"Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore," says the plaque on the Statue of Liberty, "I lift my lamp beside the golden door!" Most Americans today are hardly as welcoming. Samuel P Huntington, a noted political scientist, contends that "(t)he invasion of over one million Mexican civilians is comparable [to an armed invasion and] a threat to American societal security, and Americans should react against it with comparable vigor." Clearly, both legal and illegal immigration continue to be a controversial issue in America today. Amidst all the bitter controversy surrounding this issue, is there a middle ground to be found between an "open border" and a "border fence"? Economists have proposed that governments create a market for immigration where workers and employers will be allowed to trade work permits. A market for immigration will improve both productivity and national income growth by allowing employers and workers to better respond to wage and price signals. It will also reduce some of the huge administrative and social costs of hosting migrant-workers and improve the acceptance of migrants into host societies.
The current migrant worker program in United States and most other countries
is a 'quota system' with a price ceiling of zero on work permits or citizenship
(Myers and Papageorgiu, 2002). There are a lot of problems with such quota
based migrant worker program, such as administrative and monitoring costs,
potential productivity losses, which I will examine in section I. In order
to overcome the problems associated to the quota system, economists have
suggested that the government allow functioning markets for immigration.
I will detail and briefly evaluate a two such proposals in Section II. A
market for immigration will lead to gains in productivity and growth of
national income by allowing workers and employers to respond to wage signals
and by reducing some of the unproductive administrative costs of the program.
I will examine this and many other benefits of allowing a market for immigration
in Section III. I will conclude with evaluating the case for markets in
immigration.
Current Migrant Worker Programs and its Pitfalls
Most countries currently impose a quota on the number of migrant workers
is admits. Under this quota, the government imposes a ceiling of zero (besides
the insignificant cost of a visa) on the price for admission. With a price
ceiling well below the market clearing price, there is a huge surplus of
applicants who want to enter the country. The chronic and huge shortage
of H-1B visas to work in the US, for example, is an evidence of the huge
surplus of potential migrants (Espenshade, 2001). By reducing the total
number of migrants with arbitrary quotas, the world looses some of the productivity
gains that result from migration of workers from countries with low marginal
productivity to countries with high marginal productivity. With such a huge
surplus, the US and other countries have to resort to arbitrary means, such
as visa lottery, to issue migrant visas. This can potentially leave out
some of the 'best and the brightest' among the applicants and admit the
mediocre ones. Sometimes workers with skills critically needed in the host
country loose out in the lottery system, further reducing some of the potential
gains of transnational migration.
The potential gains of transnational migration are further reduced with
the practice of requiring employers to sponsor workers under migrant worker
programs. Migrant workers are therefore tethered to their employers and
are unable to search for alternative employment opportunities. The purpose
of many migrant worker programs is to overcome temporary worker shortages
or to increase the productivity of host country. According to standard economic
reasoning, only when workers are permitted to seek their maximum asking
price can they be expected to be employed where they are most useful (Weinstein,
2002). If migrant workers are unable to respond to wage signals, then many
potential productivity gains of transnational migration are lost (Weinstein,
2002). Tethering migrant workers to their employers also creates potential
for serious rights abuses. Since migrant workers have no option of leaving
their employer in search of better working conditions, they are vulnerable
to exploitation by unscrupulous employers. Their effects of their exploitation
may be compounded by the fact that migrants are cut off from the support
structure of their native country (Weinstein, 2002). Since migrants are
unfamiliar with host country's infrastructure and legal system, it is also
difficult for them to seek redressal for grievances against their employers
(Weinstein, 2002).
Employers, on the other hand, prefer tethering of migrant workers since
it allows them to increase profits by reducing both labour costs and resources
required to retain employees. Since a migrant workers income is higher in
the host country than in his native country, a visa sponsorship is particularly
valuable to him. A migrant worker therefore may be willing to work for a
lot less than a comparable native worker in return for visa sponsorship.
This benefits employers while hurting native workers wages. Native workers
are hurt even more in their job search by the practice of tethering since
an employer will choose a migrant worker over comparable native worker.
When evaluating between comparable native and migrant workers, an employer
will choose the applicant that costs him less. Since a migrant worker is
no allowed to seek alternative employment, his "company loyalty"
is guaranteed. An employer will thus have to spend less resources and effort
on retaining migrant workers than would be the case with native workers
(Weinstein, 2002). An employer can also train migrant workers without fearing
that he would leave after training.
Employers' preference for migrant workers over natives often leads to concentration
of the benefits of transnational migration and increased "ghettoization"
of occupations. As discussed above, transnational migration under the current
structure of migrant worker programs can depress native workers wages and
increase corporate profits in the host country. Indeed, the ability of migrant
workers to benefit the host economy hinges on their ability to lower wages
and increase profits (Weinstein, 2002). If the ownership of capital in the
host country in concentrated, the benefits of migration to natives will
also be concentrated (Weinstein, 2002). Often, migrant worker programs are
concentrated in certain sectors of the economy, which are already unattractive
to native workers. Migrant workers will further depress wages in these sectors
making them even less attractive to native workers. This will create problems
for countries striving for migrants to compliment, not displace, native
workers (Weinstein, 2002). Certain sectors of the economy will be over-dependant
on migrant workers. Wage depression and increasing 'ghettoization' of occupations
is also partly responsible for the backlash against immigration, seen in
many Western European countries. Many economies are therefore prevented
from harnessing the full benefits of migrant workers. The other social and
political costs associated with such a backlash against immigration are
significant but beyond the scope of this paper.
