An economic approach to immigration

Sympathische Bäckereiverkäuferin zweigt Daumen mit anderen Azubis

Give me your tired, your poor, your huddled masses yearning to breathe free, The wretched refuse of your teeming shore.”

The New Colossus, engraved on the Statue of Liberty

Homo Sapiens have been relocating around the planet since the beginning of time. Estimates vary, but modern humans started to spread out from Africa around 80,000 to 60,000 years ago, and since then they have been moving all over the globe.

Here, we will try to look into international migration, and focus on voluntary economic migration in particular. In 1889, Georg Ravenstein wrote in his Laws of Migration : “Bad or oppressive laws, heavy taxation, an unattractive climate, uncongenial social surroundings, and even compulsion… all have produced and are still producing currents of migration, but none of these currents can compare in volume with that which arises from the desire inherent in most men to ‘better’ themselves in material respects.” Ravenstein wrote this during the Great Atlantic Migration, which began in the 1840s as large numbers of Europeans relocated to the Americas.

Immigration is, in many ways, a result of technological advances. Improved transportation like steamships reduced the cost and difficulty of travel, and the rapidly growing industries of the west needed foreign labor to keep producing.

Today, immigration is a major component of the economy and is one of the most contentious issues of almost every election. Most studies agree that immigration is beneficial for national economies and associate it to increases in GDP and in productivity. Its opponents, however, point to the costs that usually come along with immigration and that it might result into short term drops in wages and contribute to inequality by shifting money from labor to capital.

Harvard economist George Borjas wrote about a category of economic models he called the Immigration Surplus. Population growth through immigration increases the demand for goods, which can, in the long term, lead to more employment and higher wages. This can come at the cost of people who are already in the job market, as cheap immigrant labor can drive down wages. But the majority of economists point to this as a short-term effect, and that the overall growth in the economy driven by population growth will eventually push wages up.

Furthermore, the immigration of high-skilled workers has many advantages. Studies indicate that high-skilled immigrants are more inclined to innovation. Actually, foreign-born entrepreneurs register about 25% of new patents in the United States. The 1998 doubling of the quota for H1-B visas, which enable employers to hire high-skilled foreign workers, led to an average 15% of revenue increase for the American companies in question.

And that’s not just pie in the sky liberal thinking. Many non-partisan thinkers and economists believe that immigration reform granting easier access to a legal status would bring undocumented workers into the tax base, and thus leading to more growth in revenue and creating additional jobs.

If the debate over immigration were only about economics, there wouldn’t be much of a debate. But the world is a very complex place. Like any form of economic change, immigration causes anxiety and disruption to many communities. But in general, nations thrive on dynamic transformations that produce winners as well as losers. Such transformations stimulate growth. Certain societies with a dominating nationalist culture have opted for more controls and regulations on immigration and labor markets. They certainly have more stability, but less growth and fewer jobs. Economists have highlighted these issues, but they still cannot decide them. The resolution depends on a question that David Card once asked but our politicians have not yet come to answer: “What is it that immigration policy is supposed to achieve?”


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