I’ve written previously about the economic value of open borders, with the animated book by economist Bryan Caplan making a compelling case. Indeed, researchers have previously suggested that open borders would deliver a premium of around $100 trillion to the global economy, purely by virtue of people being able to live and work where they pleased.
A central argument made by Caplan is that developed countries often have the infrastructure, the networks, and the resources to enable immigrants to flourish and be more productive than they would be in their homeland, while also providing them with a higher standard of living, in what appears to be quite a clear win-win relationship.
Milton Friedman famously retorted that open borders were not compatible with the welfare states that have developed across the world, especially after World War II. He believed that the sophisticated welfare provisions provided by the west would result in a flood of low-skilled immigration, which would ultimately overwhelm such systems. A country could have open borders or a generous welfare state, but not both, Friedman argued.
Having it all
It’s an opinion that is explored by new research from Kellogg Business School, which suggests that the key could be whether a country is able to levy different taxes on citizens and immigrants.
The researchers tested their hypothesis by developing a model economy that contained a mixture of high- and low-skilled citizens who permanently lived and worked in the country. The wellbeing of these citizens was measured by their work and consumption habits, as well as the ability of the country to provide various “public goods”, such as emergency services, national defense, and infrastructure.
The government in this model would strive to maximize the wellbeing of each citizen, with an inevitable redistribution between high- to low-skilled workers a part of that process. As well as striving to appease citizens already living in the country, politicians also have to consider potential immigrants who might move to a country and access public goods such as roads and schools. Despite this very tangible outcome, the models were constructed so that governments only considered the wellbeing of current citizens rather than potential citizens.
“It’s a cold-hearted, uncaring assumption that does not reflect how we feel,” the researchers explain. “But we think that this assumption is likely to describe how decisions about immigration policy are made in the real world. Politicians represent the interests of people who already live in the country and vote in elections, not the interests of foreigners who could potentially immigrate.”
High and low skills
The first scenario tested by the researchers was one in which the government was able to perfectly distinguish between those with high skills and those with low skills. They would also be able to distinguish between citizens and immigrants and would be able to easily charge different taxes to different groups.
In this scenario, an open-border policy was found to maximize the wellbeing of the average citizen, as governments could simply charge immigrants additional tax to cover the public goods they consume. It essentially distinguishes the redistribution and immigration policies and ensures they’re kept separate.
While this approach is clearly attractive, it’s not very easy to implement in practice as the government would require more information about the skills of workers than it currently has. It would also need to be able to levy lump-sum taxes that aren’t dependent upon either income or consumption. Such an approach is usually politically difficult, with Margaret Thatcher’s “poll tax” a famous example.
It’s also very difficult for governments to distinguish between high- and low-skilled workers, which makes any attempt to levy taxes according to skill levels difficult.
“You are giving high-skill people the incentive to say, ‘Well, I may look like an engineer but I’m really just in charge of cleaning the equipment,” the researchers explain.
Treated equally
As such, it’s perhaps more realistic for the government to apply the same income tax schedule across all citizens rather than distinguishing by skill level. Such a scenario would render an ideal immigration policy dependent on whether the government could use different income tax codes for citizens and for immigrants. If that is the case, then open borders is the optimal policy.
This is because immigrants would still be paying a form of admission fee to compensate for the public goods they would consume. Interestingly, the simulation makes the argument that low-skilled immigrants drive down the wages of low-skilled citizens, which is not what a second study from Kellogg finds. Indeed, because immigrants are more likely to create new businesses, there is a net-growth in both the number of jobs and wages as a result of immigration.
What’s more, research from Rice University highlights how even undocumented immigrants tend to contribute more to the public purse than they cost. Indeed, for Texas alone, the state collects $1.21 in revenue for every $1 spent on providing public services to undocumented immigrants.
“Undocumented residents have a positive influence and impact on the economy, since they pay taxes and fees and constitute an important part of the labor market,” the researchers say. “Even if we consider the costs of undocumented immigrants to the state of Texas, the benefits outweigh the costs.”
This suggests that the suggestion from the Kellogg paper to ban low-skilled immigration on the grounds that it negatively affects the economy is not matched by actual evidence. Of course, all of these studies tend to look at the issue through an economic lens, which is perhaps not where much of the opposition to immigration comes from. In the search for evidence-based policy making, however, it is nice to see a growing body of work making the case for more liberal immigration policies so that both people can move where they please, and organizations can attract the talent they need.
