Fraser Forum

Is there any economic justification for concern over immigration?

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Last month, the voters in Britain opted to leave the European Union out of a desire to control immigration policy. In the Republican primary, both Sen. Ted Cruz (R-Texas) and Donald Trump enjoyed broad support for proposing significant changes to U.S. immigration policy, such as deportations for undocumented workers and building a wall on the southern border. Even in Canada, there has been concern over foreign purchases of real estate, and the ease at which some foreigners have, effectively, purchased citizenship.

This rising trend in anti-immigration sentiment has often been met with accusations of prejudice or worse. Is there any economic justification for concern over immigration?

It’s common for politicians to claim foreigners take native jobs and, in the case of low-skilled immigrants, depress wages of native workers. Yet empirically the long-run effect of U.S. immigration on employment and wages tends to be low or zero.

There are likely two reasons.

First, new immigrants, create their own jobs—not only has the supply of workers increased, but so has the demand. Second, the labour of immigrants is often complementary to native labour. High-skilled workers aren't competing against those with low education, few skills or language barriers. Note that, in the U.S., while the overall impact on the native labour market is small on net, there may be some distributional effects, with high school dropouts and those without a college degree potentially experiencing wage declines, at least in the short run. Indeed, many of Trump's supporters are middle-class blue collar workers.

Likewise, it’s often claimed that immigrants to the U.S. disproportionately use the welfare system. Yet again, empirically, one tends to find there’s at best a weak correlation. Part of this may be due to immigrants coming to the U.S. being a self-selected group of hard workers who are best suited to take advantage of the dynamic labour market to reward their families.

So does this then mean the U.S. and other countries should adopt open borders? The free movement of goods has led to large, broad-based increases in prosperity. If goods should be free to flow across borders, should not people?

Webster defines a country as "an indefinite usually extended expanse of land." Perhaps an economic definition would be: a man-made institution to facilitate trade between one another and providing mutual defense of property rights, all the while reducing the likelihood of "bad behaviour" such as crime, social unrest, and taking advantage of one another in exchange. These objectives are often furthered by joining together with those with the same beliefs, values, customs, and typically, language. That is, the more homogeneous the people, the greater the level of social trust.

It seems, then, the primary difference between an imported car and imported person is this—the car doesn't vote. The car doesn't influence the values and beliefs of their communities, which in turn may affect how communities set laws or organize themselves. For instance, economists have found that people appear more prone to help people they trust. The less homogenous the people of a country, the less likely the people will be supportive of a large welfare state. Economists call this type of effect of immigration a "political externality."

While it’s true that immigrants have eventually come to learn the native language—most immigrants to the U.S. learn English by the second or third generation—some question whether this is still happening or if this is enough.

Looking south of the border, California now extends drivers licenses (and potentially, Obamacare) to illegal immigrants. New York is proposing to do likewise, as well as provide eligibility to vote in statewide elections. There has also been a rise in international or taxpayer-funded schools for non-English speakers. In some European countries, immigration has at times been followed by balkanization and division, while in Canada some communities are sparring over the exclusive use of foreign languages in street signs.

More generally, to the extent that the culture of one's country of origin informs one's beliefs, and beliefs inform how one behaves, the political externalities of the free movement of people may be significant.

In light of these concerns, some economists have proposed restricting the rights of immigrants, whether it be access to welfare, how much they can earn, or their ability to vote. Yet politically this seems completely untenable—sustained institutional discrimination against a class of citizens is unlikely to last.

One alternative, then, is simply to restrict who obtains citizenship in the first place. Most countries appear to have laws that bear these political externalities in mind, providing for a slow process of immigration, whereby immigrants are heavily shaped by the prevailing culture, not the other way around. Thus, while anti-immigration rhetoric of Trump and others is often (incorrectly) couched in jobs, welfare or even safety, the thrust of its message is effectively cultural and political unity.  

What is a country in the 21st century? Historically, the beliefs and values of a people were often associated with a particular religion or race. With the fall in costs of transportation and communication over the last century, societies have become increasingly diverse, values have been challenged, and these hard lines of association have blurred.

If maintaining and fostering social trust as a foundation for a thriving economy remains a valid concern, how societies manage political externalities of immigration will be an important challenge for generations to come.