Yearly Archives: 2013

Heritage Immigration Study Fatally Flawed

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This post was originally published on the Cato-at-Liberty blog here and is republished with the permission of the author.

There are indications that The Heritage Foundation may soon release an updated version of its 2007 report, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” by Robert Rector. That 2007 report’s flawed methodology produced a grossly exaggerated cost to federal taxpayers of legalizing unauthorized immigrants while undercounting or discounting their positive tax and economic contributions – greatly affecting the 2007 immigration reform debate.

Before releasing its updated report, I urge the Heritage Foundation to avoid the same serious errors that so undermined Mr. Rector’s 2007 study. Here is a list of some of its major errors:

  1. Count individuals, not households.[1]  Heritage counts household use of government benefits, not individual immigrant use. Many unauthorized immigrants are married to U.S. citizens and have U.S. citizen children who live in the same households. Counting the fiscal costs of those native-born U.S. citizens massively overstates the fiscal costs of immigration. 
  2. Employ dynamic scoring rather than static scoring. [2] Heritage’s report relies on static scoring rather than dynamic scoring, making the same mistake in evaluating the impact of increased immigration on welfare costs that the Joint Committee on Taxation makes when scoring the impact of tax cuts. Instead, Heritage should use dynamic scoring techniques to evaluate the fiscal effects of immigration reform. For example, Heritage should assume that wages and gross domestic product are altered considerably because of immigration policy reforms. In contrast to that economic reality, immigrant wages, gross domestic product, and government welfare programs are unrealistically static in Mr. Rector’s study. His study largely ignores the wage increases experienced by immigrants and their descendants over the course of their working lives, how those wages would alter after legalization, and the huge gains in education amongst the second and third generation of Hispanics.[3] Heritage is devoted to dynamic scoring in other policy areas – it should be so devoted to it here too.[4]
  3. Factor in known indirect fiscal effects.[5]  The consensus among economists is that the economic gains from immigration vastly outweigh the costs.[6] In 2007, Mr. Rector incorrectly noted that, “there is little evidence to suggest that low-skill immigrants increase the incomes of non-immigrants.” Immigrants boost the supply and demand sides of the American economy, increasing productivity through labor and capital market complementarities with a net positive impact on American wages.[7] Heritage should adjust its estimates to take account of the positive spill-overs of low-skilled immigration.
  4. Assume that wages for legalized immigrants would increase – dramatically.[8]  Heritage did not assume large wage gains for unauthorized immigrants after legalization.  In the wake of the 1986 Reagan amnesty, wages for legalized immigrants increased – sometimes by as much as 15 percent – because legal workers are more productive and can command higher wages than illegal workers.  Heritage should adopt similar wage increases to estimate the economic effects of immigration reform if it were to happen today.[9] 
  5. Assume realistic levels of welfare use.[10]  Vast numbers of immigrants will return to their home countries before collecting entitlements,[11] the “chilling effect” whereby immigrants are afraid of using welfare reduces their usage of it, and immigrants use less welfare across the board.[12]  100 native-born adults eligible for Medicaid will cost the taxpayers about $98,000 a year.  A comparable number of poor non-citizen immigrants cost approximately $57,000 a year – a 42 percent lower bill than for natives.  For children, citizens cost $67,000 and non-citizens cost $22,700 a year – a whopping 66 percent lower cost.  Heritage should adjust its estimates of future immigrant welfare use downward. [13] 
  6. Use latest legislation as benchmark.[14]  The current immigration plan, if rumors are to be believed, would stretch a path to citizenship out for 13 years.[15]  Most welfare benefits will be inaccessible until then, so Heritage’s report must take that timeline into account.
  7. Remittances do not decrease long term consumption.[16]  Remittances sent home by immigrants will eventually return to the U.S. economy in the form of increased exports or capital account surpluses.  Heritage should recognize this aspect of economic reality rather than assuming remittances are merely a short-term economic cost.  
  8. Factor in immigration enforcement costs.[17]  Heritage did not compare costs of legalization and guest workers to the costs of the policy status quo or increases in enforcement.  The government spends nearly $18,000 per illegal immigrant apprehension while the economic distortions caused by forcing millions of consumers, renters, and workers out of the U.S. would adversely affect income and profitability.[18]
  9. Use transparent methodology.[19]  Heritage’s methodology should replicate that of the National Research Council’s authoritative and highly praised – even by immigration restrictionists – study entitled The New Americans.[20]  That study is the benchmark against which all efforts at generational fiscal accounting – including Heritage’s 2007 report – are measured.  If Heritage deviates from their methods, it should explain its methodology in a clear and accessible way that states why they altered practice.[21]
  10. Don’t count citizen spouses.[22]  Heritage counted U.S.-born spouses of unauthorized immigrants as fiscal costs.  Counting the net immigrant fiscal impact means counting immigrants and perhaps their children at most,[23] not native-born spouses who would be on the entitlement roles regardless of whether they married an immigrant or a native-born American.
  11. Suggest changes to the welfare state.  Heritage has elsewhere called low-skill migrant workers “a net positive and a leading cause of economic growth”[24] and accurately reported that “[t]he consensus of the vast majority of economists is that the broad economic gains from openness to trade and immigration far outweigh the isolated cases of economic loss.”[25]  Instead of arguing against low-skill immigration, Mr. Rector should instead suggest reforms that would, in the words of Cato’s late Chairman Bill Niskanen, “build a wall around the welfare state, not around the country.”[26]

