Arnold Kling  

Immigration Reform

PRINT
Policy in a Fog... Ricardo's Difficult Idea Elude...

In my essay, I made an off-hand comment.


If the households and businesses that hire illegal immigrants do so in order to save the cost of paying taxes, and they will not pay the taxes even when an employment agency handles all of the paperwork for them, then what we have is more than an immigration problem -- we have a tax rebellion.

Greg ("prestopundit") Ransom points to a longer elaboration by Patterico.

As long as we have the safety net and the minimum wage, Americans will not want to work for the wages offered illegal immigrants -- and legally could not do so even if they wanted to. So my solution to our immigration problem would be, not "immigration reform," but economic reform. I would implement fundamental structural changes to our economy, such as abolishing the minimum wage and the welfare state. Soon enough, the jobs currently being filled by illegals would be filled by Americans. Illegal immigration would not appear so necessary to our economy, and perhaps we could muster the political will to enforce our immigration laws.

...if we legalize the illegals, then once again, there will be an economic need for people who are willing to do the unskilled jobs for a pittance. And the cycle will continue. It happened after the 1986 amnesty, and it will happen again.


For Discussion. To what extent is the "illegal immigration" problem really a black market in labor?


Comments and Sharing





COMMENTS (30 to date)
Donald H. writes:

"If you destroy a free market, you create a black market." -Winston Churchill

That said, such speculation as to appropriate economic policy is largely moot, considering it is rather an overtly _political_ policy. It is, in effect, a referendum on the extent voters tolerate illegal immigration and workers, given the rising demographic power of Latin Americans of whom it is felt hold a certain affinity with migrant laborers.

The Washington Post (and even The Economist) understands this:

http://www.washingtonpost.com/wp-dyn/articles/A45234-2003Dec31.html

"The president's proposal is more of an election-year ploy than a moral or philosophical manifesto."

http://www.economist.com/agenda/displayStory.cfm?story_id=2335484

"Mr Bush is keen to mend relations with his Mexican counterpart, whom he will visit shortly, but in an election year he is bound to be more concerned with the consequences for the Latino vote at home. Latinos, America’s fastest-growing minority, have gone from just 2% of the electorate in 1988 to an estimated 9% now. They are also much less set in their ways as voters than blacks: Mr Bush won 35% of the Latino vote in 2000 compared with Bob Dole’s 13% in 1996. The White House hopes that its willingness to address a problem that is close to Latino hearts will help the Republicans handsomely in such hotly contested states as Florida, New Mexico and Nevada."

Scott Gustafson writes:

Here in Phoenix, day labor costs you $50 and lunch. That’s about $6 per hour plus a fast food lunch. Compare that with minimum wage plus taxes. Not very different except for the paperwork.

For reference, the starting wage at a fast food restaurant in Phoenix is $6 to $6.50 an hour. Mexico just raised their minimum wage to 45.24 pesos per day – about $4.

Given the opportunity to earn ten times the minimum Mexican daily wage, it is hardly surprising that the illegal immigrants choose to work here. Meanwhile, US workers have a very different view of their opportunity cost.

Lawrance George Lux writes:

Most underestimte Bush understanding of the problem. He has been Governor of Texas. I simply am amazed it took him this long, he first attempted it before 9/11. It is a typical Texas response to the problem. They want to legalize what was before an essential Black Market operation. They want the power to export the Workers after their seasonal work is complete. They could send legal Coyotes south to get Workers, then use the power of the Government to ship them back. They presently do not have the means to ship them back across the border. lgl

John Thacker writes:

Donald H.-- that the media prefers to look only at the political aspects of the policy does not mean that the situation and the proposal both have economic aspects that should be explored. The question is indeed moot; that is, open to discussion. In any case, regardless of any proposal, we can still discuss the illegal immigration problem.

While it is likely that the minimum wage and the welfare state exacerbate the problem, even in their absence there would be a strong push against illegal immigration. First, low skilled workers would still have a strong incentive to prevent immigration and thus restrict the supply of labor, raising wages. (Actually, so would skilled workers who compete with unskilled labor.) Second, so long as the prevailing wage rates and standard of living are higher in America than in Mexico, there will an obvious reason to immigrate. (Mass immigration was certainly common before the minimum wage.)