The costs of building and administering the infrastructure to manage a migrant
worker programs are huge. Since the visa or work permit fees under a quota
system are minimal, these costs are not completely offset by fees but are
borne by taxpayers of a host country. States also bear the costs of monitoring
the workers under the migrant worker programs to ensure that they do not
violate the terms of admission. States may even have to bear the costs of
repatriating workers loose their legal status. Moreover, migrants have significant
impact on important aspects of host country societies, such as national
security, local environmental issues, use of public services etc. There
are also costs associated with infrastructure needed to assimilate migrants
into the host society. Often, the income tax collected from migrant workers
is not enough to offset the costs of hosting them.
The Structure of a 'Market for Immigration'
In order to reduce some of the shortcomings of the 'arbitrary' migrant worker
program, many economists have called for a market for right of residency
and/or citizenship. Migrant workers receive the utility increased personal
consumption due to higher income. There are also other citizenship benefits,
such as personal and national security, an accountable government, subsidized
access to transportation, healthcare and housing. Most migrant workers pay
very little for these benefits. Most proposals calling for markets for immigration
therefore involve abolishing arbitrary immigration quotas and replacing
them with tolls. These proposals require migrant to pay upfront the costs
of hosting them. One such proposals involves levying 'tolls' on immigrants
with poor country government allowed to take steps to force migration by
giving subsidies (Myers and Papageorgiou, 2001). Another proposal calls
for the introduction of licensed tradable work permits (Weinstein, 2002).
Under this proposal, employees and employers are allowed to buy/sell immigration
permits on the open market. Since the labour market is heterogeneous, the
work permits will be limited to a particular type of job profile. A worker
holding a permit for, say, an assembly line job will not be allowed to use
that permit to work in, say, a law firm. The government can increase or
decrease the permits issued to migrant workers on the primary exchange in
response to changes in domestic economic conditions. A secondary exchange
is then set up where permits are traded freely at a price that fluctuates
according to shifting demand and supply. This, in my opinion, is a preferable
model as it allows migrant workers to follow market signals to boost income.
Benefits of Tradable Work Permits
The current migrant worker program, as discussed above, limits gains from
transnational migration. These inefficiencies stem from the "intrinsic
rights" that native workers have under the social contract, such as
preference for jobs (Weinstein, 2002). A tradable work permit converts such
entitlements into tradable "property rights." Though it may not
be possible to implement a perfect system for trading property rights, these
'rights' become intrinsically more valuable even when they are partly tradable.
Native workers are compensated for their 'intrinsic rights' within the social
contract with the fees levied on migrants. Thus, equity is preserved and
welfare is maximally improved for both native and migrant workers (Weinstein,
2002).
With tradable work permits, migrants will be able to respond to wage signals
in the economy and move to sectors/geographies where they are needed the
most. Wages are often a proxy for productivity. Increased mobility will
lead workers to firms with higher productivity from firms with lower productivity,
boosting productivity growth. Migrant workers will therefore contribute
maximally to host country welfare. The increase in productivity will decrease
costs to consumers and/or increase corporate profits. Increased corporate
profits will keep many employers from relocating to low wage economies.
Thus, even though wages of native workers in certain sectors might be depressed
due tradable work permits, the economy as a whole and the host society benefits
from higher growth in productivity and living standards.
Employers have been hurt by the current migrant worker policy since it often
prevents them from hiring critically needed workers. High tech companies
in most developed countries have long complained about a shortage of skilled
workers. They cite the higher than average salary growth and falling unemployment
rate among computer programmers and scientists as evidence of 'labour shortage'
in IT sector (Watts, 2001). Although the number of degrees in engineering
and science in the US has been increasing, an increasing proportion of these
degrees have gone to non-US citizens, who are subject to the H-1B visa cap
(Espenshade, 2001). Longer-term labour shortages can only exist if an artificial
mechanism prevents wages from rising to a market-clearing level. No such
mechanisms appear to exist in the US so there will not be any longer-term
labor shortage in the US. But 'spot-shortages' will continue to exist, especially
in the high technology sectors (Espenshade, 2001). The 'spot shortages'
are likely to be compounded in the future with the retirement of baby boomers
and a rapidly ageing population in many rich countries. Even in a mobile
labour market, like the US, native workers, for family, school or other
reasons, are reluctant to move to geographies where they might be needed
the most. Tradable work permits will allow employers to hire workers from
overseas in critically needed areas. Tradable work permits, some fear, will
allow employers to undercut the wages of native workers by hiring foreigners.
