All posts by Alex Nowrasteh

Alex Nowrasteh is immigration policy analyst at the Cato Institute. See also:

Cato Institute page listing Nowrasteh’s work
Page about Alex Nowrasteh on Open Borders
All blog posts by Alex Nowrasteh

Thomas Sowell on Immigration

This post was originally published at the Cato-at-Liberty blog and is republished with the author’s permission.

Thomas Sowell is an influential and prolific writer whose books span the social sciences.  My shelves are full of them, decorated with underlines, marginalia, and dog-eared pages.  But in his recent columns and comments on immigration, Sowell has not approached that topic with the same rigorous attention to detail that he has in his books.  His reliance on incomplete historical examinations in his columns leads him to seemingly support a vast array of government interventions.  In these writings, Sowell makes the same mistakes that he accuses the “anointed” of making in many of his books.

In the column I’ll focus on, professor Sowell’s claim that today’s debate about immigration reform is not as fact-based as previous debates.  The implication is that a lack of facts will lead to poor policy decisions today whereas the policy changes 100 years ago were well thought out and fact-based.  He wrote:

A hundred years ago, the immigration controversies of that era were discussed in the context of innumerable facts about particular immigrant groups. Many of those facts were published in a huge, multi-volume 1911 study by a commission headed by Senator William P. Dillingham.

First, Sowell’s description of the Dillingham Commission’s commitment to facts is inaccurate.  It was a bi-partisan committee formed in 1907 to investigate the impacts of immigration on the United States – especially the so-called “new immigrants” from Eastern and Southern Europe.  The Commission was staffed by Progressives who believed that scientific managerial methods could effectively plan large parts of society and the economy by using the power of the government.  With the exception of one member, William S. Bennet of New York, the commission was stacked with members who had previously supported immigration restrictions. 

The Dillingham Commission produced 42 volumes by 1911, arguing that the “new immigrants” were fundamentally different from old immigrants who came from Western and Northern Europe.  Their culture, rates of economic success, and assimilative potential were supposedly severely constrained.  Those are the same claims made by today’s immigration opponents.  The Dillingham Commission suggested that immigration restrictions (ranging from relatively modest literacy tests to outright quotas and other massive interventions) could solve this “problem.” 

Information gathered by the Commission that showed new immigrants succeeding and assimilating was ignored or explained away because it contrasted with the world view of the commission members.  When charitable societies started to report on questionnaire slips that large numbers of Western and Northern Europeans received aid, “the slips were returned to societies for further information or for corrections.” The Commission defined retardation for children as being behind in school – an absurd definition designed to exaggerate retardation among non-English speaking immigrant children.  In American schools, the Dillingham Commission found that 66.9 percent of Polish Jewish students and 63.6 percent of Southern Italians students were retarded.  The Dillingham Commission was intensely worried about Asian immigration. 

Today’s immigration debate is better off without these types of “facts” produced by a commission designed to reach a certain conclusion. 

The Commission’s findings were similar to Sowell’s comment: “The immigrants of today are very different in many ways from those who arrived here a hundred years ago.”  Literally, Sowell is correct, but the implication that they are different in ways that make them less suited to modern American society doesn’t follow.  Immigration restrictionists 100 years ago said the same thing about Southern and Eastern European immigrants, looking back fondly on the Germans, Nordics, and Irish immigrants who came before.  Brutal terrorist bombings carried out by Italian anarcho-communists, including 38 mail bombs in 1919 and numerous attempts on the life of Attorney General A. Mitchell Palmer, confirmed the pessimism. 

Before the Dillingham Commission, immigration restrictionists in the early and mid-19th century thought the Germans and Catholic Irish were unassimilable compared to the Scots-Irish and Huguenots who came before.  One worry about the Germans was that their collectivist culture and political struggles in Germany would clash with the individualism necessary to make freedom flourish in America.  Catholics were considered to harbor a deep anti-republicanism and a culture inimical to liberty.  Time has shown how absurd those worries were.

