that it would lead to a decrease in illegal immigration. Assuming a fixed population of illegal immigrants, this mechanism divides the population into low and high types, thus allowing high types to safely enter and keeps low types out. But low types can still enter through illegal immigration. I believe, but I have yet to work this out, that this will lead to a decrease in illegal immigration because a smaller population of illegal immigrants means the police do not have to spread their resources out as much. The police, in other words, become more productive in response to the mechanism. Because they are now searching over 100 illegal low type immigrants instead of 200 mixed with high and low type, there is a higher probability of catching a low type (conditional p=1).

But, a friend wondered what would happen if we allowed the high types to be replaced by low types. That is, assume there is are 20 individuals with trucks, and each truck carries 1 illegal immigrant. In the old regime, when types were mixed, assume the police had a 50/50 chance of catching every truck. In the end, they'd catch 10 trucks consisting of 5 high types and 5 low types.

After the mechansism, the high types exit from the illegal immigrant pool. Furthermore, assume that they are immediately replaced with low type immigrants. There are 20 trucks with 20 low types total. The police catch with p=.50, and end up catching 10 low types. But, they also end up letting in 10 low types. Under the earlier version, they caught 5 low types and 5 high types, but let in only 5 low types (as well as 5 high types).

So, in that assumption, when you let the high types be replaced by low types, you end up with the same amount of illegal immigration, but a net increase in the number of low types immigrating illegally. In other words, you get more of the TYpe II error, even though the mechanism eliminated the Type I error. I need to think about this problem some more, but I'm curious to what Dr. Becker thinks about it. One thing one could do is use the revenues generated by the credits to spend on monitoring and policing the border. Use it, in other words, to purchase more police, guns, canines, etc. This might be sufficient, at some point, to cause a net decrease in illegal immigration, even allowing replacement.

[Daniel Chapman]

I love the analysis, Scott. I think that there would be an increase in legal immigration with no noticeable decrease in illegal immigration under this plan. It would have to be implemented along with some form of tighter border security, something our government has always been reluctant to do.

Going back to david for a second... Did you just claim that we have to "convince the masses" in MEXICO of the "logic of our arguments" before we can tighten border security? I would assume this is too absurd to consider, except we already have a powerful lobby from the Mexican government operating to keep our immigration controls light and our entitlements heavy.

It is a serious concern that Mexican immigrants who maintain dual citizanships and questionable loyalty to the United States will gain an undue influence in our government. I believe this is what Mr. Becker is talking about. Whatever happened to "forsaking all other princes and potentates" anyway?

[Ningun]

Prof. Becker, you may want to visit an immigrant enclave or two. The proposition that a $50k visa would lighten the stream of illegal immigration belies a complete ignorance of the characteristics of the illegal immigrant populace.

2nd, to the commenter who said there was no welfare during peak Ellis Island immigration: read a book or two, namely on the Bund, Hebrew Immigrant Aid Society, Council of Jewish Federations and Welfare Funds, the facts at this link http://www.clevelandmemory.org/italians/appendix.html#347,
Emigrant Savings Bank, Mutual Aid Societies, etc. And realize that it was actually easier to get a hand-out back then than it is today if you are foreign born, see the 1996 welfare reform law.

[KipEsquire]

Is buying your way into the country comparable to buying your way out of a draft, which was allowed, for $300, in the Civil War? I think the ethical dilemmas are comparable.

Also, since, as was the case with the Civil War buy-out, Becker's proposal would result in a wealth transfer, perhaps significant, from the immigration countries to the emigration countries. The immigrants, qua emigrants, will finance their entry fee in the home country, perhaps at very high rates, and then pay those fees with income generated in the immigrant country.

Finally, if an entry fee makes sense, then doesn't an auction make even more sense?

[Tito]

"A highly productive worker can earn more than this, he notes, in a few years or so, so this is probably not unrealistic."

This is EXTREMELY unrealistic.

This has been said before, but I'll say it again. Yes, $10/hr to $40/hr results in a raw increase of a rough $60,000/year, but that's not counting taxes (say $30k per year), increased cost of house, car, food, utilities, etc.

The best analogy is that of student loans, how many people pay those of "in a few years"? And these loans would be higher interest.

Even more damning, how many would actually make anything even resembling $80k? Seriously. The mean US annual income is $36,520.(http://www.bls.gov/oes/current/oes_00al.htm)

Those that would make that amount are already here on H1B's and the like.

[Barry S]

Interesting discussion here. A couple of points (made as an American that currently is working in Mexico on a contract)

(a) I feel that the $50k entrance fee is unrealistic and counter-productive. Empirical evidence has shown that hungry willing to work immigrants have made America great. Conversely, colonial outpost like Haiti, Cuba, and Mexico have fared less well. (My point being that just importing the 'high class' is not a prescription for success)

(b) The borders should be opened. Obviously there are security concerns that must be taken into account, but contrary to most grade-school level economics - the economy is not a pie - it will expand.

(c) The welfare state must be curtailed for the above to succeed. (Perhaps like Kendall suggest, that open borders will pressure smaller welfare states)

(d) How do states like Arizona, New Mex, and Texas get compensated. Surely, these 'open borders' are going to come at an expense. How are those states compensated?

(e) Hopefully, more immigrants would keep the pressure off raising the minimum wage. The minimum wage law is a failure both socially and economically. Such laws only result in two things; Higher prices for goods, and pressure to increase outsourcing.

[Nixflix]

So, we don't want the world to send us their "tired, poor, and huddled masses yearning to be free"? If the country had adopted Becker's pay-for-entry program years ago, we might have missed out on any number of wonderful citizens. Of course those with "value," I think of the Barishnikovs of the world, would likely have been underwritten, but I'm certain the relatives of great classmates (children of poor immigrants) would have been left out.