February 21, 2005 to February 26, 2005
Immigration Reform
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.
Immigration Reform--Posner Comment
I approach the issue of immigration reform (theoretical reform'neither Becker nor I are considering the political obstacles to radical changes in immigration law) somewhat differently. I begin by asking: why restrict immigration at all? The only answer I consider fully compatible with a market-oriented approach to social issues is that the immigrant might reduce the net social welfare of the United States, if for example he was unemployable or on the verge of retirement, or was a criminal, or was likely to require highly expensive medical treatment, or if he would impose greater costs in congestion or pollution than he would confer benefits, with benefits measured (crudely) by his income before taxes and by any consumer surplus that he might create. I assume that the welfare of foreigners as such does not enter into the U.S. social welfare function; but immigrants who create net benefits in the sense just indicated contribute to the strength and prosperity of the nation.
The problem of the "undesirable" immigrant'the immigrant who wants to free ride on the services and amenities that the United States provides its citizens'could be solved by means of a two-stage process. In the first stage, the prospective immigrant would be screened for age, health, IQ, criminal record, English language capability, etc.; the screening need not be elaborate. If the would-be immigrant "passed" in the sense that he seemed likely to add more to U.S. welfare than he would take out, he would be admitted without charge. If he flunked the screening test, an estimate would be made of the net cost (discounted to present value) that he would be likely to impose on the U.S. if he lived here and he would be charged that amount for permission to immigrate.
An alternative, less revolutionary, approach to screening out free-rider immigrants would be, first, to deny immigrants access to Medicaid and other welfare programs until they had lived in the United States for a significant period of time, and, second, to auction off a certain number of immigrant visas to the highest bidders. Immigrants willing to take their chances without access to welfare programs (not that all access could be denied'no one could be refused emergency medical treatment on a charity basis), and immigrants willing to bid high prices in an immigration auction, would be likely to be productive citizens, in the first case, and to cover any costs they would impose on the nation's health or other welfare systems, in the second case.
Either the more or the less revolutionary alternative would impose significant transition costs, but that would be true of any radical change in immigration policy. The obvious cost (though not really a cost, rather a redistribution of income) would be that by increasing the supply of labor, an immigration policy that made it easy for employable workers to enter the U.S. labor force would reduce wages in the labor markets that the immigrants entered. A closely related but subtler consequence is that the downward effect of large-scale immigration on wages (a short-run effect, in all likelihood) would complicate the process of determining the correct fee to prevent free riding: an immigrant who might be able to pay his way at the existing wage level might be unable to do so if the wage level fell as a result of massive immigration. Similarly, congestion and pollution externalities might increase at an increasing rate with massive immigration, requiring a further adjustment in the fee charged the "undesirables."
Either approach seems to me preferable to a flat fee for all would-be immigrants. A flat fee would not do away with the need to screen, since some would-be immigrants might impose net costs on the U.S. that were greater than the fee; that is why Becker's approach includes screening. The flat fee would exclude two types of immigrant that should, in a market-oriented approach, be admitted. One type would be "undesirables" willing and able to compensate the United States for the expected costs that they would impose--and so they would not be free riders after all; a very wealthy person on the verge of retirement would be an example of such an "undesirable." The second type would be highly promising would-be immigrants (for example, persons with a high IQ) who for some reason'perhaps because they reside in extremely poor countries'simply could not pay the down payment on the fee.
The fee would, it is true, increase government revenues, which may seem a plus. But it would do so at the usual cost of distorting the allocation of resources, in this case by excluding immigrants in the second class.
I note two complications. First, it may be desirable to adhere to the current policy of granting asylum to foreigners who are escaping persecution, even if they do not seem likely to be able to pay or to earn enough to cover the costs they'll impose on this country. My reason is not sentiment, but the fact that people who are persecuted tend to be either nonconformists or members of particularly successful minorities, and in either case they, or at least their children, are likely to be productive citizens even if their U.S. employment prospects are dim. Second, the United States in formulating immigration policy may have to worry about "brain drain," and, what may be more important, "leadership drain," from poor or unstable countries. For example, it would be highly unfortunate if all the Iraqis who have the ability and motivation to build a democratic, free-market society fled to the United States. Thus it may sometimes be in our national interest to exclude persons who would otherwise be highly desirable immigrants, in order to shore up forces or tendencies in their own countries that promote U.S. interests. However, I do not know how to mesh this concern with either my or Becker's proposals.