However, in some larger sense it's a black market in labor anyway just because free movement of labor is restricted. Perhaps that's begging the question, though.

John Thacker writes:

Donald H.-- even more importantly, note that Professor Kling's essay predates Bush's proposal being news, being published on December 1st.

David Thomson writes:

Illegal immigration is not the real problem per se. Many simply want to dance around the actual politically incorrect issue: the poor education of most of these Hispanics. They are usually only able to do menial work. Thus, they become economically useless if injured or physically incapacitated. Earning a living sitting in front of a computer screen is simply not a realistic option.

What should we really do about this conundrum? That is a easy question to answer. We must encourage these Hispanics to cease having so much contempt for acquiring knowledge. The males, in particular, think it is insulting to their manhood to be educated. Macho men are supposedly dumb as a door nail. Am I exaggerating? Unfortunately, not in the least!

Eric Krieg writes:

It seems to me that this is a question economists should be able to answer.

The minimum wage has different effects in different parts of the country, because the cost of living is different in different parts of the country.

In the Chicago suburbs, where it is very expensive to live, the minimum wage has a different effect than in Binghampton, New York (the cheapest housing market in America).

So why can't some economist some where look at these different regions and see the inter-relationship between the minimum wage and black market illegal workers?

John Thacker writes:

Eric--

while regional differences certainly exist in the US, the difference between US and Mexican prevailing wage rates is sufficiently high to likely drown out the regional effects. Regardless of the minimum wage, the higher wage rates in the US would create a strong incentive for Mexicans to immigrate, and in the absence of true freedom of movement, illegal immigration. In addition, the effect of merely being closer to Mexico, or the network effects of already having a large Hispanic population, also distort the picture.

Scott Gustafson writes:

Since the day labor rate here in Phoenix is slightly above the minimum wage, I don’t see how the minimum wage has an effect here. Note also that starting wages for unskilled labor are also above the minimum wage.

The economic issue is the dramatic difference (a factor of 10) between wages in Mexico and the US.

Luke writes:

I agree with Lawrence that Bush understands this problem more than people seem to think. The conspiracy-theorists might even think that the media is blasting the plan as amnesty BECAUSE of the fact that in 3 years, these people are legally deportable. I see this plan as a kind of warning: "We know you're doing something illegal, you've got 3 years to stop."

The immigrants that are not interested in citizenship (criminals, etc) won't be registering on the program, but the others will be forced to, as long as the program is given the teeth to back up its objectives, which I'm sure the executive office will do. Those that are registered can be put on the path to citizenship, which requires a basic understanding of English and US civics, something I might say most natural-born Americans don't have.

As a free-market enthusiast, I'm happy to have an open border, but security is also important. A freely immigrating work-force, along with an abolishment of the minimum wage and a minimal welfare state, will solve the illegal immigration "problem" because it is basically, as Patterico states, a black-market in labor. If the economic restrictions and regulations are removed, the black-market will no longer be viable. The wage for the menial jobs will drop down to equalize with that wage offered in Mexico, and public welfare will not be an incentive for them to come either. In that way, only those who are truly interested in taking the full journey to American citizenship will be the ones motivated fully to make the trip.

Eric Krieg writes:

>>while regional differences certainly exist in the US, the difference between US and Mexican prevailing wage rates is sufficiently high to likely drown out the regional effects.

While this may be true, it is irrelevant to the thesis put forth in Arnold's post.

Arnold's thesis is that illegal immigration is an unintended consequence of the minimum wage. I don't know if it is or if it isn't, but I think that there is enough variation in the cost of living in this country that the thesis can be tested. I wonder why no economist has done so.

Even if the thesis is proven true, I would still have a hard time with its conclusions. It is EXPENSIVE to live here in the Chicago suburbs. The only way that Mexicans can do it is by living in squalid, overcrowded apartments. They bring a host of social problems with them, not the least of which is crime. These social costs are often ignored by immigration enthusiasts.

John Thacker writes:

Actually, Eric, I believe that his thesis is that "illegal immigration" is a black market in labor. Minimum wage is a part of that, but restricting the free movement of labor is another part of what makes it a black market. That is, of course, begging the question-- with free movement of labor there would be no such thing as "illegal immigration."

