Tag Archives: economics

British hostility to immigration, and myths that refuse to die

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The United Kingdom in the past few years has embarked on an aggressive campaign to cut down immigration. Restrictionist sentiments are alive and well amongst the British. A few months back, I wrote about how perplexing it was that even British left liberals, such as author David Goodhart, readily embrace restrictionist myths and assumptions. Unfortunately, in the UK — just as in most countries — the well-meaning side making the case on anecdotes instead of facts wins. Instead of debating the real issues at hand — such as what keyhole solutions are appropriate — we’re essentially debating whether Jews do in fact poison wells or Mexicans are in fact potheads.

Goodhart recently authored a book, The British Dream, purporting to show the disaster that has been British immigration. This book turned out to have played very loose and fast with the data, as economist Jonathan Portes observed in the London Review of Books. If you enjoy watching a train wreck, Portes published an unabridged version of his debate with Goodhart (since the LRB refused to give them both sufficient space to respond to each other) — Portes shows clearly how Goodhart has ignored the economics of immigration and blatantly insisted on substituting anecdotes for data.

This fact was driven home to me a couple months ago when I attended a Cato Institute panel on what economists think about immigration. The economic consensus: there is no evidence that immigration economically harms natives; any harms are so small that they are virtually indistinguishable from zero. Yet looking at the debate on immigration, you would think that only deportation can save the welfare state or provide jobs. Goodhart himself blames British immigrants for impoverishing British whites and stealing their jobs — and he is on the left of the British immigration debate!

After the Cato panel, one audience member from Ukraine came up to moderator Alex Nowrasteh and panelist Michael Clemens to say: your presentations were great, but what do your opponents say to rebut your claims that immigration doesn’t harm natives? Alex and Clemens essentially said: “nothing!” Even the strongest finding here has been that 20 years of immigration to the US caused a total 3% drop in the wages of low-skilled natives. If you take a simple average of that, it’s a 0.15% drop per year. And that itself is a figure which many economists mistrust, because it makes arguably naive assumptions about the economy — such as assuming capital investments don’t change in response to labour market changes. Why do even people on the left buy into the myths of immigration’s costs? This would be like a leftist saying “Yes, I suppose we can’t let all the Chinese in, since otherwise they might rape too many of our women, but we have to treat those we do let in better!”

The Cato panel focused on the US economy, but economists who’ve studied the issue in other developed countries have had just as hard a time finding harmful impacts to natives. Portes covers the issue well in his full discussion with Goodhart — British data show that youth unemployment fell in communities receiving more immigrants, which is exactly counter to Goodhart’s claims. Yet the myth that immigrants “steal” jobs persists.

The myth that immigration destroys jobs or drives down wages may seem a petty issue in comparison to the myth that Jews drink the blood of babies or that Mexicans are drug mules (this latter myth came up in plenty of informal discussion after the Cato panel, since one American Congressman had only just that week made the physically impossible assertion that virtually all unauthorised Mexican immigrants carried 75 pounds of marijuana with them across the border). But these economic myths are I daresay even more harmful than the petty racist myths that no right-thinking person today believes. These myths give a veneer of respectability to inhumane immigration policies that in fact destroy jobs, tear apart households, and spit upon the concepts of justice and fairness.

The Cato panel on what economists think about migration came to mind again and again as I followed a recent debate in the UK House of Lords about the impact of new immigration laws. The full transcript of that debate is quite interesting reading, and you can also always watch the debate if you prefer (the video opens at the start of the debate in the House of Lords that day, around 11am; skip ahead to 3:41pm for the start of the immigration debate).

The gist of the problem is this: the British government wants to reduce rates of immigration, by hook or by crook. To accomplish this, they have enacted seemingly arbitrary requirements for prospective immigrants to meet. And now, the government is reaping what it has sowed: British citizens are unhappy that their rights to invite and engage with foreigners have been severely curtailed, in the service of a regime that reduces jobs and families down to a single number: zero net non-EU migration. This debate in the House of Lords centred specifically on restrictions of the rights of British citizens and residents to invite their family members to the UK — rights that have been arbitrarily curtailed in worship of a nonsensical goal.