It is imperative that the economic costs and benefits of increased immigration be studied using proper methods and the most recent data.  A previous report by the Heritage Foundation in 2006 entitled, “The Real Problem with Immigration … and the Real Solution,” by Tim Kane and Kirk Johnson roundly rejected the negative economic assessments of Mr. Rector’s 2007 study.[27]  Not only does Mr. Rector not speak for the broad conservative movement; it appears that economists who have worked for the Heritage Foundation also disagree with Mr. Rector’s conclusions. 

For decades, the Heritage Foundation has been an influential intellectual force in conservative circles.  Its economic analyses have been predicated on consideration of the dynamic effects of policy changes as opposed to static effects.  Unfortunately, Mr. Rector’s past work has not been consistent in this regard, employing the same static scoring conservatives have traditionally distrusted in other policy areas. 

Many conservatives rely on the Heritage Foundation for accurate research about immigration’s impact on the economy.  Before releasing another study assessing the net fiscal impacts of immigration reform, Heritage should correct the errors outlined above to guarantee the most accurate information on this important topic is available.

[1] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 1.

[2] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 14.

[3] Fry and Lopez, “Hispanic Student Enrollment Reach New Highs in 2011,” Pew Hispanic research Center, August 20, 2012.

[4] Beach, “It is Time to Include Dynamic Economic Analysis in the Process of Changing Tax Policy,” Heritage Testimony on the Economy, October 6, 2011. 

[5] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, pp.19-20.

[6] Kane and Johnson, “The Real Problem with Immigration … and the Real Solution,” Heritage Institute Backgrounder, No. 1913, March 1, 2006, pp. 2-3.

[7] Borjas and Katz, “The Evolution of the Mexican-Born Workforce in the United States,” in Mexican Immigration to the United States¸NBER Book, May 2007, Lewis, “Immigrants-Native Substitutability: The Role of Language Ability,” NBER Working Paper 17609, forthcoming in David Card and Stephen Raphael, eds., Ottaviano and Peri, “Rethinking the Effects of Immigration on Wages,” Journal of the European Economic Association, 2012.  Peri and Sparber, “Task Specialization, Immigration, and Wages,” American Economic Journal: Applied Economic, 2009, Peri and Sparber, “Highly-Educated Immigrants and Native Occupational Choice,” Centre for Research and Analysis of Migration Discussion Paper Series No. 13/08, November, 2008.

[8] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, pp. 19-20.