Eric Krieg writes:

>>I believe that his thesis is that "illegal immigration" is a black market in labor. Minimum wage is a part of that, but restricting the free movement of labor is another part of what makes it a black market.

I didn't see any mention of restricting the free movement of labor. The thesis is entirely based on lowering LEGAL wages to the point that "legal" people (citizens and legal aliens) CAN do the job.

Will any immigration enthusiast ever take on the issue of immigrants living in poverty? Or the immigrant crime rate? Or the cost of government provided services that they consume?

In another words, how about a cost/ benefit analysis for immigration?

Monte writes:

Eric,

“It is EXPENSIVE to live here in the Chicago suburbs. The only way that Mexicans can do it is by living in squalid, overcrowded apartments.”

I can’t imagine Chicago has a problem with Mexican immigrants. What’s more, the cost of living in San Diego (and surrounding area) is significantly higher than in Chicago, but they’re not limited to living in “squalid, over-crowded apartments.” In fact, some have done quite well, comparatively speaking. The problem is most acute in those states bordering Mexico, but particularly in California, owing to its loose immigration policies and generous state benefits.

see “Panel urges benefits for illegal immigrants”, http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2002/06/19/BA196162.DTL

Local residents are concerned that the immigration problem will ultimately ruin the state economically. That may be, but black market labor provided by illegals has certainly been a windfall for the small business community. It really presents something of a Catch-22.

Through sheer attrition of numbers, it appears Mexico might effectively reclaim California…"illegally" annexed in 1848 by the US… in spite of our government's (and immigrant sympathizers) best efforts to give it back free of charge.

Blakely Wallace writes:

Why should there be nations? Why should there be borders? They just add to market inefficiencies, impede normal economic behaviour (decreasing freedom) and irretrievably lower consumption to below Pareto optimal levels (resulting in deadweight loss).

Corporations are a better organising unit for society. Afterall most people in developed areas already spend a majority of their time in them anyway, while the backwardness and brutality of undeveloped areas lacking corporate organisation speaks for itself.

Multinationals try their best to operate through a haze of restrictions (too often blamed for failings not of their origin). If they were given carte blanche independence, you would see nations shrivel under their atavistic notions of place and geography.

I see no reason why corporations should not hire or internally build their own armies for defensive purposes. They would only be used as a last resort; most disputes would be settled by a membership body akin to the WTO.

Blakely Wallace writes:

By the way, Neal Stephenson in "Snow Crash" and "The Diamond Age" has written persuasively about corporate organisation in a borderless world where government power is greatly reduced.

They are fictional works, but serve to illustrate the superiority, if not inevitability, of the growing influence of corporate organisation and the long overdue wane of the nation-state.

Eric Krieg writes:

>>I can’t imagine Chicago has a problem with Mexican immigrants.

Compared to California, no, it probably isn't a problem.

And I'm not saying that there aren't benefits to immigration. Certainly, businesses benefit.

But does society benefit overall? When all the costs and benefits to everyone are all tallied, do we all as a group come out ahead?

Bernard Yomtov writes:

"Why should there be nations? Why should there be borders? They just add to market inefficiencies, impede normal economic behaviour (decreasing freedom).."

Do you really consider economic freedom the only valuable freedom?

"I see no reason why corporations should not hire or internally build their own armies for defensive purposes."

I see lots of reasons. Whose interests will these armies (and presumably corporate police forces) serve? Who will control the use of force? If a Ford employee, for example, decides he wants to go to work for GM, who will guarantee his right to do so? If a newspaper criticizes a corporation who will protect it from the corporate army? Where will police and fire protection come from? etc.

This strikes me as an extremely stupid idea, and that's putting it generously.

Bernard Yomtov writes:

I don't think illegal immigration constitutes a black market for labor that would disappear with elimination of the minimum wage.

That presumes that:

1. There legal residents, citizens or not, who are willing to work for less than the legal minimum but are prevented from doing so by minimum wage laws,

and

2. It is easier for illegal immigrants to evade these laws than it is for legal residents.

That doesn't sound right to me.