Response on Sale of Rights to Immigrate-BECKER
A lot of comments, and many are of high quality, including some that disagreed. I had expected the clear majority to be opposed, and on this at least I proved right! Once again some of the discussion cleared up various issues, but some points need to be highlighted.
We now have severe restrictions on the number of immigrants allowed in legally. Although my $50,000 figure was just an illustration, I believe that more, not fewer, immigrants would be coming even with this price than under the present system since ALL applicants who met certain simple criteria would be accepted. Economic analysis proves that there certainly exists a positive price (and I believe a significant one) that would have a larger number of immigrants than under the present quota system.
Some of you complained about the red-tape involved now in immigrating to the US. I believe the immigration service is one of the most arrogant of all government agencies. They have the power to say "take it or leave it" since they are rationing a valuable asset, entry permits. Unlimited entry at a fixed price will not only raise the number of immigrants-if the price is not too high-but would drastically cut all the time-consuming and annoying hassle involved in immigrating. And it might even make immigration agents a little pleasant since immigrants would be paying for the right to come.
Some of you missed my stress on overcoming the financial difficulties of paying a high fee by encouraging loans to immigrants from private banks. They would be encouraged not by government insurance, but by giving them the many of the other privileges now available to those collecting on student loans, such as that immigration loans would not be dischargeable by bankruptcy, and that earnings could be garnished if some immigrants are in arrears.
With such loans available, the unskilled will not be priced out of the immigration market. They would have to put together perhaps $5000 as a down payment, or about 1/3 of the gross earnings of an unskilled worker in the US. Many unskilled individuals could pool family resources to do that, as they did in earlier times when transportation costs to the US were so much larger than they are now. Recall that the cost of transportation in the 18th and 19th century to the US by boat from Europe was a significant fraction of the earnings during the first year in the US of the many low skilled immigrants who managed to come.
The term "payback period" is technical, and only is a way of describing how many years before the after-tax gain in earnings from immigrating covers the cost of immigrating. It does not mean they would have to pay the loans back in a few years; I agree that would be very difficult for low skilled individuals. My proposed loans would be longer term, as is the case with student loans.
I am confident that the absolute number of unskilled immigrants (as well as the total number of immigrants) who would enter under my fee system would exceed the number entering under the present system since unskilled applicants are discriminated against under the present quota system. So it is erroneous to call my proposal anti-immigration, or even anti unskilled immigration. I am certainly pro immigration, and I surely believe unskilled and other immigrants have contributed, and will continue to contribute, a lot to the American economy and society.
I also believe, however, that countries benefit more from having immigrants who make a commitment to stay, as 19th century immigrants to America did. My proposal works toward selecting more committed immigrants. Of course, they would still be free to return if they decide to do so, but the US gains more from their staying-if they are productive, etc- than it gains from whatever influence they bring back upon returning to the countries they come from.
Some of you complained that making immigrants pay is like bringing in indentured servants. Do you believe they are better off if they are not allowed in at all, which is the present system? Or do you believe students are "indentured" because many of them have large loans when they finish school? They surely are a lot better off than if limited financial resources prevented them from going to college at all!
Some of you doubt whether some immigrants come at least in good part to take advantage of medical, welfare, education, and other benefits. Although we need more evidence on this, there are a few studies showing that these entitlement "type benefits do affect immigration by poor individuals and families- see for example, an article by Terra McKinnish in the Winter 2005 issue of the Journal of Human Resources.
Auction or credit systems are in the same spirit as my proposal. In all cases, it is necessary to decide either the price to be charged immigrants, or the quantity to be auctioned or credited off. With full information about supply and demand curves, they are identical in terms of incidence, although credit systems allow other to capture the revenue. Why is that desirable?
Many of you raised a challenging question that I only briefly addressed: would my system increase or decrease the number of persons who would try to come illegally? On the one hand, they would escape paying the entry fee, so that would obviously be one force increasing the number entering illegally. But there is much more to the answer than that. Under the present system they do not have the right to come legally, so theyhave to try to come illegally if they want to come. I would give them a legal immigration alternative, and I believe many would choose that alternative since there are huge employment and other advantages of being here legally rather than working underground. Moreover, we would have the additional resources to add to patrols and others who are policing the numbers trying to cross illegally, or who overstay their visas.
In addition, I believe attitudes toward illegals would harden since, unlike the present system where they are excluded from coming, they could be coming legally. Some of you-not all!- confused the effect of charging an entry fee on the number of illegals in a system where they could have come freely, with the actual present system where the only way they can come is to come illegally. So I am pretty sure the number coming illegally would go down, but I agree that is not certain.
