June 28th, 2006


Don't Restrict Immigration, Tax It


Don't Restrict Immigration, Tax It
By Nathan Smith : BIO| 20 Jun 2006

The goal of this article is to outline an open borders policy that achieves "Pareto-improvement." Sounds boring, I know. But bear with me. Pareto-improvement, a term from economics, means that some people are made better off while no one is made worse off. In a complex world, it is impossible for a policy literally to make no one worse off. But policies can be designed that, while many benefit, no social group can be identified that is systematically harmed.

Simple freedom of migration, like simple free trade, does not satisfy the Pareto-improvement criterion. While the theory of comparative advantage proves that when Country A opens its markets to goods from Country B, Country A as a whole will be better off, within Country A there will be "winners," such as workers and capital owners in the industries which can penetrate new export markets, and "losers," such as import-competing industries.

Likewise, if Country A opens its borders to immigration from Country B, the native-born population of Country A as a whole will be better off -- by "a fraction of 1%" in Americans' case, according to one estimate -- but there will be some losers -- US high-school dropouts may be earning as much as 8% less than they would be absent immigration.

Whether this kind of policy is a good thing depends on the social welfare function, that is, on how much policymakers should value the well-being of different people. Many critiques of immigration assume that the government should emphasize the well-being of low-skilled native-born Americans, discount the well-being of American-born employers and skilled workers who benefit from complementarities with immigrants, and ignore the well-being of immigrants themselves. Stated baldly, this doesn't sound very moral. And one tactic of immigration advocates is simply to make it explicit. "Are low-skilled Americans the master race?" asks economist-blogger Bryan Caplan. (Some call this patriotism, but they are confusing love of country, a virtue, with non-love of people from other countries, a vice.)

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