[9] Amuedo-Dorantes, Bansak, and Raphael, “Gender Differences in the Labor Market: Impact of IRCA,” American Economic Review, 2007, Rivera-Batiz, “Undocumented Workers in the Labor Market: An Analysis of Earnings of Legal and Illegal Mexican Immigrants in the United States,” Journal of Population Economics, 1999, Kossoudji and Cobb-Clark, “IRCA’s Impact on the Occupational Concentration and Mobility of Newly-Legalized Mexican Men,” Journal of Population Economics, 2000, Kossoudji and Cobb-Clark, “Coming Out of the Shadows: Learning about Legal Status and Wages from the Legalized Population,” Journal of Labor Economics, 2002, Baker, “Effects of the 1986 Immigration Reform and Control Act on Crime,” SSRN Working Paper, 2011.

[10] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 8.

[11] Alden, The Closing of the American Border: Terrorism, Immigration, and Security Since 9/11, New York, NY: HarperCollins Publishers, 2008, p. 74.

[12] Ku and Bruen, “Poor Immigrants Use Public Benefits at a Lower Rate than Poor Native-Born Citizens,” Economic Development Bulletin, Cato Institute, No. 17, March 4, 2013.

[13] See Ku and Bruen, “Poor Immigrants Use Public Benefits at a Lower Rate than Poor Native-Born Citizens,” Economic Development Bulletin, Cato Institute, No. 17, March 4, 2013.

[14] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 21.

[15] Bennett, “Senators Agree on Path to Legal Status for Illegal Immigrants,” Los Angeles Times, March 11, 2013.

[16] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 30.

[17] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 20.

[18] Nowrasteh, “The Economic Case against Arizona’s Immigration Laws,” Cato Institute Policy Analysis, No. 709, September 25, 2012.

[19] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, pp. 8-9, 23.

[20] This advice is based on praise of those methods by the Center for Immigration Studies, a restrictionist think-tank in Washington, D.C.: Camarota, “The High Cost of Cheap Labor: Illegal Immigration and the Federal Budget,” Center for Immigration Studies, August 2004.

[21] See Smith and Edomnston, eds., The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, Washington, D.C.: National Research Council, 1997.

[22] Rector and Kim, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” Heritage Special Report, SR-14, May 21, 2007, p. 9.

[23] Kandel, “Fiscal Impacts of the Foreign-Born Population,” CRS, October, 2011, R42053, p. 8.

[24] Kane and Johnson, “The Real Problem with Immigration … and the Real Solution,” Heritage Institute Backgrounder, No. 1913, March 1, 2006, p. 3.

[25] Kane and Johnson, “The Real Problem with Immigration … and the Real Solution,” Heritage Institute Backgrounder, No. 1913, March 1, 2006, p. 3.

[26] Niskanen, “Build a Wall Around the Welfare State, Not Around the Country,” Cato Institute Blog, June 15, 2006.

[27] Kane and Johnson, “The Real Problem with Immigration … and the Real Solution,” Heritage Institute Backgrounder, No. 1913, March 1, 2006.

Imaginary lines: the borders of Southeast Asia and the Nusantara

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As I write, a stand-off has been ongoing in East Malaysia for almost a month: the Sultan of Sulu, who in reality is a private Filipino citizen with no sovereignty in his own right, ordered his paramilitary forces to press his historic claim to the territory of Sabah, which has been a state of Malaysia since 1963. Already dozens have died in the conflict. The conflict is a sad reminder of the generally arbitrary and somewhat accidental nature of many borders: it’s purely an accident of history that the main territory of Sulu passed to the Philippines instead of Malaysia, and that its hereditary Sultan is today a Filipino instead of a Malaysian.

