Monday, January 4, 2016

on immigration and mutually beneficial trade (or not so much, with welfare)

This was released as an op-ed a few weeks ago and will appear in the IPR journal soon.

Although the United States is famous for being a "melting pot", immigration has often been a contentious topic for us. In recent decades, illegal immigration has brought the issue back to the forefront. And since 9/11, worries about terrorism now mix with concerns about economics, culture, and politics. 

Immigrants have come to America for centuries and they seem to have been a big net plus for the country. But as is common in economics and politics, casual observers often focus on only the more obvious benefits and costs. With immigration, it's easy to see the challenges of greater labor market competition and the short-term problems of social and cultural assimilation, but more difficult to imagine its benefits. 

Of course, there's more to life than economics, but economists do have something to offer here. To an economist, a key distinction is the extent to which immigrants are productive members of society—working, buying, giving, etc.  As such, let's categorize immigrants into four types. 
First, some immigrants come here to work, relying little on government. From highly-skilled engineers and IT professionals to industrious immigrants with modest skills or an entrepreneurial spirit, they'll never be on welfare. But they drive on the roads; they pay into Social Security and receive monies when they retire; their children attend public universities; and so on. The vast bulk of their activity is a cornerstone of economics: "voluntary, mutually beneficial trade". As “productive members of society”, they repeatedly offer their labor services for money, buy pizza and clothing from stores, borrow money from banks, and so on. 
Second, some immigrants work, but are subsidized by taxpayers to a modest extent or for a limited period of time. These people have relatively low skills but work hard and don't earn a "living wage" at first. Their children attend government K-12 schools or receive educational vouchers; and they receive food vouchers or Medicaid for a few years. Although most of their activity is mutually beneficial trade, some of their resources come through taxes, coerced from taxpayers and given to them. 
Third, some immigrants do not work, but are needy-- unable to work or to earn nearly enough income to survive here. Many refugees fit this category; they are forced to leave their home country and are not in a position to make it in America on their own. They receive significant government assistance for long periods of time. Much of their activity still occurs through mutually beneficial trade. But most of their resources come from taxpayers. 
Fourth, there are immigrants who do not work but are able-bodied. They choose not to earn money and rely on charity and welfare to live. These are immigrants who have learned to "play the system". They have the lowest proportion of mutually beneficial trades and rely most heavily on government to take resources from others to give to them. 
Certainly, it's reasonable to say that the first two categories are more exciting than the last two categories from an economics standpoint. But you could say the same thing about natives. Would you rather have an immigrant from category 2 or a native from category 4? How about a category 1 immigrant or a category 2 native? In a word: How highly should we value citizens over immigrants? How highly should we value those who are productive and work hard over those who will not?
The most popular economic concern about immigration is its impact on labor markets. Immigrants often work in areas where Americans don't want to work. But most of the time, yes, immigrants increase labor market competition. It's never fun to face more competition, but competition is part of our system and it is generally a great benefit to society. People often imagine that the number of jobs is static, but purchases by immigrants create additional jobs and a stronger economy.
The economics of immigration are clear—if they come here to earn an honest living to be productive. There may be non-economic reasons to reduce immigration. But aside from those: if people want to work hard and be good citizens, our motto should be the more, the merrier. ​


At January 4, 2016 at 5:45 PM , Blogger Chris said...

Could you elaborate on a question I have regarding category 4?
If welfare and charity are being used to consume goods and services, isn't there *some* benefit to the economy, assuming said goods and services are being sold for a profit?
It seems that the opportunity cost is high for category 4, but is there any quantifiable measure in the idea that welfare provides limited support to the economy, since the goods and services being consumed are being produced by someone who is getting paid to do so?

At January 4, 2016 at 6:53 PM , Blogger Eric Schansberg said...

Yes, but from a consumption perspective, this is offset by the loss of consumption by the one who was taxed. So, that's a wash: taxpayer consumer less (with ripple effects); recipient consumes more (with ripple effects).

It clearly becomes a net loss because of the discouragement to be productive-- on the part of both the recipient and the taxpayer.


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