Thomas Sowell wrote two books explaining the flaws of supporting massive government interventions based on the recommendations of elites – especially in the face of so much historical and economic counter-evidence.  In the Vision of the Anointed, Sowell rightly criticizes the Ralph Naders of the world for spinning tales of doom and gloom that call for government intervention based on very little evidence.  He humorously calls these people Teflon prophets.  But Sowell is acting as a Teflon prophet when it comes to immigration.  In a cagey way, he predicts that great harm will come to the United States due to immigration.  He does not propose a policy solution but because he describes a supposed problem with such a dire tone the reader is meant to feel that he should oppose immigration liberalization. 

Did the Dillingham Commission’s fears that new immigrants and their descendants would fail to assimilate come true?

Asians and their descendants, a group viciously criticized by the Dillingham Commission, have culturally assimilated and their rate of economic success exceeds that of other Americans.  You don’t have to take my word for it, just read what Thomas Sowell has written on the issue.  Italians, Jews, and other immigrant groups criticized by the Commission also culturally assimilated and their descendants have been very successful.  The Dillingham Commission was clearly wrong about these immigrant groups.  Immigration restrictions inspired by that Commission imposed large costs on America: We likely lost an opportunity to have at least tens of millions of more productive citizens from Europe, Asian, and elsewhere – unintentionally sentencing many to death.   

The Dillingham Commission also claimed that there were just too many people and the economy could not create enough wealth to sustain a high standard of living – a ludicrous proposition thoroughly demolished by Julian Simon.  With a population of just over 92 million people in 1910, the Commission concluded that too much immigration was slowing America’s economic growth and that large numbers of new people were not necessary for industrialization because that phase of economic expansion was behind us … in 1910.  Such grandiose claims of the future that call for government intervention could only come from the self-proclaimed anointed

The Dillingham Commission was severely criticized when it was released and was not accepted as fact as Sowell claimed.  A criticism of the report famously questioned its entire statistical methodology and conclusions.  That criticism, sponsored by the American Jewish Committee, dismissed the “popular delusion” that immigrants displace American workers by writing: “[i]n the long run … supply and demand approximately balance each other.”  Just as then, similar disagreements have continued to this day over other immigration studies.     

The Dillingham Commission’s immigration restrictionist recommendations were based on poor statistical methods, an undue faith in the ability of Progressive social-reforms to guide social development, and a rejection of labor market economics.  The Dillingham Commission was not an honest study to determine the facts of immigration as Professor Sowell described.          

Second, Sowell brings up the Boston terror attack as a warning against immigration of people with cultures that are incompatible with Western values.  He has a point about security, but it’s not that immigration should be curtailed.  As much as this is painful to consider, some criminals and terrorists will always be able to sneak in regardless of our immigration policy.  The question is not whether we want no criminals or a lot of criminals, the relevant question is: which system will prevent more criminals and terrorists from entering at an acceptable cost? 

A legal system that prevented all immigration and tourism would prevent some criminals from coming in and could have prevented the Boston terror attack, but at a gargantuan economic cost not to mention the violation of individual liberties such a policy would entail.  But a more open immigration system that screens people for criminality but lets peaceful people through will reduce the size of the haystack and make it easier for law and immigration enforcement to catch the criminal and terrorist needles.  Public policy should be based on facts and not anecdotes.  There is evidence that there should additional screenings and investigations for some immigrants but that does not mean blanket bans on the immigration of certain ethnic or religious groups should be instituted.

Thomas Sowell’s trust in the findings of a Progressive immigration commission that recommended massive government interventions based on manipulated statistics – a near textbook example of a Teflon prophet – is in blaring contrast to the rest of his work that produces many reasons to be skeptical of such schemes.  In 100 years, will Americans look back fondly on today’s immigrants and their successful assimilation as they have in other periods of American history?  Or will this be the first time that immigrants and their descendants don’t become Americans?  Given the rapid rate of assimilation across the board, with varying rates of success, there is little to distinguish today’s immigration experience from that of our forefathers.   

Thomas Sowell on the Economics of Immigration

Post by Alex Nowrasteh (occasional blogger for the site, joined April 2012; pieces published are by default republished from other sources with permission). See:

FINANCIAL INTEREST DISCLOSURE: Nowrasteh has a paid job as immigration policy analyst at the Cato Institute (since April 15, 2012), and formerly had a similar role at the Competitive Enterprise Institute.

This post was originally published at the Cato-at-Liberty blog and is republished with the author’s permission.