Farish Noor, a respected Malaysian scholar who currently teaches in Singapore, recently authored an excellent piece on the subject. Even if you are otherwise completely uninterested in the region, I think it makes for fascinating reading. Farish is by training a historian, and he does a fantastic job of illustrating how the modern nation-state maps rather awkwardly to the way people historically have led their lives, and even awkwardly to the way people live today. A snippet:

Sabahans have never had a problem with other communities settling there, and that is why we still see large numbers of Suluks, Bajaos, Malays and Chinese across the state, settling into mixed families or into smaller settlements. Furthermore Sabahans are attuned to the reality of living in a fluid archipelago, which is why its coastal settlements have always been transit points where people from abroad come in and out with ease.

Just before the Lahad Datu incident I was informed that a large number of Suluks had arrived for a wedding, and they came in without passports and visas, and left peacefully afterwards.

It has been like that in Sabah since my childhood. But my fear is that culture of openness and fluidity came to an untimely and graceless end when some of the followers of the Sultan of Sulu landed with guns and rocket-launchers.

Historian Benedict Anderson chose Indonesia as the classic example of an “imagined community” for a reason: most Southeast Asian states have no real reason to follow the boundaries they do today. The Nusantara (the Malay name for the Malay archipelago, which today maps more or less to Indonesia, Malaysia, the Philippines, Brunei, Timor Leste, and possibly some other states/territories I’ve neglected to name) has historically been, as Farish says, “a fluid space.” The nation-state is an extremely blunt instrument that maps poorly to the multitude of identities — many of which are blended and melded in the same person or household — forming the cultural patchwork of Southeast Asia. The divisions on this map below map more to the arbitrary carving up of the Nusantara by colonial powers in the 19th century than they do to any meaningful differences between their peoples, then or now:

CIA-Malaysia-map[1]

Does this mean we should abolish the nation-state? Work towards no borders, instead of open borders? Not necessarily so, and again Farish is incredibly insightful on this point — so insightful that it’s difficult not to quote him almost in full:

Gone are the days when a Malaysian, Filipino or Singaporean would be born in his country, study in the same country, work and die in the same country. In the near future, we may well live to see the birth of the first ASEAN [Southeast Asian equivalent of the European Union] generation who are born in one country, study in another, work in another and die in another, all the while feeling that he or she is still at home, in Southeast Asia.

But for this to happen, we cannot bypass the nation-state entirely; for we need the nation-state in order to transcend the nation-state. We need the nation-state to evolve where it may one day accept the reality that its citizens have multiple origins, multiple destinies, multiple and combined loyalties.

We need to work towards an ASEAN future where our governments may come to accept our complex, confounding hyphenated identities as something normal, and not an anomaly; when someone who is Javanese-Dutch-Indian-Arab like me can claim to come from Indonesia, be born in Malaysia, work in Singapore and love the Philippines.

Ironically, this is the impasse we are at today: To revive our collective memory of a shared Southeast Asian past, we need to work with and through the nation-state as the dominant paradigm that governs international relations.

Like Farish, I see no necessity for the abolition of the nation-state. The nation-state is a tool of governance; it is not a suicide pact. Where the nation-state furthers our lives by protecting us from harm and pursuing the common interest, all is well. But we should not ramshackle the nation to the state and the state to the nation.

I am the global version of Farish’s ASEAN citizen: I am of Chinese-Filipino descent, born in Japan, raised in Singapore and Malaysia, studied in the US and the UK, and now working in the US. I have multiple affiliations, loyalties, identities. These are just as arbitrary as the accidents of fate that determine which sports team you root for, and yet no less meaningful. We have learned to live and let live in our sporting affiliations (for the most part, the occasional European football or Canadian hockey riot notwithstanding), recognising their arbitariness but reveling in their significance. We can do the same with the nation-state and its borders.

Borders serve a purpose: they delineate the laws and institutions which govern a territory. To the extent that our legal institutions need to track comings and goings of people, just as they do with goods or services, they can erect border checkpoints and controls. To the extent that they need to maintain order and forestall invasion, they can forcibly keep people out at these checkpoints. But that is all. We need not make a fetish out of these borders: they are significant but arbitrary boundary markers. There is no reason beyond prejudice to arbitrarily keep some people out, and arbitrarily let others in. When we keep people from seeking gainful employment, when we keep friends and families apart, we need a good reason to do so.

