How to make America greater: More Immigration

By Eduardo Porter
7 February 2017
The New York Times

President Trump will make America smaller.

He may not be thinking in these terms. But as he barrels ahead with his promise to restrict immigration — barring people from some Muslim-majority countries, limiting work visas, expelling millions who are here illegally — the president might want to ponder how this fits the theme of making America “great again.”

For his plan, at the scale he promises, would shrink the American economy and impoverish the world. If greatness is what he pursues, a straightforward way to bulk up the economy — not to say bolster global growth — would be to allow many more immigrants in.

Consider the report on immigration released last fall by the National Academies of Sciences, Engineering and Medicine. It concluded that immigration to the United States from 1990 to 2010, both legal and illegal, produced net benefits worth $50 billion a year to the native population.

This might seem insignificant in an $18 trillion economy. But it packs more than meets the eye. It is more than the government’s estimate of what the country would have gained from the Trans-Pacific Partnership, the grand deal with 11 other countries around the Pacific Rim negotiated over eight years by the Obama administration but abandoned by Mr. Trump.
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The number does not consider many likely benefits from immigration. For instance, immigrants are younger. They are slowing the aging of the work force. Low-skilled immigrants may increase the labor supply of high-skilled natives, say, by providing cheap child care and releasing mothers to work. High-skilled immigrants contribute disproportionately to innovation, seeking patents at a higher rate than natives.

Notably, the number does not include the economic rewards that accrue to the immigrants themselves: 26 million foreigners in the American labor market added some $2 trillion to the American economy last year, according to the National Academies report.

Mr. Trump has not shown much interest in the well-being of people born outside the nation’s borders. But even in the narrowest, most parochial sense, their income contributes to the nation’s greatness. As Mr. Trump maneuvers to face off with China, he might stop to consider what the rivalry would look like if the United States were $2 trillion smaller.

This is a challenge for not only Mr. Trump but also the entire crop of xenophobic, nativist leaders emerging all over the industrialized world: Few things would make the economic pie bigger than free flows of people from poor countries to rich ones. Immigration — not trade liberalization or the elimination of barriers to capital flows — offers the best shot at raising the incomes of the poor and increasing economic output around the world.

It’s not even surprising. Research by Michael A. Clemens of the Center for Global Development, Lant Pritchett of the Kennedy School of Government at Harvard and Claudio E. Montenegro of the World Bank found that a 35-year-old urban man born and educated in Peru, who had nine years of school and worked in the formal Peruvian economy, made an average of $452 a month. A Peruvian with these exact characteristics working in the United States, by contrast, made $1,714 a month.

A typical Pakistani worker who moved from Karachi to Los Angeles would at a stroke make more than six times as much. A Yemeni would raise his earnings 14.5 times. And this would not even require retraining. Someone flipping murtabak on the streets of Sana’a would earn 15.5 times as much simply by coming to New York to flip burgers at McDonald’s.

These vast wage gaps underscore the critical value of place: The physical and social infrastructure of the United States automatically lifts the productivity of workers from the most backward countries. But the income differential also highlights how tough barriers against immigration truly are.

If workers could move seamlessly across borders, wages of similar workers would tend to converge. The wage gap is a measure of the barriers that remain: An hour of work by a Pakistani in New York costs 6.5 times what an hour of the same Pakistani’s time costs in Karachi. By contrast, the product of that Pakistani’s work back home could enter the United States paying a tariff, on average, of only 3.5 percent.

If barriers to immigration are orders of magnitude steeper than barriers to trade, removing such obstacles — allowing workers to flock to where they are most productive — would provide a much bigger impetus to the economy than any effort at trade liberalization.

“If trade deals were strictly about efficiency and growing the size of the overall economic pie,” argues Dani Rodrik of the Kennedy School, “trade negotiators would drop everything else on their agenda and spend their whole time trying to strike a bargain whereby workers from poor countries could participate in the labor markets of the rich countries.”

Indeed, some economists have estimated that allowing free cross-border movement of labor could more than double the world’s gross domestic product. As Mr. Clemens at the Center for Global Development put it, maintaining harsh barriers on immigration amounts to leaving “trillion-dollar bills on the sidewalk.”

Immigration carries costs, of course. It weighs on the wages of the workers who directly compete with the newcomers. And yet they are small compared with the vast potential for gains.

Even some of the most pessimistic analysts find relatively modest effects on domestic workers. George Borjas of Harvard, by no means a supporter of liberal immigration, has estimated that the newcomers who arrived in the United States from 1990 to 2010 reduced the wages of American-born high school dropouts over the long term by 3.1 percent — or some $900 a year.

This number has been criticized as far too high by other economists for relying on implausible assumptions. But even if it were correct, it would not seem like a big deal. To help the 10 million high school dropouts in the labor force, there are more effective tools (like raising the earned-income tax credit) than immigration law.

That is not to say America’s borders should be opened to all comers. Whatever the economic benefits, immigration remains a touchy topic everywhere. A poll by the Pew Research Center in 2010 found that three in four Americans favored tighter restrictions on immigration. So did 66 percent of Germans, 77 percent of Venezuelans and 89 percent of South Africans.

And who knows what would happen to productivity and wages, to politics and social cohesion, if immigration took off on an unprecedented scale? A third of adults in sub-Saharan Africa say they would like to migrate permanently. So would a fifth of Latin Americans and one in 10 South and East Asians, according to a Gallup World poll from 2010. About a quarter of these potential migrants — 145 million adults — would like to live in the United States.

But that still leaves space for moderate liberalization. As Mr. Clemens argues, if only 5 percent of the population of poor countries were allowed to migrate to richer ones, the global gains would exceed those made from removing all policy barriers to merchandise trade and capital flows.

So how about an expanded guest-worker program? It could grant visas for, say, a fixed five-year period with no path to citizenship, and deploy both carrots and sticks to ensure that workers returned home. This would help spread the benefits of migration around, and also help the nations sending the migrants, who would benefit from their experience and capital when they returned home. Considering the dim prospects for global growth, the economy could use the help.

Such an about-face might prove politically costly — not to say embarrassing for Mr. Trump. But unlike many of his ideas, it would help keep America great.