Fixing America’s immigration mess
By Clive Crook
Published: May 15 2011 20:00
In a speech last week and at a series of other events, President Barack Obama renewed his call for comprehensive reform of a US immigration system that everyone agrees is broken. He called it an “economic imperative”. He is right – more right, perhaps, than he knows.
If you sat down to design an immigration policy to erode US prosperity, you would struggle to come up with anything better than the current rules. What impresses is the system’s coherence – the steady direction of so many moving parts to the single goal, so it seems, of reducing US living standards.
In effect, the immigration of skilled workers is especially discouraged – perhaps more so than in any other industrialised country. Critical shortages of labour in engineering, computer science and other technology-related disciplines go unmet. Firms such as Intel and Microsoft complain about this endlessly. One way or another, the rationing of essential skills is defeated by moving work abroad. Then the country wrings its hands about foreign high-tech competition.
Unskilled workers, meanwhile, arrive through the country’s permeable borders (which will never be sealed, short of making the US a prison along East German lines). Unlike highly educated workers, who consent to be turned away, many unskilled immigrants take their chances in the illicit economy. Estimates vary, but there might be 11m in the US today.
Like legal immigrants, they create income and employment, but living below the radar imposes costs on them and on the wider economy. Smugglers and other service providers take their cut; enforcement efforts (a losing battle) take another. Failure to comply with immigration rules leads to failure to comply with other systems – taxes, driving licences, workplace regulation and so on. Illegal immigrants invest less in developing their skills and other kinds of capital accumulation. Not to be discounted, they also live in fear.
These deadweight losses, shared by the immigrants and their neighbours, are hard to measure but surely huge. Most could be captured in the form of income and taxes if the illegal immigrants were instead legal guest workers – or, in due course, citizens.
Are those losses a price worth paying to preserve jobs for Americans? That is the organising principle of the entire mess and it is the oldest economic error in the book: the lump of labour fallacy. There are only so many jobs to go around, according to this view; let in more, or indeed any, immigrants and you are taking jobs away from Americans. The idea is nonsense. The US refutes it more plainly than any other country in history. The quantity of jobs is not fixed. Immigrants bring their jobs with them. Roughly speaking, each new immigrant creates one new job. Immigration expands the economy.
What about wages? This is more complicated. Increased immigration, in the first instance, puts downward pressure on wages in the affected occupations. But many factors push the other way, raising average real incomes for US workers.
Remember that lower wages in the affected occupations equate to lower costs for US consumers. Also, an increase in the supply of legal unskilled immigrants would tilt the occupational mix of US workers toward better-paid employment, partly by increasing the overall size of the economy, boosting the demand for higher-skill jobs. Again, this is not idle speculation: the pattern has been clear for much of US history.
Increased legal immigration raises the productivity of immigrants; encourages capital accumulation; and broadens the tax base. Research has shown that the additional tax revenue from expanded legal immigration outweighs the additional burden of providing public services to immigrants. Studies that try to gather all these factors together show a clear net benefit for US citizens in the aggregate. The best policy of all for US citizens, it turns out, would be more liberal immigration rules for guest workers combined with a moderate visa tax.
It is true that not all US workers would gain. An increase in legal unskilled immigration might not make US house-cleaners and gardeners better off. But international trade does not make everybody better off, either; nor does labour-saving technological progress. The current US immigration system is not that different, in its effect on US living standards, from a tax on labour-saving technological change – except that, unlike a tax, the policy raises no revenue to pay for better public services. Is anybody proposing a tax on innovation, to protect American wages and jobs?
The politics of all this is difficult,
to put it mildly. Advocates of comprehensive reform – easing the curbs on skilled immigration, an expanded guest-worker programme, a path to legal status for illegal immigrants already in the US – have their work cut out.
The idea of “amnesty”, seen as condoning law-breaking, is especially resisted. Nobody expects a breakthrough soon. Timid incremental progress might be the best Washington can do.
Mr Obama could achieve more of that than he is willing to admit by executive initiative without new laws.
The government has a lot of discretion in how vigorously it enforces its rules. Even if Congress will not act, the administration still has options. As well as calling for the big remedy, as he is right to, the president should also seek ways to liberalise by executive action. It is, as he says, an economic imperative.
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Copyright The Financial Times Limited 2011.
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