The nation-state once was an instrument for oppression: initially oppression of domestic subjects by the sovereign, later the oppression of foreigners in distant lands. Over time, we have discarded the oppressive aspects of the nation-state, and embraced the state’s furtherance where it seems beneficial. And so as Farish says, the clarion call for open borders is not to abolish the nation-state: it is to take the nation-state toward the next step in its evolution.

Tiered Guest Workers — Preliminary Details & Observations

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This post was originally published on the Cato-at-Liberty blog here and is republished with the permission of the author.

Union and business negotiators have supposedly reached a deal on the major aspects of the guest worker visa program.  The details have not been released yet and the utility of such a proposal will rest there, but here are some brief observations on the broad strokes released:

  1. Tiered visa program.  The plan appears to create a tiered guest workers visa program based on the state of the economy.  Under the first tier, firms will be allowed to hire 20,000 visas in 2015 that would ratchet up to 75,000 in 2019.  The second tier could then kick in if the economy is growing quickly and unemployment is below a preset threshold, going up to an annual cap of 200,000 per year.  Under a third tier, employers sound like they would be able to hire a large number of guest workers if they are willing to “pay significantly higher wages.”  According to the Mexican Migration Monitor, almost 700,000 unauthorized immigrants entered in 2006, up from 500,000 in 2005.  If the regulations, fees, and wage controls for the third-tier are minimal, this tiered program could reduce unauthorized immigration significantly if the sectors of the economy that employ unauthorized immigrants can apply for them.
  2. Sector limitations.  The construction industry would be limited to no more than 15,000 visas annually.  As I wrote here, housing starts provided a huge incentive for unauthorized immigrants to enter to work in construction or other housing-related sectors of the economy.  Unauthorized immigration collapsed beginning in mid-2006 as housing starts declined precipitously, reducing demand for construction workers.  But with housing starts picking up, unauthorized immigration will increase again too.  15,000 total annual visas is not enough to siphon most unauthorized immigrants seeking construction employment into the legal market.  However, details in the tiered visa system could allow for some wiggle room there.       
  3. Wage controls.  It appears that guest worker wages will be determined from complex formula that considers actual wages paid by employer to similar U.S. workers, industry wage scales, and regional variations in compensation.  Current guest worker visas are similarly regulated with disastrous and expensive results that encourage illegal hiring.  Replacing all of these regulations with a fee is a much simpler, cheaper, and effective way of incentivizing employers to hire Americans first.  Stacking the regulatory deck too much in favor of hiring Americans, even in industries for which there are very few American workers, will just incentivize employers to look in the black market – defeating the purpose of immigration reform.  More enforcement (code for bureaucracy) will either fail to halt that behavior or halt it by destroying large sectors of the economy through regulatory micromanagement.   
  4. Worker mobility.  An unambiguously positive development is that guest workers would be allowed to switch jobs very easily.  Tying guest workers to employers was always a bad policy, one that could lead to employer abuse and justified numerous bureaucrats to intrusively inspect working conditions.  By allowing labor mobility, guest workers can look out for their own conditions and switch jobs when appropriate – obviating expensive bureaucratic oversight of employers and guest workers. 

These preliminary observations are based on broad policy outlines in numerous news stories rather than actual legislation.  I will update these observations as more details are released or the actual plan is published. 

What is the most fundamental human right? A lesson from North Korea

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The title of this post may be a trick question, considering that the name of this website is Open Borders: The Case. I recently finished reading Only Beautiful, Please: A British Diplomat in North Korea (Amazon link), authored by former British ambassador to North Korea John Everard. Everard lived in Pyongyang and built relationships with many North Koreans in the professional class, which is how he came by the information in his book.