These fears are largely unjustified since the number of work permits issued
on the primary market will be limited. Any attempts by employers to corner
a large part of the market in a work permits for a particular sector will
actually result in price rise, making it more expensive to hire foreign
workers.
The economy of the host country will be able to capture most of the productivity
gains of transnational migration, boosting its growth rate. As discussed
above, employers will be able to hire critically needed personnel more efficiently
and quickly. A loss of few workers can disrupt the production process, resulting
in huge financial and productivity losses. Often investment decisions or
execution of projects are stalled due to lack of sufficiently skilled workers,
as was the case with Atwater dinning hall and the senior housing. With tradable
work permits, employers will be able to respond to such emergencies quickly
and with lower costs. Migrant workers or domestic pressure groups will no
longer be allowed to block employers from hiring needed migrant workers
as the market mechanism ensures adequate access based on demonstrated need
(Weinstein, 2001). The price of tradable work permits will also provide
an important signal for allocation of domestic resources. If, for example,
a student sees an increase in prices of work permits in the high-technology
sectors, indicating a greater demand for workers, he can choose to study
engineering to benefit from the increased demand. Likewise, employers can
choose between capital intensive and labour intensive production techniques
based on, among other things, the price of work permits.
Making work permits tradable will free migrant workers from being tethered
to their employers. Migrant workers will be as mobile as domestic workers.
They will therefore no longer by more attractive to employers than domestic
workers. Domestic workers will benefit from increased employment opportunity
and, in some sectors, higher wages. Migrant workers, on the other hand,
will receive equal pay for equal work with a fair deduction, in form of
the cost of work permit, to cover the costs they impose on the society.
Among H-1B complaints that were investigated, the Department of Labour's
Wage and Hour Division found a higher rate of violation (83%) than under
other laws (Watts, 2001). Increased mobility will afford migrant workers
the opportunity to change their jobs if faced with abuse from unscrupulous
employers. Migrant workers will therefore enjoy the same working conditions
and rights as native workers. The general work atmosphere for migrant workers
will improve as a result, attracting better quality workers.
Clearly, migration of both skilled and unskilled workers brings great benefits
to a host economy. However, depression of native workers wages is one of
the ways in which migration boosts national income. Not surprisingly, native
workers resist migration. Often, increased migration put many native workers
out of jobs or reduces their wages. The fees collected from tradable work
permits can be used to compensate or retrain native workers and to defray
some of the costs the migrant workers impose on host societies. Because
of the entry fees migrants are required to pay, the host society becomes
an important stake holder in legal migration program. There will be clear
incentives for the citizens to become involved in ensuring that illegal
migration does not spring up alongside the legal migrant worker program
(Weinstein, 2001). A part of the increased resources generated from the
legal market for work permits can also be used to monitor the much maligned
illegal markets in working permits. This will increase the acceptance and
assimilation of immigrants into the host society, hopefully reducing some
of the xenophobic anti-migrant rhetoric in rich countries and creating a
more welcoming atmosphere for migrants.
Conclusion
Clearly, the system of tradable work permits will make the intrinsic rights
of native workers under the social contract more valuable. It will also
boosts productivity and national income growth by allowing migrant workers
and employers to respond to wage signals. It will also help employers recruit
critically needed workers overseas. The costs of hosting migrants will be
offset by the work permit fees collected. This presence of compensatory
fees will increase the acceptance of migrants in host societies. There will
be great benefits to the society due to great cultural exchange. Is there
something that could lead to the normative dominance of quotas over tradable
work permits? One argument against moving to a system involving work permits
is that only the rich in poor countries could afford the cost of these permits.
However, it seems reasonable to assume that the individuals who gain the
most are the ones who most want to come (Myers and Papageorgiou, 2002).
Such individuals, if they are poor, can borrow against their future income
to buy work permits. Others maintain that work permits would create an underclass
of immigrations in a rich country. However, such underclass exists even
under the current 'quota' system. Tradable work permits only give more rights
to such workers. Finally, some argue that open borders are better economically
than any form of immigrant control. This does not look politically feasible
in most countries. Many countries have only increased restriction on immigration.
National government can always create 'open borders' for political refugees
or exempt a group of people from the work permit requirement in accordance
with their domestic or foreign policies. Realistically, therefore, a market
for immigration with tradable work permits whose price changes with fluctuations
in demand are supply, appears to be the best form of managing transnational
migration.
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of Skilled Labor", Population Research and Policy Review v20,
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Weinstein, Eric (2002), "Migration for the Benefit of All: Towards
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v141, n3 (2002): 225-252.
Myers, Gordon M.; Papageorgiou, Yorgos Y. (2002), "Towards a Better
System for Immigration Control", Journal of Regional Science
v42, n1 (February 2002): 51-74
Watts, Julie R. (2001), "The H-1B visa: Free Market Solutions for Business
and Labor", Population Research and Policy Review v20, n1-2
(April 2001): 143-156.