Thomas Sowell, distinguished social scientist and columnist, recently criticized Rep. Paul Ryan (R-WI) for his statement that America needs immigration reform to avoid a “worker shortage.” Ryan was trying to explain that allowing more workers to come in the future would allow the economy to grow. He incorrectly used the word “shortage, which has a specific meaning in economics, and Sowell was right to criticize him for that. 

However, the economics of immigration are far more complex than Sowell’s writings let on. After dinging Ryan for his word choice, Sowell went on to explain that if American farmers don’t have enough workers, they will just raise their wages to attract Americans into the profession:

In agriculture, the farmers would obviously prefer to get workers who get low pay rather than workers they have to pay a higher wage… And as long as there is an unlimited supply of farm workers coming in from Mexico, they will never have to raise the wages very much… And it’s a time when millions of Americans are out of work, and are looking for any kind of work. And so this is utter nonsense.

If Sowell is going to quibble about words like “shortage,” it’s fair to criticize Sowell’s use of the word “unlimited” to describe the supply of farm workers coming from Mexico. If the supply of workers in agriculture was truly unlimited, or infinite, the wage would be 0. Furthermore, Americans are not “looking for any kind of work.” If they were, they would be lowering their wages quite a bit more than they currently are, until they become attractive hires. Relatively sticky wages even during periods of high unemployment are evidence that people are not “looking for any kind of work.”        

Issues of economic vocabulary aside, Sowell only described one possible outcome from a reduction in the supply of low-skilled immigrant farm workers: an increase in wages. The far more likely reaction is that American farmers will stop growing crops that require many workers. Without a large supply of low-skilled immigrant farm workers, labor-intensive farming would either shrink dramatically or disappear entirely.  American farmers would either grow different crops that could be profitably harvested mechanically or stop farming. American consumers would either import fruits and vegetables that require large numbers of workers from countries where those workers are abundant, or scale back their consumption of those food stuffs. Fewer workers also means fewer consumers of these agricultural goods, decreasing demand and partly offsetting some of the increase in price that would occur from a decrease in supply. Those effects would be the economically efficient outcome if increased labor scarcity was driven by changes in the free market. In this case, however, the increase in labor scarcity would come from legislation mandating such scarcity.

Insights from labor economics help explain why the American growing of fruits and vegetables would diminish if low-skilled immigration was ended. If the marginal value of the worker’s production is greater than the wage, it is profitable for a firm to hire that employee. For example, if a worker’s marginal value product (MVP) is $10 per hour, it is profitable to employ that worker at a wage of less than $10. (If MVP = wage, the employer is indifferent assuming no transaction costs). Based on the enormous range of work and welfare options open to Americans, farmers would likely have to pay wages so high to attract enough American workers that most labor-intensive agriculture would be unprofitable. Alabama provides an example.

Furthermore, it’s hard to see why it’s desirable to increase the wages of low-productivity farm workers by increasing their scarcity. Raising the wages in occupations that don’t require a high school degree is antithetical to other aspects of public policy that seek to increase the rate of high school graduation (whether or not that is a valid concern for government). There is evidence that more immigration further incentivizes Americans to actually finish high school. The government should not create a policy designed to increase wages for low-skilled farm workers that could drive relatively higher-skilled Americans into those occupations. Since educated workers have more choices in the labor market, the effect of attracting them into lower-productivity professions through changes in policy will likely diminish economic and productivity growth.

Speaking of immigration reform proponents, Sowell states, “They say Americans won’t do these jobs. These are jobs Americans have done for generations, if not centuries.” In this instance, Sowell cherry-picks his opponent’s arguments and chooses to address the ludicrous ones while ignoring those with substance. Americans sailed wind-powered ships around the world and used horses instead of cars for centuries. That, however, is not an argument that a government law should increase the scarcity of modern ships and cars. Sowell is right that Americans could do these low-skilled agriculture jobs. We could also become hunter-gatherers again. But that does not mean that we should, if cheaper and better options are available. Sowell does not say that we should exclude low-skilled immigrants but his tone and the conspicuous absence of him criticizing economically ignorant arguments from the anti-immigration-reform side are serious indications of his opinions on the issue.         