Monte writes:

"But does society benefit overall? When all the costs and benefits to everyone are all tallied, do we all as a group come out ahead?"

I'm not opposed to LEGAL immigration under certain conditions (they must understand and speak English, be employable and/or have prospects, have no criminal record, etc.). If our government could ensure that these and other conditions were being met, I believe the impact would be negligible.

However, I'll admit that our government has failed miserably on this score and, as a result, incurred some enormous social costs. I'm afraid we'll have to be a little more discriminating (literally and figuritively) if we hope to regain control of the situation.

Blakely Wallace writes:

Q: Do you really consider economic freedom the only valuable freedom?

A: Yes, it's where all other freedoms begin.

Q: Whose interests will these armies (and presumably corporate police forces) serve?

A: The shareholders.

Q: Who will control the use of force?

A: The shareholders (acting though the board of directors).

Q: If a Ford employee, for example, decides he wants to go to work for GM, who will guarantee his right to do so?

A: GM, if they want him bad enough.

Q: If a newspaper criticizes a corporation who will protect it from the corporate army?

A: The newspaper's army, if they are able to afford one. But more likely they would be operating as a subsidiary under the protection of a larger corporation, such as News Corp. Also it may be possible the newspaper had worked out a system of allegiances, members of which might be counted on to rally to its defence.

Q: Where will police and fire protection come from?

A: From corporations who offer those services.

[Hey, this kind of makes a nice FAQ, don't you think? :D Thanks for asking!]

John Thacker writes:

Eric-- Professor Kling's question reads: "To what extent is the "illegal immigration" problem really a black market in labor?"

Restricting the free movement of a good is one way to end up with a black market. Of course, as I concede, that's really begging the question.

If you're prepared to include the immigrants themselves in "society," then it's clear that as a whole society is easily better off because of immigration. If you don't, then there are probably negative short-term effects that hurt some people. As for the long run, if immigration leads to more innovation and increases productivity, then that will show up as wage increases for everyone.

Bernard Yomtov writes:

"Q: Do you really consider economic freedom the only valuable freedom?


A: Yes, it's where all other freedoms begin."

No.


"Q: Whose interests will these armies (and presumably corporate police forces) serve?

A: The shareholders."

And what about those who aren't shareholders? And if ABC Corp decides it wants to take my property for its use who will stop it?


"Q: Who will control the use of force?
A: The shareholders (acting though the board of directors)."

See above.


"Q: If a Ford employee, for example, decides he wants to go to work for GM, who will guarantee his right to do so?
A: GM, if they want him bad enough."

Gee, I thought you were interested in efficiency. This is hopelesly inefficient. Jones would be more productive if he switched jobs, but unless the increase is enough to justify a war he can't do it. Insane. And what if the company he wants to go to doesn't have an army strong enough to protect him?


"Q: If a newspaper criticizes a corporation who will protect it from the corporate army?

A: The newspaper's army, if they are able to afford one. But more likely they would be operating as a subsidiary under the protection of a larger corporation, such as News Corp. Also it may be possible the newspaper had worked out a system of allegiances, members of which might be counted on to rally to its defence."

Why should they have to? And what about an individual who makes a speech have to arrange for physical protection?


"Q: Where will police and fire protection come from?


A: From corporations who offer those services."

I see. So no protection for those who can't afford it.

"[Hey, this kind of makes a nice FAQ, don't you think? :D Thanks for asking!]"

It does make a nice FAQ that illustrates the idiocy of this idea. By the way, wo is going to enforce all these contracts? The armies? So the company with a strong army does whatever it wants?

The world you visualize is a lawless jungle of arbitrary violence where the strong rule absolutely. It's only value is complete selfishness. There is no humanity at all in it. I suppose it might appeal to a fifteen-year-old who just read Ayn Rand (or maybe your hero Stephenson), but it's hard to see how any sensible adult could buy it.

Blakely Wallace writes:

"The world you visualize is a lawless jungle of arbitrary violence where the strong rule absolutely. It's only value is complete selfishness."

I'm afraid you see through a glass darkly. You seem to assume this state of affairs does not exist already. Rather it does, except in the bastardized form of nation-states defined by place, which may or may not rule by the consent of the governed.