The debate is so interesting that I hope to blog about it in depth separately. Suffice it to say that it is a litany of failures in every imaginable way. When you have a government trying to centrally plan immigration — to issue an edict from upon high that no more than X number of immigrants must be allowed in — you have an economic and human disaster. Doctors who cannot care for their aged parents leave the country. British businesspeople who marry foreigners are told they should go live in Australia. A Syrian refugee trying to join her sons in the UK, with a charity guaranteeing and sponsoring her, is told by the British government that she should stay in the war zone that is Syria. The British government purports to establish a fair and firm regime for immigration — by mandating that only high-income Britons may marry a foreigner. It is estimated that almost half of all Britons do not earn enough to meet the income requirements for sponsoring a spouse’s visa — and even if they can apply, success is not assured, as in the case of one British-Australian couple told their visa was denied because there is no pressing need for their family to leave Australia.

In what must certainly be a frustrating turn of events for economists like Clemens and Portes, most of the Lords in that debate paid lip service to the goal of reducing immigration, taking for granted that it is, as matter of good policy, important and desirable to cut down immigration by what is essentially an arbitrary number pulled out of thin air. Some even forthrightly state that many of the new restrictions are good insofar as they create jobs for British youth. It is like hearing a lawmaker declare that it’s unfortunate that good people would be harmed by exiling all Jews, but at least this mass deportation would reduce the prevalence of poisoned wells in Britain.

Open borders — by which I mean an actual fair visa regime that grants a presumptive freedom of movement to all — is the only regime that can truly avoid the calamities and catastrophes we are witnessing today in the UK, and continue to witness every day across the world. As long as arbitrary laws ban our fellow humans from being with their families and seeking honest wages, we will continue to count the costs of closed borders in wasted tears, sweat, and blood. Any regime that declares “I have the arbitrary right to ban good people from being with their families if I feel like it” — which is exactly what the unjustified, pulled-out-of-thin-air numerical quotas of the sort we see in virtually every country today amount to — is utterly irreconcilable with basic humanity.

Open borders is not costless. One can well imagine that if we moved overnight from the closed borders regime to an open one, most developed countries would face an unmanageable flood of people. But it’s not clear to me why we count this as a cost of the open borders regime, rather than a cost of the closed one. If we had never closed the borders in the first place, we would never have had to worry about the adjustment costs of undoing our grievous mistake. Before we closed the world’s borders, we had no evidence that levels of immigration then reduced wages or employment. This is unsurprising; economists agree that the long-run effect of open borders is nil. It is only the short-run sudden release of migrants, held back artificially by arbitrary laws, that we need to manage carefully.

Only a few days ago, the Bristol Freedom Society hosted a debate on open borders — one that apparently went rather better for the open borders side than the similar Intelligence Squared debate recently hosted on the American side of the pond. Reflecting on the Bristol debate, Ben Southwood of the Adam Smith Institute cogently observed:

Any claim that migration should be kept to a particular level, because of the risk of undermining British institutions, implies an assumption about how much damage the marginal immigrant does or will do (reliably or with some probability). One cannot cop out of the question, you need to have an answer. But no one has yet set out good evidence about exactly how much damage to institutions the marginal immigrant does or will do—typically arguments in this area depend on anecdote or things that people feel they “just know”. This won’t do when the benefits to immigration are so high. We cannot simply assume the cost to our institutions outweighs the other benefits.

As Southwood suggests, the paucity of evidence for the claims frequently made about migration is appalling. Meanwhile, the evidence of the moral horrors of how we treat migrants is plain for all to see. Closing the borders for the sake of an arbitrary number ruins lives. We see that writ on a large scale today in the UK. There is no sense or logic possible under the law the moment justice is enslaved to an arbitrary quota. And it is all the more sad that the profound injustice of a quota on jobs and a quota on families is being perpetuated on the basis of ignorance and falsehoods. In no other area of law or public policy do we let the government so wantonly rip up families and destroy jobs, without due process, relying only on the evidence of myths — to the extent they rely on evidence at all. It’s time we demanded our governments do something different about immigration — something actually informed by the evidence and consistent with the rule of law.

The cartoon featured in the header dates to 1886, and depicts fears of Chinese immigration to Sydney, Australia.

Opening the Canada-US Border

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This is a guest post by Peter Hurley. Peter is an American who studied in Canada. He’s interested in the law and his relationship with a Canadian brings him in direct contact with issues surrounding immigration. The post is a follow-up to Vipul Naik’s bleg about US-Canada open borders from about two months ago.

This week, both the US and Canada celebrate their national identities.  In the US, we celebrate our independence from Britain.  In Canada, we celebrate our confederation into a distinct nation, under the same crown as Britain, but with a wholly Canadian government and constitution.