Furthermore, Sowell is right that the economy would adjust to a decrease in the supply of low-skilled labor, but he fails to mention that it would do so by shrinking. The economy would likewise adjust if the American government declared that electricity was illegal or all imports were banned. Arguing that the economy would adjust to artificially created scarcity does not justify creating such scarcity through government fiat.     

Immigration restrictions increase labor scarcity, especially in niches of the labor market where relatively few Americans work. The main effect of increasing labor scarcity by further restricting the supply of low-skilled immigrant workers will not be to raise the wages of Americans, thereby drawing them to pick crops; it would be to kill large portions of the agricultural sector and other portions of the economy that demand large numbers of relatively low-skilled workers to operate most efficiently and profitably. 

Sowell’s surface explanation of how wages would adjust without low-skilled immigration, which leaves out how the economy would shrink and other well-known effects, is written in a way to obfuscate rather than enlighten. On this issue, Sowell ignores the lessons he has developed throughout his career, and instead seems to support extensive government interventions (his writing is cagey enough that he could claim to not support any policies, but the tone is clear enough) with little evidence besides anecdotes.

Immigration Does Not Decrease Economic Freedom

This post was originally posted on the blog Cato at Liberty and is reproduced here with the author’s permission.

A common criticism of immigration reform (herehere, and here) is that it will decrease economic freedom in the United States, by increasing the voting pool for the Democratic Party.  Leaving aside the issue of which party supports economic liberty, if any, it’s important to see what the actual impacts of immigration are on economic freedom in the United States and the world.  The political effects of immigrants after they arrive are less certain than the economic benefits.  Do immigrants decrease economic freedom in their new countries?  The bottom line: fears of immigrants decreasing economic freedom seem unfounded.

Since 1980, wealthy countries have seen rises in immigrant populations.  Immigrants are drawn to economic prosperity, higher wages, and better standards of living so it’s not surprising that wealthier countries have higher percentages of immigrants.  I excluded numerous small countries and petro-states like the UAE and Kuwait from the analysis.

I looked at the 25 wealthiest nations in the world in 1980 (by per capita GDP PPP) and considered their economic freedom rating and the percent foreign born.  I then tracked those same countries every 5 years until 2010.  Here are the averages for all 25 nations:

World

Year

Economic Freedom Rating

GDP Per Capita (PPP)

Immigrant (%)

1980

6.27

$20,875

10.11

1985

6.44

$21,475

10.72

1990

7.05

$23,912

11.61

1995

7.39

$24,671

11.95

2000

7.65

$28,788

11.82

2005

7.68

$30,454

13.96

2010

7.15

$30,481

14.37

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

From 1980 to 2010, the average economic freedom rating for those 25 nations increased by .88 points and their foreign born populations increased by 4.27 percentage points, while per capita GDP increased by $9,606.  The Great Recession makes those numbers appear less remarkable because of the decrease in economic freedom between 2005 and 2010 that accompanied the slowdown in growth.

And when we zoom in on the United States:

United States

Year

Economic Freedom Rating

GDP Per Capita (PPP)

Immigrant (%)

1980

7.92

$25,510

7.20

1985

8.11

$28,562

8.19

1990

8.53

$31,899

9.31

1995

8.50

$33,874

10.71

2000

8.65

$39,545

12.34

2005

8.21

$42,516

13.29

2010

7.70

$42,079

13.84

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

From 1980-2010, the United States’ economic freedom rating fell by .22 and the foreign-born population increased by 6.64 percentage points.  The entire loss in economic freedom occurred post 2005 while the foreign-born population rose by .55 of a percentage point, the smallest increase in any 5-year period.  It seems highly unlikely that a .55 percentage point increase crossed a threshold that caused the economic freedom rating to decrease so much.

Remember that the claim made by many opponents of immigration reform is that more immigrants will cause a decrease in economic freedom.  A linear regression (OLS) of the economic freedom rating and the percent of immigrants in the United States produced a coefficient of -0.0013908 with a t-value of -.02.  The R-squared for that regression is 0.0001.  That means that factors other than immigration explain 99.99 percent of the decrease in America’s economic freedom rating.  On its face, the hypothesis that an increasing percentage of immigrants in the United States will decrease economic freedom does not hold much water.