All I'm saying is getting rid of (or perhaps modifying where feasible) outdated charters based on arbitrary geographic boundaries and replacing them with more flexible and efficient forms of organisation more suited to a borderless world.

In fact the world is well along this path. I applaud the Bush administration for jettisoning unwanted elements of the Constitution in order to align it more closely with the principles of corporate governance.

Keeping the illusion of borders and behaving as if they were somehow real does much greater disservice to the project of 'humanity' that you purport to defend. By your specious definition human affinity must necessarily belong chiefly to the land. How ...agrarian.

Such willful distortion stands directly in the way of progress, but then I'm sure, like state government, the ideas of profit and success are foreign concepts to you. Now who is acting childishly? I'll leave you with part of an epistle from Paul the Apostle:

"When I was a child, I spake as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things." -1 First Corinthians 13:11, The Holy Bible: King James Version

I regret our disagreement, but I sincerely hope that someday you will be able to put away your childish notions and blind worship of statist supremacy.

Good day to you, Sir.

Monte writes:

John,

“If you're prepared to include the immigrants themselves in "society," then it's clear that as a whole society is easily better off because of immigration.”

With respect to Mexican immigration, I disagree. Large-scale migration of Mexican workers adversely affects U.S. native workers with similar skill levels while improving the economic opportunities for those who remain in Mexico. Additionally, low-skilled Mexican immigrants are disproportionately more likely to apply for and receive public assistance, which places more of burden on U.S. taxpayers.

“As for the long run, if immigration leads to more innovation and increases productivity, then that will show up as wage increases for everyone.”

Under certain conditions this may be true, but how will relaxed immigration laws (or an open borders policy) with Mexico translate into higher wages for U.S. workers? We all know it benefits service industry employers (fast food, hotel/motel, restaurants, landscaping/construction, etc.) willing to risk hiring immigrant workers for less than the minimum wage. But there's no evidence that this savings in labor costs gets passed on to the consumer in the form of lower prices.

John Thacker writes:

But there's no evidence that this savings in labor costs gets passed on to the consumer in the form of lower prices.

Fast food, hotel/motel, and several of the other industries you named are all extremely competitive. (Construction is very politically influenced, so I'm willing to exempt it.) Given that, I would be incredibly surprised if lower prices did not result.

Under certain conditions this may be true, but how will relaxed immigration laws (or an open borders policy) with Mexico translate into higher wages for U.S. workers?

Because wages in equilibrium are based on productivity. In the short run, yes, people with similar skills can lose out, and in the short run only, people with similar skills back in the home country are helped. In any case, the net gain by the new immigrants exceeds that of the loss by the natives.

In the long run, wages are based on productivity. The economy will find new use for all the supply of labor; new jobs and new companies will be started. If the immigration increases productivity, then overall wages will increase.

You're confusing short term effects with long term.

Monte writes:

John,

“Fast food, hotel/motel, and several of the other industries you named are all extremely competitive. (Construction is very politically influenced, so I'm willing to exempt it.) Given that, I would be incredibly surprised if lower prices did not result.”

Yes. Competition, not immigration, is the controlling factor. These industries were highly competitive with an abundant supply of unskilled labor prior to the mass infusion of migrant Mexican workers into the Southwestern U.S. over the last decade, so you can’t argue immigration, in this case, has resulted in lower prices. Incidentally, have you paid for a burger or booked a motel room in San Diego recently? Exorbitante, Señor!

“If the immigration increases productivity, then overall wages will increase.”

California, more than any other southwestern state, has experienced the greatest influx of unskilled labor, yet there’s no evidence that increased productivity has been the result. Increases in productivity come about from increased efficiency on the part of capital or labor. Increased efficiency on the part of labor requires technical skills, specialized training, and experience, none of which the unskilled laborer from Mexico possesses.

Eric Krieg writes:

Instead of having open borders with Mexico, why don't we just annex them? Manifast Destiny, anyone?

I'd be much more comfortable with Mexico as the 51st state. Then at least I could have some influence over their corrupt society.

Mexico is in need of society wide reform: economic, legal, and social. I have no confidence that their current political system is in any position to push through the reforms that Mexico needs. But becoming part of the US would ensure that Mexico would at least have US legal standards, which would be a huge step upward for them (believe it or not!).

