Undocumented Immigration: restrict or liberalize?

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In a recent seminar at the World Bank, Peter Dixon and Maureen Rimmer presented a paper titled "Illegal Immigration: restrict or liberalize?" showing that tighter border security and internal enforcement actually reduce the welfare for U.S. households; raise the wage rate of the undocumented migrants who remain; and generate dead-weight losses in the form of prosecution and prosecution-mitigating activities. More importantly, they explain that restricting the inflow of undocumented immigrants pushes U.S. workers towards low-paid, low-skilled jobs. 

On the other hand, legalization produces a strong welfare gain for U.S. households since the supply of immigrants (now guest workers) increases and their wage falls.  At the same time, the additional inflow of guest workers has a favorable effect on the occupational mix and average real wage rate of U.S. native workers, allowing native-born US residents to complete their education, enhance their skills, and move up the occupational ladder. 

The paper surmizes that legalization is good for America since it will eliminate smugglers fees and other costs related to illegal entry, and allow immigrants (the former undocumented immigrants) to be even more productive.  If we accept this model, this means that the best action for countries with large undocumented immigrants is to legalize them and to develop a comprehensive temporary worker program.

Authors

Neil Ruiz

Senior Policy Analyst and Associate Fellow, Metropolitan Policy Program, Brookings

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Aaron
May 19, 2009

This is a compelling paper that supports the moderate consensus in the US that any effective immigration reform legislation would include both legalization and some mechanism to address future flows (i.e., some variant of a temporary worker program). It should lend some empirical gravitas to this line of argument.

That said, I encourage the authors to consider one assumption that opens their paper to strong criticism in the US (perhaps they already have). They argue that much of the welfare gain observed for US households when the supply of immigrants increases is due to native workers moving up the occupational ladder and into higher wage jobs. However, this does not occur automatically.

Occupational and wage mobility among low-educated Americans has stalled in recent years. And US investment in training programs to raise the earnings of low-income Americans has declined dramatically. The unfortunate reality is that low-skilled workers currently in the US labor force face enormous obstacles in upgrading their skills and advancing on the occupational and wage ladders.

While the influx of low-skilled immigrants may provide incentives for American youth to pursue higher education, they often face liquidity constraints and are unable to access financing for higher education (especially among low-income and minority communities). Nor is it merely a question of increasing grants or scholarships. Many exit from the US secondary school system without the requisite knowledge base to be successful in post-secondary education – in part because they are concentrated in underperforming schools.

Both of these issues – stalling mobility among low-skilled US workers and inequality of opportunity in the US secondary and post-secondary education systems – have largely been peripheral to (or misunderstood) in the immigration reform debate. Attempting to tackle all three problems at once is a daunting undertaking. My point is not to diminish the merit of arguing that native workers gain from the temporary inflow of immigrant workers. Legalization is clearly the only realistic option for dealing with the 12 million or so unauthorized workers in the US and legalization cannot work without addressing future flows through some sort of temporary worker program. However, we should be cautious when claiming that low-skilled native workers will benefit automatically.

Menahem Prywes
May 21, 2009

Neil:

Thanks for your summary of the Dixon and Rimmer paper. Their arguments -I thought- were well understood and generally accepted by economists. An even stronger argument could be made in connection with aging. The US needs more migrants to provide services to the aging and to pay the taxes that will fund social security. Still, the relevant point is elsewhere.

Opposition to migration is not driven by a general welfare loss but by fears of severe welfare losses among competing workers. Beyond this, racism and xenophobia plays some role.

--Menahem