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

Excluding small countries, here are the wealthiest nations in the world in 1980:

1980

Richest Excluding Small Countries

GDP per capita, PPP

Income % Immigrant EF Rating

1

Saudi Arabia

33,903

19.60%

2

Switzerland

29,363

16.90%

7.99

3

Norway

26,205

3.00%

5.79

4

Bahamas

26,045

11.40%

6.26

5

United States

25,510

7.20%

7.92

6

Canada

23,070

15.50%

7.68

7

Netherlands

22,271

3.50%

7.23

8

Iceland

21,847

2.50%

5.25

9

Bahrain

21,139

28.90%

7.42

10

Belgium

20,793

9.10%

7.06

11

Denmark

20,790

3.20%

6.39

12

Austria

20,714

9.50%

6.33

13

Sweden

20,362

7.50%

5.68

14

France

20,264

10.70%

6.09

15

Australia

19,784

19.70%

6.86

16

Italy

18,814

2.00%

5.37

17

United Kingdom

18,154

6.00%

6.57

18

Finland

17,858

0.80%

6.65

19

Japan

17,835

0.70%

6.88

20

New Zealand

17,391

15.10%

6.35

21

Greece

17,043

1.80%

5.76

22

Gabon

17,007

13.90%

4.50

23

Spain

15,368

1.60%

6.10

24

Trinidad and Tobago

15,310

5.70%

4.83

25

Israel

15,028

36.90%

3.48

Average

20,875

10.11%

6.27

Sources: World BankCato Economic Freedom of the World Index.

In 1980, 9.4 percent of people living in all countries (including small ones like Monaco and the United Arab Emirates) were immigrants, compared to 10.1 percent in the richest countries.  The average economic freedom rating in the world was 5.4 compared to 6.27 for the richest.  In 1980, the 25 richest countries in the world had more immigrants and more economic freedom than the average nation.

2010

Richest Excluding Small Countries

GDP per capita, PPP

Income % Immigrant EF Rating

1

Norway

46,906

10.00%

7.53

2

United States

42,079

13.50%

7.70

3

Switzerland

39,072

23.20%

8.07

4

Netherlands

36,925

10.50%

7.58

5

Ireland

35,993

19.60%

7.92

6

Austria

35,313

15.60%

7.55

7

Canada

35,223

21.30%

8.09

8

Australia

34,602

21.90%

8.14

9

Sweden

34,125

14.10%

7.62

10

Germany

33,565

13.10%

7.53

11

Belgium

32,882

9.10%

7.47

12

United Kingdom

32,814

10.40%

7.87

13

Iceland

32,779

11.30%

7.02

14

Denmark

32,379

8.80%

7.76

15

Finland

31,310

4.20%

7.89

16

Japan

30,965

1.70%

7.61

17

Equatorial Guinea

30,493

1.10%

18

France

29,484

10.70%

7.39

19

Italy

27,083

7.40%

6.73

20

Spain

26,901

14.10%

7.40

21

Korea

26,774

1.10%

7.20

22

Israel

25,995

40.40%

7.25

23

Slovenia

25,053

8.10%

6.62

24

Oman

24,559

28.40%

8.00

25

New Zealand

24,400

22.00%

8.38

Average

32,307

13.32%

7.60

Sources: World Bank Development IndicatorsEconomic Freedom of the World: 2012 Annual Report.

In 2010, 11 percent of people living in all countries were immigrants.  The average economic freedom rating in the world was 6.84, 1.44 points higher than in 1980.  The 25 richest countries in 2010 had a greater percentage of immigrants and a higher economic freedom rating than the rest.

These results are not surprising.  To the extent that economic freedom produces greater economic prosperity, immigration will likely increase.  Given the results from the regression analysis, there is practically zero evidence that immigrants have caused a decline in economic freedom.  Other factors, such as an increase in the regulated state, likely explain changes in economic freedom more than the intensity of immigration.

Opposing immigration reform for the reason that new immigrants will decrease economic freedom is a popular excuse in some circles – but there is surprisingly little evidence to support this myth.  Moreover, merely pointing out that immigrants are more likely to vote for the Democratic Party is insufficient because actual policy shifts count more than partisan political outcomes.  Those who claim immigrants will decrease economic freedom have yet to prove it.

