Thoughts on Immigration Policy

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Thursday, 28 February 2013 17:49

Noah Smith of Noahpinion takes me to task (after some very nice comments) for being anti-immigration. I’m not sure I fit that description, but let me put together a few things that I have said in different places. 

First of all, there is the immediate issue of what we do with the undocumented workers who are already here. I don’t see much ambiguity on this one; they should be allowed to normalize their status and become citizens. These people are here as a matter of government policy even if they are working in violation of the law.

The government may often be less competent than we would like, but if the policy was to prevent foreigners without proper documents from working in the United States, then we would not have many millions of foreigners working without proper documents. We shouldn’t blame people who came here (like many of our parents or grandparents) to try to secure a better life for themselves and their children. If we want to punish someone for this violation of the law, we can always throw their employers behind bars.

The question is really how we structure immigration policy going forward. Noah argues the merits for having an open door for high-skilled immigrants. I am 100 percent for this policy, although I may draw the line in a somewhat different place than Noah. I absolutely want to see more foreign doctors, dentists, lawyers and other professionals in the United States.

Our highly educated professionals in general, and doctors in particular, are hugely overpaid in comparison to their counterparts in other wealthy countries. If we could bring in enough foreign doctors to lower the average doctor’s pay by $100,000 a year, that would still leave them well off relative to their counterparts and save us more $80 billion a year on our health care bill. (I know around 20 percent of our doctors are already foreign born. If you think this means anything, think harder before you waste anyone’s time by writing it down.)

Btw, we can structure this so the foreign countries benefit as well. It would be a relatively simple matter to impose a modest tax (e.g. 10 percent) on the earnings of foreign professionals for the first ten years or so they work in the U.S. This money could be repatriated to their home countries so that they could educate 2-3 doctors for every 1 that came to the United States. You don’t trust this to work? Well, the foreign countries get zero now for the doctors who are leaving, so we have a pretty low bar to beat.

Where Noah and I may part ways is that I would not like to see large numbers of middle skilled professionals come into the country. As it stands, employers are using H1-B visas to bring in nurses, teachers, and people with engineering and software skills. Ostensibly this is to deal with a shortage of qualified workers, but there is little evidence of rapidly rising wages or other signs of a labor shortage in these areas. It seems pretty clear that employers are simply taking advantage of the opportunity to get lower cost labor.

I wouldn’t zero out immigration in these areas, but I would want it limited. The proposal put forward by the AFL-CIO and the Chamber of Commerce to have a commission that would evaluate needs for labor in various markets sounds promising. I would also want any workers who did come into the country to be free to work for whoever they wanted for the time that they are here, as opposed to being tied to a specific employer, as is the case with H1-B visas.

As far as less-skilled immigration, I would want it sharply limited, except for family re-unification. The evidence is that this does lower wages, although most of the impact is on the wages of other immigrants because we have a highly segregated labor market. I don’t consider this to be a good thing. As I’ve written elsewhere, I don’t want policy to be structured to give professionals cheap help. I would be very happy with a world where no one could afford to hire nannies for their kids.

There are places in the world where jobs that are low-paying allow for a middle class standard of living. A retail clerk, custodian, or housekeeper can earn enough to support a family. We just need the right set of labor market conditions to make this possible.

On some more general points, Noah presents evidence that densely populated metropolitan areas have the highest productivity. I don’t have any quarrel with this or the economics of agglomeration that Noah cites, but there is a serious problem of untangling cause and effect. Certainly economically dynamic areas will attract lots of workers and workers are needed to sustain dynamism. But, do we really think the benefits of a larger population increase without limit?

Mexico City’s metropolitan area has a population of more than 20 million people. Do we think the people in the area would be poorer on average if the population was just 10 million? I find that hard to believe, especially if we take into account the pollution and congestion rather than just a straight per capita GDP measure.  

As far as the impact on Social Security’s finances, the fact that this is raised as a concern really speaks to the warped nature of our budget debates. We raised the payroll tax by 4.0 percentage points from 1970 to 1990 (6.1 percentage points on the self-employed). For some reason this is never raised as some sort of tax disaster. In fact, when I go around the country, I find few people even remember these increases. (That was true in the 1990s also, when I was asking about the recent past for people who lived through it.)

If workers get their share of productivity growth, wages will rise by more than 30 percent over the next two decades. Let’s take an extreme case and suppose we took back 10 percent of this increase in the form of higher Social Security taxes. People would not be happy about higher taxes, but a 27 percent increase in after-tax wages has to look a lot better than the near zero increase over the last two decades.

I can’t see spending a lot of time trying to save workers from paying some of this tax burden (which would almost certainly be much less than 3 percentage points). The more important point is to ensure that ordinary workers get the benefits of productivity growth. That means stopping, and ideally reversing, the upward redistribution of the last three decades. An immigration policy that is focused on lowering the pay of the most highly skilled workers can be a big step in the right direction.

As the rich understand very well, the income of everyone else is a cost to them. In this vein, the incomes of our doctors, dentists, lawyers, and economists, are costs to everyone who doesn’t occupy this top tier of the labor market. Until the bulk of the population eats, drinks, and sleeps with this basic fact, they will continue to lose the battle with the bad guys.