[Overview] Immigration II – Costs to Natives

[Part I; Part II; Part III; Part IV; Part V; Appendix; Single page]

by David Severa

  • OPENO: In any case, there’s one huge unexamined assumption we’re making: that having more poor people in my country has a negative impact on my well-being. That isn’t at all obvious! Why should someone moving to a rich country and thereby becoming much richer themselves negatively impact me in any way? The impact may be positive if anything! Of course the economy is complex and the truth is rarely obvious.
  • RESTRICTES: Please explain.
  • OPENO: If there’s one thing that economics has taught us, it’s that letting people voluntarily trade with one another typically increases overall well-being in a society. There are exceptions, of course, but this isn’t one of them. Right now there are millions of people toiling away in poverty, using out of date and inefficient technology, or dealing with unforgiving bureaucracies, etc. You yourself said that the incomes of Mexican-Americans – a relatively poor group of immigrants – rise to 80% of the American average. That’s almost four times what they’d make in Mexico! That’s like printing money! And that money will be spent on goods and services in the US from people like us. World GDP goes up, American GDP goes up. We all win. And of course the same is true in Europe.
  • RESTRICTES: I’m not disputing that you can raise GDP by importing more people, but does this come at the expense of Americans or American-held jobs? That’s the question.
  • OPENO: Restrictes, I hope you aren’t succumbing to the lump of labor fallacy. There is no fixed amount of work to be done in an economy. As a population grows, so does demand for labor. Immigrants both work and consume. Of course, this makes perfect sense when you notice that America’s population has grown over a hundredfold since independence, yet we haven’t seen an ever-growing unemployment problem. Not only that, but after centuries of off-and-on mass immigration the US is richer than almost every country on Earth. But again, even if Latino immigrants permanently drag down America’s stated GDP per capita, that may be nothing but a statistical artifact*. Americans who aren’t recent immigrants may still be richer than they otherwise would have been. Everybody would be better off, it just might not be obvious if you look at the numbers naively.

* Is this an example of Simpson’s paradox? I’m not quite sure.

  • RESTRICTES: Your analysis is right insofar as it goes. It’s very hard to deny that letting people migrate to higher efficiency regions will increase overall output. (Though if those immigrants aren’t there to work but to freeload on welfare…) But looking at the aggregate like that obscures the more important question: the distribution of wealth in this new society. GDP tells us nothing about who gets what. Even if mean income for Americans goes up, median income could even decline! And, given the declining marginal utility of wealth, most Americans could be progressively worse off even as GDP grows.
  • OPENO: Ignoring the well-being of much better off immigrants?
  • RESTRICTES: I don’t think that governments should particularly consider the well-being of non-citizens (within reason, of course), but let’s leave ethics to the side and focus on actual outcomes as best we can for now.
  • OPENO: Agreed. Can you provide an account of how the median American might be harmed by immigrants?
  • RESTRICTES: Look at trade with China, which very likely has decreased wages for workers in sectors now exposed to international competition. That shouldn’t be surprising – protectionism can raise income for the sectors that are being protected. Normally we associate protectionism with giveaways to industries with lobbyist clout, but what if immigration restrictions are really protectionism for the lower and middle classes? Does it seem so bad now? We can’t undo the fact that workers in tradable industries are worse off than before. But there are many jobs that aren’t tradable but necessarily local, like giving haircuts or construction. Jobs that would have been performed by lower or lower-middle class people. Without immigration their wages were driven up, but now even they aren’t secure from foreign competition. Nobody is. The benefits accrue to wealthier Americans who need money less.
  • OPENO: So your argument is that, even though it lowers overall output, immigration restrictions can improve overall well-being for Americans (and analogously Europeans) because this is a case where GDP doesn’t track utility well?
  • RESTRICTES: Correct.
  • OPENO: That’s a neat story, but is it true? It seems equally likely to me that immigrants are mostly filling niches that otherwise would have gone unoccupied – making farms profitable that otherwise wouldn’t have been, or offering maid services that simply never would have been bought. The proverbial jobs that American’s won’t take.
  • RESTRICTES: Much of which is due to illegal immigrants undercutting the minimum wage…
  • OPENO: Perhaps, but that’s neither here nor there with respect to overall welfare concerns. And the evidence doesn’t support your concerns. One study found that in the short term, wages for those without high school diplomas were depressed a paltry .7%. In the long term they rose .3%, so there’s no great problem to be addressed. You’ll find most studies on both sides of the Atlantic – like this one from Denmark – support mild benefits to immigration, even for less skilled natives. New immigrants can have a negative impact on recent immigrants, which makes sense, but it doesn’t make much sense to stop immigration for that, since immigrants will still be better off for having migrated in the first place.
  • RESTRICTES: Unless you have a huge new population you’re desperately trying to assimilate and want to stop undermining economically… Regardless, note that a decade and a half of mass immigration – often over a million a year – raised American incomes barely half a percent. That’s essentially nothing, considering the problems brought by immigrants. It’s not a permanent increase in growth rates either, it’s a one time bump.
  • OPENO: But you do concede that even permanently poorer immigrants and their children won’t hurt native wages?
  • RESTRICTES: Yes, but again please note that the benefits for natives are really quite small, almost a rounding error. Not nearly enough to justify the social costs we’ll soon be turning to. For instance, you can hardly contribute to the labor market if you’re not working and on welfare.
  • OPENO: We haven’t established those social costs, so let’s not just assume them. An alternate, equally plausible framing is that we can massively benefit millions of people by letting them into our countries and benefit a bit ourselves. We’ve been focusing on the effects on rich countries, but surely you agree that the migrants themselves unquestionably benefit. Otherwise why would they come?
  • RESTRICTES: They’re better off, of course. That isn’t in question. Enough immigration could undermine the institutions that make the risk worthwhile, but we’re obviously not at that point yet since they keep coming. (Side note: second and third generation Latino immigrants in the US have lower life expectancies than their parents because they adopt less healthy lifestyles.) But let’s establish those costs for natives. If immigrants are living on the dole rather than working (or if they are working but still net drains on the government) then that money is being redistributed directly away from citizens. And immigrants do go to where welfare is more generous. That’s hardly surprising. Obviously there are other factors, like work opportunities, family networks, and so on. And given that Europe generally provides more generous welfare than the US, it will both draw more people looking to mooch, and spend more per immigrant. “Immigrants received over 18% of social benefits in Denmark in 1999, even though their population share was less than 3%.”*