CBO Dynamically Scores Immigration Bill

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

The Congressional Budget Office has fiscally scored the Senate’s immigration bill, S. 744, and found that it will decrease fiscal deficits over the next 20 years—giving a huge boost to reform proponents.  In line with criticisms made by me and others, the CBO departed from orthodoxy and assumed that S. 744 would affect economic growth (i.e., they dynamically scored the bill)—arguing that the economic and fiscal gains from immigration reform are clear.  These findings are broadly consistent with Cato’s findings here.

The CBO produced two scores of S. 744.  The first was less dynamic, assuming that GDP and the workforce would grow as a result of immigration. Increased numbers of workers will add to GDP, producing growth by definition, and not displacing many other workers.  The second score is more dynamic, taking into account many of the economic effects of immigration reform using an enhanced Solow model.

The less-dynamic CBO score found that immigration reform will reduce the federal deficit by about $197 billion by increased GDP and tax revenues through adding six million people to the workforce by 2023.  Over a period of 20 years, the CBO estimated that this legislation would reduce deficits by about $700 billion—a sizeable decrease.  In what seems to be a specific dig at the 50-year span of the recent Heritage study, the CBO wrote that, “we cannot determine whether enactment of S. 744 would lead to an increase in on-budget deficits … in any of the three 10-year periods starting in 2033.”

The more dynamic CBO score found that S. 744 would not affect the budget by 2023.  However, because the dynamic economic effects of S. 744 would affect the economy slowly, the CBO predicts a $300 billion decrease in deficits from 2023-2033 greater that the $700 billion reported in the less-dynamic score.

The more-dynamic CBO model predicts $1.197 trillion in reduced deficits over the next 20 years if immigration reform is passed.

Delving into the details of the CBO’s more-dynamic score, they estimated that S. 744 would increase GDP by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline.  Per capita GNP would lower by .7 percent by 2023 but be higher by .2 percent in 2033.  Wages would be .5 percent higher in 2033 under S. 744.

The more-dynamic score takes into account these effects from S. 744:

  1. Increased size and employment in the economy.
  2. Increased average wages after 2025.
  3. Slightly increased unemployment rate through 2020.
  4. Increased quantity of capital investment.
  5. Increased productivity of labor (due to complementary task specialization).
  6. Increased productivity of capital (due to increase in supply of labor and TFP).
  7. Higher interest rates.

The CBO took account of some of the main findings in the economic literature about the economic effects of immigration.  For example, the CBO predicts there will be a 12 percent increase in the wages of legalized immigrants.

Conceptually, dynamically scoring legislation is a big step toward rationally judging the costs and benefits of policy changes.  Legislation that changes the size of the economy or the pace of economic growth will affect future tax revenues that will, in turn, affect the fiscal state of the federal government.  CBO scores have been inaccurate over time—many wildly so.  They should never be the final word on the estimated net fiscal costs of immigration reform, but this is the most thorough examination to date. The CBO’s findings broadly confirm Cato’s research that immigration reform will be economically beneficial to immigrants and the country as a whole.

Why Are There So Few Unlawful Immigrants?

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

Open Borders Note: See also Vipul’s post and our posts tagged economic determinism.

Labor markets are heavily distorted by immigration restrictions, producing wide and persistent wage differences for observably identical workers in developed and developing nations. Income for low skilled American workers is 16 times as high as Haitians in Haiti, about 7 times as high as Indians in India, and about 4 times as high as Mexicans in Mexico—all adjusted for purchasing power parity. Just by moving here immigrants can largely close that wage gap.

There are very limited avenues for low skilled immigrants to immigrate legally, which raises an important question: if the economic benefits of immigrating are so high, why are there only 11 to 12 million unlawful immigrants here?

Below are the two broad reasons:

First, the benefits of immigrating are not as high as they seem. The probability of being employed in the destination country is a vital variable because unemployment does not confer any benefits on the immigrant. The skill level of prospective unlawful immigrants restricts job opportunities to certain occupations. If the sectors where low skilled immigrants work have high unemployment rates, as many do now, the chances of earning higher wages here is lower so the economic benefits of immigration are lower. Downward wage bargaining by immigrants is limited but unlawful immigrants do take a wage cut, all else being equal, of about 20 percent to compensate their employers for the legal risk of hiring them and other reasons. Growing economies in places like Mexico, China, and elsewhere might partially offset the benefits of immigrating by promising higher incomes in the near future.