The book is interesting for many reasons — how often do we get a look inside the world’s most secluded and arguably most oppressed society? But from an immigration standpoint, one passage on page 82 of the paperback edition caught my eye:

The attraction of the West was its much higher standard of living, not the ability of Western citizens to speak freely or to vote. The only real freedom that I found my contacts did want was the freedom to travel — to be able to visit relatives without the cumbersome bureaucracy of travel permits, and (among some of the less poor ones) the ability to travel abroad. Cheju Island, off South Korea (where South Korean newlyweds used to aspire to spend their honeymoons before honeymoons abroad became fashionable) was a particular draw; it seemed to have caught the imagination of young North Koreans as a place of great beauty, and I was scolded more than once when I had to admit that I had never been there.

One can argue that North Koreans don’t really understand the value of other freedoms, some which they’ve never experienced at all. But North Koreans have experienced the most closed borders regime in modern history; it seems absurd to argue that they have a significantly better grasp of what it means to have freedom of movement than they do with freedom of speech or the ballot. Yet in one paragraph, Everard captures the burning North Korean desire for freedom that burns brightest: open borders.

Closed borders keep people from working in the legal and social regimes which foster economic prosperity. They keep people from living in legal and social regimes which protect and promote the rights and dignity of human beings. They keep people apart from their most loved ones. They keep people away from the beauty of new experiences, new sights, and new sounds.

The complaints most of us have about our lives and our governments pale in comparison with most anything a North Korean has the right to complain about. And yet the one freedom North Koreans seem to want most is the freedom most of us lackadaisically dismiss as one not worth thinking about. Modern passport and visa regimes force people to live under unjust governments or hollow economic systems. They tear people away from their friends and family. They prevent people from learning new things about the world, prevent them from experiencing new wonders of life and nature.

You may argue that allowing people the presumptive right to travel where they wish is too much of an imposition on you. Fair enough. But you need to show reason to believe that this is the case — that we can reasonably believe a sojourner or immigrant to your country will prove an imposition, and that the cost of this imposition is too much for society to bear. You cannot simply say “I just don’t care about you — go on and suffer, because you weren’t lucky enough to be born in my country”, unless you wish to disclaim any pretense of common humanity with those foreign to you.

There is an argument to be made that untrammeled freedom of movement for literally all people would be too much of an imposition to bear. But in some sense, this is a strawman: I think most open borders advocates believe that a single country which immediately opened its borders today would likely face significant costs enough to outweigh the benefits to humanity from its open borders. And I think most open borders advocates are open to revoking the presumptive right to freedom of movement for individuals who constitute proven or likely threats to public order or health. It remains that the focus of our conversation on borders should not be: “Why should we have to let them in?”

After all, most people are not thieves or criminals. Most people don’t carry contagious diseases that threaten public health. We should be asking ourselves: “Why should we have to keep good human beings out?” The burden of proof has to be on those who would deny to any human being, born in North Korea or not, a most fundamental human freedom, a freedom that is perhaps second only to the right to life itself: the freedom of movement. Without movement, we have no agency in our lives; without movement, we lose all that makes life worth living.

The great land value windfall from open borders

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One of Steve Sailer’s themes seems to be “affordable family formation.” In the link, Sailer lays out a theory of housing prices: expensive in coastal cities because they can only expand on the landward side; really expensive in “paradises” like Hawaii and (to a lesser extent) California; cheap in “dirt” states where cities can expand in all directions. He sees “affordable family formation” as one of the main factors in making a state vote Republican. And he sees restricting immigration as a means of keeping housing prices down and family formation affordable. Partisan goals aside, it’s surely desirable for people to be able to afford to form families.