* Section 5 of this paper is quite interesting and I did an inadequate job summarizing it.

  • OPENO: Okay, that’s higher than I would’ve expected.
  • RESTRICTES: Male immigrants to Denmark from less developed countries start out at 80% welfare dependency and then over time that stabilizes to 40%, five times higher than for native Danes. Is that enough convergence for you?
  • OPENO: Denmark is Denmark, what about other countries?
    RESTRICTES: Not as bad in the rest of Europe, but there is still a big gap between natives everywhere. Different countries get quite different results in terms of dependency. America is better still which makes sense given that employment is higher. But immigrants are still 5-7% more likely to receive benefits.
  • OPENO: What causes the differences?
  • RESTRICTES: Government policy, mainly. How easy it is to collect benefits, how generous the benefits are. Apparently little to do with either native or immigrant culture, except insofar as they affect welfare policies.
  • OPENO: Okay, but this all still doesn’t prove that low skilled immigrants are a net fiscal negative. After all, even in Denmark most immigrants are working. That could still be enough to cover the costs of those who are on welfare.
  • RESTRICTES: Unfortunately the studies on that question are all over the map, varying by country, and by the assumptions made. But there are clear generalizations. Some immigrant groups are bigger fiscal drags than others. Older immigrants are net negatives – meaning family based migration is costlier to the government. In Europe costs are higher due to more underemployed immigrants and more generous benefits. In America the lifetime net effect on the government of an immigrant can go from a loss of $36,000 to a gain of $96,000 based on their education. (And remember the negligible economic benefits.)
  • OPENO: I can accept that some immigrants cost the government money. I’m not sure it matters that much in the big picture.
  • RESTRICTES: It isn’t just that they cost the government money. It’s that the same groups drawing on welfare are also working less, are more criminal, and are less culturally assimilated. Just like how poor countries are more corrupt, have lower literacy, and higher infant mortality, etc. For whatever reason these bad things are clustered. So if we move beyond a simplistic “Are immigrants good or bad?” framework, we see that low skilled immigrants are being essentially subsidized by high skilled immigrants, which can make the whole thing seem like a fiscal wash. But we can separate the two! Restrict immigration to the skilled and it will be a clear positive!
  • OPENO: Isn’t restricting benefits another option? America has a smaller welfare state and immigrants get less than in Europe. That’s a less restrictive solution. Even I’ll agree that governments aren’t obligated to give people money just for showing up on the border. If people can support themselves, they’ll come and if not they won’t. That would stop most people who weren’t likely to find work, and maybe lower native opposition to immigration too?
  • RESTRICTES: Policy makes a difference, clearly. But there will still be millions of poor people living in rich countries. Do you think that bleeding heart liberals will be able to resist offering handouts? No, poor immigrants imply welfare.
  • OPENO: You don’t think you can stop welfare, but you do think you can stop these same bleeding hearts from letting immigrants in in the first place.
  • RESTRICTES: Looking at all of human history, out of sight is in fact out of mind.
  • OPENO: You have yet to convince me that welfare is a big enough cost to justify immigration restrictions, particularly if policy changes can ameliorate the problem.
  • RESTRICTES: Welfare is only one of the social costs, and I think you’ll find that they start adding up…

Next: Immigration and crime

(Source for header image)

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