Lynn writes:

I think that there are too many immigrants already!

We have a huge economical decrease, because we have to give them money.

Not to mention they are adding to the people who don't have jobs!!!!

Hi, Lynn.

You said, among other things,

I think that there are too many immigrants already!

Your post made me sad because you seem to ignore feelings I think you must have: compassion, caring, and empathy toward other human beings. Contrary to popular belief, compassion and economics are not at odds. If you get the economics right, you may discover that you can express compassion more confidently. So let's start with compassion, because compassion is always good, while economic analysis can be bad or good. I'll get to the economics later.

Were your parents or grandparents ever immigrants? How would they feel to hear their child or grandchild say that "giving them money"--paying them for the work they struggled to do, long hours, frustrations, and their then having to come home to endless nights of sick children, little food, unaffordable clothes, bills they could barely read, etc.--would have made you angry and resentful? They had so much to deal with when they came here hungry, tired, poor, scared, maybe not speaking the language and unable read street signs or even find the grocery store, and looking for a better life, physical safety, fair treatment, and education for themselves and their children.

You, Lynn, would probably be kind to an immigrant family that moved in next door to you. Wouldn't you go over, say hi, maybe offer some cookies? When you found out they could not figure out why that round object on the ceiling was beeping once every few minutes, wouldn't you explain that it's a smoke detector, not the secret police, and they just need to replace the battery? Why not extend that understanding welcome to others who live a few blocks, a few cities, or a few states away? Are we not all human?

But the Lynn of your post would instead say to them: "Well, actually I don't think immigrants should be here, and I really think you should go back home because we have too many of you already."

Should we whose families already brought us here to the U.S. be rude, selfish, uncaring, and bigoted toward those less fortunate than we?

Not only do newcomers deserve our compassion, but also, it turns out historically that the economic changes immigrants bring do make our lives better. Historically, the hard work and ambition of immigrants has made America the great economy it is. Fresh ideas, hard work, and the drive to achieve come in with immigrants. You probably know that, so why let what others say overwhelm your instinct to be compassionate?

Now, to some of the promised economics:

We have a huge economical decrease, because we have to give them money.

When people work, they deserve to get paid for it. To not "give them money" for their work is slavery! Should your grandparents or your parents or you or your children or your new neighbor or their children work for free? Was the work you've done an economic decrease because you were paid? You got money! So, the economy declined?!

As far as economics goes, it's like this: The work people do is not an economic decrease--it's an economic increase. More goods and services are provided to the economy.

I wouldn't be surprised if immigrants tend to work harder for their few dollars than those who have been here 10 or more years already.

All those additional goods they work so hard to produce, from sandwiches to car parts to computer services, are now available to you, Lynn, at lower cost.

Plus, those immigrants pay taxes when they work and when they buy things. They help pay for schools, highways, trash pickups, police, the military, etc., just like you and me.

And critically, those who are new immigrants now will contribute tax revenue toward the looming Social Security gap. If we were to cut off our borders to new immigrants, the entire burden of the baby boom's retirement in 2017 and beyond would fall on those who are now in their 20s and 30s.

So: The more hard-working immigrants we incorporate now into our economy, the less financially pressured our existing citizens will be in a few years. Maybe we have too few immigrants!

Not to mention they are adding to the people who don't have jobs!!!!

Kind of. It's absolutely true that new immigrants compete with existing residents for jobs. The main effect is not that they add to measured unemployment, but that it tends to drive down wages because they are willing to work for less.

The competition also makes existing residents have to stay on their toes, learn new skills if they want to keep their jobs, learn whole new professions when immigrants can do what they themselves were complacent about, and sometimes even move elsewhere for better opportunities. It's hard, stressful, sad, and often painfully frightening for existing residents, who previously did nothing different and certainly nothing wrong.

But life bears risk; and everything in life has pros and cons. The economic arguments for and against immigration have both plusses and minuses on each side, all to be added up and weighed. For all that, what makes me most sad is when lack of compassion for others drives the choice of whether to emphasize the minuses or the plusses.

Comments for this entry have been closed
Return to top