Second, the cost of unlawfully immigrating is very high. Opportunity costs, search costs(including language barriers), transportation costs, legal costs, the probability of dying en route, the probability of being sold into slavery, and the probability of not making it to the United States despite paying the smuggling fee are all high and increase risk. Immigration enforcement is very effective at deterring most would-be unlawful immigrants. Highsmuggling fees are a high up front cost.

Immigration can be understood as an investment over a period of years.  The length of time the immigrant spends here employed at higher wages increases the economic benefits of immigrating. The costs of immigrating, like paying for a smuggler, are fixed while there seems to be a low marginal cost for staying here to avoid immigration enforcement. The psychic costs could shift with time.

Here is an example:

Assume a Mexican immigrant wants to illegally move to the United States and work in construction. A marginal worker in the construction sector would have about an 86.2 percent chance of being employed at $40,000 with an effective tax rate of about 18 percent (including income and FICA taxes) and a 2.6 percent annual average wage increase.

The cost of being smuggled in ($9,000 by boat, $4000 by land), buying documents to decrease the chances of detection, and opportunity cost from being out of the labor force is $11,000 assuming no psychic costs. After the first year, I assume that the out of pocket cost of living illegally was $1,000.

Assuming a two percent discount rate, the net present value of moving to the United States for five years is $126,000.  The net present value (NPV) of working in Mexico assuming a starting wage of $10,000 a year, 95 percent chance of being employed, a one percent wage growth, and a two percent discount rate is about $48,000. The wages are about 2.6 times as high assuming the immigrants successfully enters on his first attempt and immediately finds a job.

The uncertainty of working illegally in the United States, a higher smuggling price, and separation from one’s home dramatically increase costs. A relatively low annual cost of $11,000 a year in addition to smuggling fees of $9000 in the first year lowers the NPV to $77,340, just 61 percent greater than staying in Mexico. Psychic costs are higher for immigrants from countries that do not send many in the first place—like Yemen or the Central African Republic—because there is not a diaspora to fit in to. Unlawful immigrantsare typically young, male, single, and without families—groups with the lowest psychic costs of immigrating. The opportunity cost of using capital to pay smugglers is also high, especially in poor countries.

Immigration enforcement has a gargantuan deterrence effect—larger than any other factor. The vast majority of would-be unlawful immigrants are deterred by breaking immigration laws and the punishments—even if there is a small chance of being caught. A 10 percent increase in immigration enforcement hours along the border produced a 2.5 percent increase in smuggling prices—raising the cost of unlawfully immigrating. The size and scope of Border Patrol has increased substantially since 1980—virtually doubling in size since 2004.

Here are the first year wage gains including the cost of smuggling from different countries of origin:

Source Country

Smuggling Cost

Median Ind. Earnings, US Full Time

Income in Home Country

Wage Gain

Wage Gain/Smuggling

Brazil

$16,000

$31,905

$12,594

$19,311

1.21

China

$50,000

$31,863

$5,445

$26,418

0.53

Cuba

$10,000

$24,103

$5,400

$18,703

1.87

Haiti

$1,500

$35,103

$726

$34,377

22.92

India

$60,000

$50,443

$1,509

$48,934

0.82

Mexico

$9,000

$13,520

$10,047

$3,473

0.39

Source: 2011 American Community Survey, DHS, Havocscope. 

The smaller the wage gain to smuggling ratio is, the smaller the pure economic benefits of coming here are, assuming successful entry. If the Coast Guard was less effective or if Haitians could find a cheaper way to enter the United States unlawfully, many more would come. The pressure from Mexico is not nearly as great as many imagine. These numbers are only averages and probably understate the desirability of coming here but they explain why Indians and Chinese send so few unlawful immigrants despite the massive wage gains: immigration enforcement is very effective so it raises the price of smuggling.

The costs of moving to the United States are very high and the benefits are lower than international wage differences make them seem. The benefits from moving to the United States for millions of people would be enormous for most Americans, the immigrants themselves, and those who stayed behind. Given those large wage differences, it is truly remarkable that there are so few unlawful immigrants in the United States.