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.