Friday, August 24, 2012

On the potential consequences of open borders and wages

A recent post made by Chris Bertram at Crooked Timber, "Open borders, wages, and economists", raises some interesting questions. There's substantial agreement on the benefits of radically liberalized immigration policies on potential migrants. What of consequences on workers in the receiving countries?
One author, Michael Clemens, raises the possibility of a doubling of global income (PDF); another, John Kennan, envisages a doubling of the incomes of the migrants. Either way, the gains are huge: put those poor people into the institutional and capital contexts of wealth countries and they would do much much better.

What there seems to be much less agreement on is the effect of open borders on the wages of the non-migrant population of the wealthy receiving countries. Clemens and Kennan generally concede the possibility of some small depressive effect but argues that it would be temporary and/or could be compensated for at a policy level by suitable taxes and transfers. This is a radically different story from that told by, for example, Ha-Joon Chang, in his book 23 Things They Don’t Tell You About Capitalism . Chang’s third “thing”, “Most people in rich countries are paid more than they should be” contains a parable of two bus drivers, Ram in India and Sven in Sweden. They do similar jobs, but if anything Ram’s requires more skill as he “has to negotiate his way almost every minute of his driving though bullock carts, rickshaws and bicyles stacked three metres high with crates.”(25) Yet Sven is paid 50 times more than Ram is (and it would be easy to find examples where the pay divergence is much larger, perhaps as much as 1000 times between unskilled labourers in poor and wealthy countries). Chang things it implausible that Sven embodies more human capital than Ram does as a result of education and training, since most of his Swedish education is irrelevant to what he does on the job.

So if Chang is right, an open border policy would have a massive depressive effect on the earnings of non-migrant workers in wealthy countries since other people would be happy to take unskilled or low-skilled jobs for much less than the current wage (but more than they could get at home).

Given the massive aggregate welfare gains from migration, perhaps supplemented by other thoughts about human rights and freedom of movement, some peope will argue that open borders is the right policy regardless of its effects on the poor citizens of wealthy countries. And they may be right about that. But clearly if we are to wage a political battle for more liberal immigration policies in Festung Europa and the United States, then the truth about the benefits or harms to the existing population is important. It is one thing to say to an electorate that free migration will probably not harm them (and may even benefit them) and quite another to say that such harms as they suffer are swamped by the benefits in a global utilitarian calculus. The first stands a chance of democratic success; the latter, realistically, has none.
The discussion in the comments is worth reading.


Anonymous said...

Environmentally, massive immigration to the US would be a disaster, whatever the human capital levels of the immigrants.

Anonymous said...

If the native population has a higher education and income level than immigrants, as is the case in the US, immigrants will be the recipients of large amounts of transfer payments from the native population, as is the case in the US.

One study recently showed that 20 years after immigrating, US immigrants on average still received vastly higher levels of welfare than native Americans, paid for of course out of the taxes of native Americans.

Anonymous said...

In the open-borders limit for the US, conditions in the US would decline with the arrival of third worlders, until there is an equilibrium in desirability in the US and in third world countries.

Yes, quality of life can certainly move backwards, and in many areas of the US it has.

Already the quality of life in most US urban areas has declined dramatically in the last 50 years so that they can no longer be called first world.

Only when there is an equilibrium in desirability in the US and third world countries can balance be achieved.


Anonymous said...

All of the three above posts are optimistic.

The biggest risk is that with a new and different population base, you **lose the American system**.

In the sharia 'democracies' of Libya and now Egypt, rights are an utter fiction.

India was blessed with a British system but in reality they do not have the British system but something totally dysfunctional because the population base is different.

If you lose the American system, the whole world is poorer, because America is the source of all manner of positive externalities.

If America goes heavily redistributionist in the long run, as is increasingly likely based on present immigration trends, the total impact is very likely to be negative, as those kinds of policies have been always and everywhere impoverishing.

Anonymous said...

Poverty has been the norm in most of world history and prosperity the exception.

The example of India should be taken to heart in this. Indians do not prosper in redistributionist India, where all public goods are overwhelmed by the tragedy of the commons. If Indians came to America in large enough numbers to swamp the system, can the outcome be anything other than a replicating of Indian conditions here?

Anonymous said...

Much of the American commons is already in steep decline:

- public schools are less safe and less desirable than in the past

- emergency rooms have declined

- road traffic is much worse than in the past

- cities are lost to decay farther and farther out into the suburbs

- budgets of many states lie in ruins

- the national budget lies in ruins

- wages for men have not increased in 40 years or more

Anonymous said...

The trouble is that Sven has to pay taxes (and sizeable one if we are at it), that Sven has to pay a large rent or mortgage, that Sven has to pay more for healthcare (not only because nurses ar echeaper in India, but because India does not care about pharma patents). The day Ravi walks into Sweden will be the day when he will start paying the same rent, healthcare, taxes, while being unable to speak the local language and remaining unclued about the fact that Swedes dislike hiring to people who scratch their genitalia in public. (Good or bad, that is the reality.) Opening the borders would not be as useful in lowering salaries as much as opening the construction rules for more houses to be built on the cheap and near the job places.

Anonymous said...

Where are these anonymouses coming from and what happened to back and forth discussion and building on what came before?

Regardless, thanks Randy, I really appreciated this post, as always.

Anonymous said...

Well! that explains that, apparently I'm anonymous now too! I think it automatically resets to anonymous when one fails the captcha, and they're getting really really hard these days.


Jesse said...

A growing and youthful population is always a good thing. There are many economic advantages to a growing population regardless of whether the population is a result of natural population increase (high birth rates) or immigration. Countries with growing and youthful populations tend to be more dynamic and innovative. A growing population provides a growing demand for goods and services which leads to growth in the job market. A growing population provides a growing tax base. Also a growing population provides more workers to support the retirees. I would however say that population growth due to high birthrates is preferable because that allows all areas to grow. If growth comes through immigration that is taking population away from other regions, which could hinder their economic growth.

Anonymous said...

"A growing and youthful population is always a good thing. There are many economic advantages to a growing population regardless of whether the population is a result of natural population increase (high birth rates) or immigration."

If you are talking about economics no statement could be more wrong.

Almost every African nation has a massive and growing youth population and utter poverty. Ditto for the Middle East. Ditto for India.

People are not some fungible commodity and everyone is not like everyone else.