Immigration: Giant low-hanging fruit | The Economist

Immigration: Giant low-hanging fruit | The Economist

Giant low-hanging fruit

Nov 15th 2012, 20:19 by R.A. | WASHINGTON

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THIS week's Free exchange column takes a look at the case for more immigration into the rich world—a lot more:

The economic case for migration is similar to that for free trade. Trade benefits countries by letting workers specialise in activities in which they are relatively more productive, raising output. And the larger market created by trade spreads the fixed costs of innovation more thinly, encouraging the development of new goods and ideas. Governments began the long march towards trade liberalisation after grasping that its upsides outweigh its costs, leaving a surplus large enough to compensate the losers.

This can work in Biv societies trading with each other because they have plentiful Gb resources, this makes trade a positive sum game where each side benefits. Some might gain less than others but they can usually profit elsewhere in a rich resource economy. However this fails in a Roy society where they have a negative sum game, the idea is to minimize losses. Adding immigrants is like adding more R animals to an area with not enough food, it becomes necessary for each to minimize costs to survive. Instead of free trade causing specialization and growth it might cause the losers to not survive at all, this can create areas of poverty and unemployment. There is no surplus but a deficit being created, the objective is to minimize the deficit from it.  

Immigration is an afterthought, in both practice and theory. In traditional trade models wages converge across trading partners with similar technologies even without migration, a phenomenon winningly branded “factor-price equalisation”. Sadly, factor-price equalisation is a real-world rarity. As of 2000, for instance, a worker in Mexico earned a wage 40% that of a Mexican-born worker of similar education and experience working in America.

Most of this wage gap is down to productivity differences, stemming from disparities in the quality of infrastructure, institutions and skills. An individual worker, however talented, cannot hope to replicate the fertile environment of a rich economy all on his own. But transplanting a worker into rich soil can supercharge his productivity. A Mexican worker earns more in the United States than in Mexico because he can produce more, thanks to the quality of US technology and institutions.

If there are unused Gb resources then adding more B workers can in effect be like planting more trees, more businesses grow from them. However Mexico is more Roy and the negative sum game of minimizing costs dominates there.

The upshot is that advanced economies could take an an awful lot of new immigrants without much hurting native wages.

This situation can be viewed with future robot workers, they act like real workers in that they consume goods for fuel like food and need to be housed and looked after like housing and health care. If they can work for cheaper than humans then this only produces extra wealth in Gb abundance, they might however consume much of these resources without benefiting anyone but themselves.

But the huge gains in productivity enjoyed by the migrants themselves add up to a substantial impact. Economist John Kennan reckons that the average migrant could expect a rise in income of perhaps $13,000, well more than 100% of what they would earn in their home country. And when you begin to add up all those higher incomes you get some really enormous numbers:

In a recent report Sharun Mukand of the University of Warwick calculates the effect of movement by half of the developing world’s workforce to the rich world. Such a vast migration could never happen in practice, of course, but as a thought exercise it is instructive. If migration closes a quarter of the migrants’ productivity gap with the rich world, their average income would rise by $7,000. That would be enough to raise global output by 30%, or about $21 trillion. Other studies find even bigger effects. A 2007 paper by Paul Klein, now at Simon Fraser University, and Gustavo Ventura, now at Arizona State University, reckons that full labour mobility could raise global output by up to 122%. Such gains swamp the benefits of eliminating remaining barriers to trade, which amount to just 1.8-2.8% of GDP, reckons Mr Mukand.

It could also be argued that if many American moved to Africa that the GNP would rise there as well, however in many cases the superior training of Americans would just put others out of work.

The most striking thing about the $21 trillion estimate is that it is really quite conservative by the standards of such computations. And yet that's equal to the combined annual output of America and Japan!

The piece discusses common economic criticisms of open immigration—that native wages would be harmed, that rich-world government budgets would suffer, and that brain drain would leave those left behind without hope—and generally finds them wanting. It does not deal with issues of assimilation or the cultural complications of mass migration. My feeling is that those concerns are also very likely to be overstated by critics, but I also think the main takeaway from the column ought to be the sheer size of the potential here.

This potential can only be estimated by looking at what Gb resources are available for them.