As a theory of voting, there may be something in this, but as an argument for restricting immigration, it is extremely unconvincing. If you look at a map of population density in the United States (Census Bureau), what stands out is how few and far between are the counties with 2,000+ people square mile, and how the vast majority of the country’s land has less than 90 people per square mile. Even 2,000 people per square mile is hardly crowded. That’s about an acre for a family of four. Granted that can’t all be living space. There are streets and schools and shopping malls and parking lots and all that. But 2,000 people per square mile is a comfortably thin suburb. The Census Bureau also reports that “94.6 percent of U.S. land is rural open space.”  Granted, not all land is equally pleasant to live on, and the emptiest land is in the Great Plains and other regions that most people probably wouldn’t want to live in, but there’s lots and lots of lightly settled land in verdant, temperate, even beautiful country, say in the mid-Atlantic or upstate New York, or for that matter where I live in central California. Even coastal California is pretty empty if you go north of San Francisco, or between San Luis Obispo and Monterrey. There are plenty of very livable places in America where hardly anyone is living. I think land’s share of national income is about 5%. We’re not running out of (residential) land, not even close. (Farming covers more ground, but farming is a lower-valued activity that residential users can easily buy out.)

In denying that land is scarce, I refute one critique of immigration, but you might suppose, I also forgo an argument for immigration, namely, the land value windfall for native Americans when immigration increases demand for the land they own. Surely I can’t claim that immigration benefits American homeowners by raising housing prices, yet at the same time doesn’t harm American non-homeowners by raising the housing prices they’ll face when they want to buy.

Actually, I can and do claim exactly that, and what inspired this post is that I thought of a graphical way to make the point clear. First, the effect of open borders on the market for existing housing is represented in Figure 1:

Figure 1.

market for existing housing

The stock of existing housing is, by definition, fixed– supply is perfectly inelastic— so an increase in demand due to new immigration would only raise prices. American landowners would see their real estate rise sharply in value. You might think that American landowners would only enjoy these gains if they sold, but that’s not true. Land in city centers isn’t just more expensive, it’s more valuable, because it’s close to more things, more restaurants and fun things to do, more schools, more jobs, more shopping, more varied people, more transportation. Not all Americans would put as much value on the changes as market prices would put on them; that’s why they’d sell. Meanwhile, the market for new housing would look like Figure 2:

Figure 2

market for new housing

The supply curve of new housing is horizontal because the land it’s built on would be basically free, being taken from farming activities, and the construction cost is constant. Actually, the construction cost would probably fall under open borders, given the abundance of low-wage homebuilders that would be available, but never mind. Since supply of new housing is perfectly elastic, the increase in demand would not raise housing prices at the margin. As quantity rose from Q (status quo) to Q (open borders), there would be a building boom.

Why would people pay the high prices shown in Figure 1 for existing housing, when new housing is available at P=C? Location, location, location. As cities would expand outward, the existing housing stock would be more central, and consequently more desirable, so it would command high prices. But in that case, wouldn’t American non-homeowners, even if they could still afford homes as easily as before, be pushed into less desirable locations. Not really. After all, why is urban land desirable in the first place? Density. The land per se is usually nothing special, but it’s valuable to be able to plug into the networks of specialization and trade that the city provides. Well, as cities expanded to accommodate immigrants, they could provide as much of the benefits of density to the new housing as they previously did to the old housing, even as they provided even more of these benefits to existing housing. So American non-homeowners would be held harmless even as American homeowners enjoyed a large windfall.

Of course, I’m simplifying. The supply of new land for home building isn’t always perfectly elastic. Some city sites, like San Francisco, really are uniquely beautiful and special. That said, the almost uninhabited coastline north of San Francisco is beautiful, too. Meanwhile, many other city sites– Indianapolis, say, or Denver, or Fresno– really aren’t very special. Older cities have special historic monuments. It’s possible that the new urban space called into being by the open borders building boom would be drab and lacking in character, though on the other hand technological modernity plus immigrant new perspectives might make them especially exciting. Even then, though, there would be adjustment pains, and probably in some places family formation would become less affordable.

By and large, though, the effect of immigration on land values is, if not a win-win, a win-draw: homeowners gain, non-homeowners are held harmless. The wealth effects of the land value windfall would be not only large, but widely distributed. As of 2009, over 67% of American households owned homes.