Much more could be said, but I believe I responded to the main points. My apologies that I did not have time to address all the relevant comments. Perhaps we will return to this topic in a future blog since our pieces stimulated so many good responses.
Immigration Reform--Posner's Response to Comments
This was, as usual, a stimulating set of comments. I cannot respond to all of them, but I will try to respond to some and in so doing clarify my original proposal. It is apparent that a number of the commenters misunderstand my proposal. I accept responsibility for not having explained it adequately; in addition, I modify it slightly in this response, in light of the comments.
A number of comments suggest that Becker's and my proposals are anti-immigrant or anti-poor. That is incorrect. As Becker explains in his response, his proposal would facilitate immigration by unskilled workers--as would mine, had it not been for my reference to IQ, which I retract below! Both of us contemplate that our proposals would lead to greater immigration. That in turn would tend to redistribute wealth from rich to poor, because the vast majority of immigrants (other than some asylum seekers) raise their standard of living by coming to the United States. This, by the way, was surely true of the people who were able to immigrate to America in the eighteenth century solely by virtue of the institution of indentured servitude. Indentured servitude (which must not be confused with slavery) is a method of commitment that, like a mortgage, enables a person to obtain an economic advantage that he could not obtain otherwise. Unfortunately this is a point that is very difficult for people not steeped in economic thinking to grasp. But try!
One comment misdescribes my proposal as one "to sell immigration rights." The only sale component concerns immigration slots auctioned to rich people who, because of age or health, would be unlikely to be productive citizens; the auction price would compensate the rest of us for supporting them in their sickness and old age.
I realize that I created the impression that I wanted immigration officials to assess whether each individual prospective immigrant would be likely to make a net contribution to the American economy, or to American society more broadly, as a condition of permitting him to immigrate. That was error; it would be an excessively costly, perhaps indeed a completely infeasible, undertaking. What I should have said is that the government should adopt a few simple criteria, perhaps limited to age, health, and criminal history, which could in most cases be readily determined, to screen would-be immigrants, and couple that with a residency requirement for welfare benefits (see below). I should not have mentioned IQ, since as Becker points out we need additional unskilled as well as skilled workers and since it is difficult to design IQ tests that will yield comparable results for persons of different linguistic, cultural, and socio-economic background. Congestion and pollution externalities are potentially strong objections to high levels of immigration, but they should affect policy at the level of deciding whether to place some overall limit on the annual immigration rate; they cannot be used to screen individual applicants.
Employability is important, but age and health are proxies for it; and disentitling new immigrants to social services for a limited period of time (probably no more than a year or two) is a way of discouraging immigration by workers who may be young and healthy and have a clean criminal record yet who for one reason or another are not attractive to U.S. employers. The purpose of this temporary residency requirement for entitlement to social benefits is not, as one comment asserts, to curb immigration because of the welfare state; it is to discourage free-rider immigrants. To repeat, the overall effect of our proposals would be to increase the amount of immigration. Moreover, even though the present patchwork of immigration laws is inefficient, I believe that the net effects of immigration, today as in the past, legal and illegal, on American society are positive, consistent with the study by Smith and Edmonston cited in one of the comments.
Speaking of the immigration law patchwork: an excellent comment, diffidently offered by an undergraduate, asks what features of the present system of immigration rights is my proposal intended to replace? All of them? No; I said that I thought we should continue to grant asylum to victims of persecution. But I did not comment on the other grounds on which people are allowed to immigrate under existing law, such as national quotas, family reunification, lottery, and special skills. Although family reunification has obvious appeal, I cannot think of a good reason to specify immigration quotas by nation. A lottery would make sense only if the number of people who passed the screening test that I have proposed exceeded some overall ceiling on immigration derived from concern with congestion or pollution externalities; in that event, a lottery would be a cheap way of equilibrating applications to openings. A special-skills exception would be superfluous (and is costly to administer) if the screening approach were adopted, because almost everyone who had special skills would pass the test.
One comment contains an intriguing hint that might be elaborated as follows: illegal immigration, being costly, tends to filter out would-be immigrants who are either faint of heart or don't have a really strong desire to live in the United States, while letting in would-be immigrants who are daring, ingenious, and optimistic about their chances for success in the U.S., albeit who also may have a below-average commitment to legality. On balance, illegal immigrants may constitute a desirable class of immigrants. If this is correct, it supports the Bush Administration's amnesty proposal.