All Commentary
Wednesday, May 30, 2012

Tear Down These Walls

Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what, exactly? If not, what is it about the “nature of India” that makes it so? The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.

—Economist and Nobel Laureate Robert Lucas


Robert Lucas and I both have our obsessions when it comes to economic policy. His, as the quote indicates, is economic growth, while mine has lately become immigration policy. Interestingly, what Lucas and I obsess about is closely connected. If the rich countries of the world ended, or substantially relaxed, their immigration restrictions, the subsequent migration would cause world output to approximately double. To reach that doubling, most countries would necessarily experience a much higher growth rate. Relaxing immigration laws is the most pro-growth measure the rich countries’ governments could take. Not only would it enhance well-being in the rich countries, but it would also be the most effective antipoverty measure any wealthy country’s government could take.

My obsession began with my recent trip to Chiang Mai, Thailand, to visit my daughter and her boyfriend. Usually when I visit a relatively poor country, I enjoy the people, do fun things, and go home. I did all that of course and had a great time.

But in Thailand I noticed that something had switched for me. Rather than simply taking the situation as given, I imagined what the famous early-nineteenth-century economist Frédéric Bastiat called “the unseen.” I met a lot of fine people in Thailand, mainly young Thais, and I imagined what life would be like for them if they were able to move to the United States, Japan, Germany, Canada, or any of a dozen or so richer countries. I pictured many of them moving to the United States and tripling their income within a short time by producing the Thai meals and massages that are priced so low in Chiang Mai. As an economist who has practiced my trade for almost 40 years, I have long understood the efficiency of resources going to those willing to pay the most for them.

I’ve always favored a huge relaxation of the U.S. government’s restrictions on immigration. But in part due to my trip and mainly due to the influence of my co-blogger, Bryan Caplan, a passionate and articulate advocate of open borders, I now view immigration reform much more urgently.

There is copious evidence that people in poor countries—from engineers down to unskilled laborers—could earn three to ten times as much in the United States as they do in their home countries. If they were allowed to come to the United States, they would clearly benefit themselves. So, for example, there are people near starvation in Sudan, Haiti, and Cambodia who in the United States would earn what many of us would regard as a pittance but many of them would regard as riches.

So the urgency comes from the need to eliminate barriers that governments place in the way of extremely poor people rising out of poverty.

What upsets many Americans when they contemplate more immigrants is the loss of American income and jobs. Fortunately, that’s a nonissue. The reason: gains from trade.

When an American buys a service from an immigrant, it is not just the immigrant who gains. The American gains too, or else he wouldn’t have bought the service. Boston University economist Patricia Cortes, in a study published in the Journal of Political Economy, found that cities with larger influxes of low-skilled immigrants had lower prices for labor-intensive services such as dry cleaning, childcare, housework, and gardening. In a later study, Cortes and coauthor Jose Tessa found that these low-price services allowed Americans, especially women, to spend more hours working in high-skilled, high-paying jobs.

The gains from eliminating barriers to immigration are huge. In a recent article in the Journal of Economic Perspectives, economist Michael Clemens finds that getting rid of all immigration restrictions worldwide would approximately double world GDP.

Even people who understand the labor market, though, worry that high welfare benefits will attract immigrants to the United States. I admit that I have shared this worry. But the evidence strikingly refutes this piece of conventional wisdom. In a recent Cato Journal article, former Cato Institute economist Dan Griswold points out that in 2010, foreign-born adult residents of the United States had a higher labor-force participation rate (67.9 percent) than native-born Americans (64.1 percent.) Moreover, he noted, in 2009 the ten states with the largest-percentage increase in foreign-born population in the previous nine years spent far less on government assistance per capita than the ten with the slowest-growing foreign-born populations: $35 versus $166. How big was the difference in growth rates of the immigrant population during those years? In the states with the lowest per capita spending on government assistance, the immigrant population grew 31 percent versus only 13 percent in the states with the highest per capita government assistance. So much for the welfare-magnet problem.

What about the danger that immigrants would vote away the system that attracted them to the United States in the first place? There’s an easy fix: Instead of having the current requirement that an immigrant be a permanent resident for at least five years before becoming a citizen, raise the minimum residency requirement to 20 years.

Immigration reform would dwarf any other measure economists have considered to help people in poor countries. Take microcredit, the lending of small amounts to small businesses. In his recent book, Borderless Economics, Robert Guest notes Harvard University economist Lant Pritchett’s observation that the average gain from a lifetime of microcredit in Bangladesh, such as that provided by Nobel Peace Prize winner Mohammed Yunus’s Grameen Bank, is about the same as the gain from eight weeks working in the United States. Asks Pritchett, “If I get 3,000 Bangladeshi workers into the US, do I get the Nobel Peace Prize?”

Let’s say that I fail to convince Americans that the U.S. government should eliminate immigration barriers. Okay. Then how about tripling or quadrupling the number of immigrants allowed? Pritchett found that if rich countries allowed just a 3 percent increase in their labor forces through immigration, the world’s have-nots would benefit by $300 billion a year, and the residents of the rich countries would benefit by $51 billion a year. I think Americans would be surprised, mainly pleasantly, by how much more vibrant an already vibrant United States would become with three or four times the current annual number of immigrants.