These celebrations reveal as much about the similarities between the US and Canada as our differences.  We share common traditions about law and human rights from our common origins, and have maintained peaceful relations for two centuries.  We even co-ordinate our holidays so we can have the same long weekends.  Often enough, it can seem like an American from Seattle is more similar to a Vancouverite than a Canadian from Halifax.

Or, at least it seems that way until you try to move between the countries.  Then you find out that the border is more than an inconvenience on your road trip to Niagara Falls, it’s a serious impediment to people’s lives.

Both Canada and the US would be made better off by opening the world’s longest and most peaceful border.

This idea isn’t particularly new, and there are some common objections to it that deserve answers.  Many of these objections are common to any open border scheme, and those are dealt with ably elsewhere on this site, so I confine myself to objections that wouldn’t be common to any open borders scheme.  To be clear, I am proposing free transit over the border between the two, but with limitations on the ability of non-citizens of the US and Canada to use the open border to work or live permanently in the other country.

Economic Argument

One of the main practical arguments against an open border is that it will be economically harmful, particularly to Canada.  The concern is that Americans will flock to Canada to utilize government provided health care and that Canadians will dodge taxes by crossing the border to shop.  The latter is an argument that probably scares tax officials more than the Canadians who shop in the US and then wear everything they bought home. 

As to healthcare: with Obamacare coming into force, most Americans would see only a small health care savings by moving to Canada.  Obamacare means Americans earning low incomes get free or extremely cheap health insurance, and only relatively high-income people will pay substantial sums for healthcare.  And those high-income people are much less likely to be a net drain anyway.  Plus, Canadian healthcare currently requires a substantial period of residency before one becomes eligible for free coverage, so it requires substantial time commitment to living in Canada to qualify for healthcare.

Apart from healthcare, the welfare states in the US and Canada are remarkably similar, so there is little incentive to move from one to the other for benefits.  Disability, welfare, unemployment, food security, and retirement benefits are similar, and Old Age Security/Canada Pension Plan and US Social Security Administration already credit contributions from one towards the other.

The benefits of integrating labour markets between the two countries is very substantial as well.  Border areas often have labour markets which tilt heavily depending on whether the US or Canadian dollar is stronger.  An open labour market will allow workers from depressed areas in either country to seek work in nearby areas with relatively booming markets.  So a laid off construction worker in Buffalo can go build condo towers in Toronto, and oil field workers can move quickly between Alberta and North Dakota, without waiting months between jobs for immigration paperwork to be done.

Also, the monetary costs of border enforcement are substantial.  Both governments could reduce spending on border guards, as well as eliminating the giant deforested 20 foot swathe between the two countries.  More than that, the time that people spend waiting at the border is valuable.  About 62 million people crossed into the US via Canadian land ports of entry in 2012.  Assuming about as many entries into Canada, and assuming (generously I think) a 20 minute wait on average, that comes to 41 million wasted hours, plus a ton of pollution from the cars idling.  And that doesn’t even count trucks.

Political Argument

Another big worry that people have about opening the border is that it will change the character of the countries drastically as immigrants from Canada or the US flood in and overtake the culture (Canada) or make the country much more socialist (US).  I think this concern is not as big a deal as people make it.  Both countries have areas that are quite conservative (Alberta, Texas) and quite liberal (Vancouver, Boston).  There’s no reason to think that the average American who chooses Canada would be likely to push the political consensus very far, and would very likely fall somewhere into the mainstream of Canadian society.  Furthermore, open borders do not mean open citizenship.  Canada and the US can set whatever standards of residency and knowledge of local culture and government they want as requirements to attain citizenship. As to cultural assimilation, open borders do not kill cultures.  The southern US and Quebec both have open borders to their countries, and yet have different cultures from the rest of their countries: more so in the case of Quebec.

The Quebec Question

Within Canada, Quebec has maintained a distinct culture and language, and has taken extensive efforts to maintain that distinction, including a separate immigration regime on top of the federal system, as well as significant language restrictions regarding both public displays and schooling.  It is safe to say that opening the border to the US would be seen as a major threat to the separate culture of Quebec.  They shouldn’t be.  As it stands, millions of English-speaking Canadians are freely capable of moving to Quebec.  And that hasn’t stopped Quebec from maintaining its culture and institutions.  Open borders will not allow Americans to vote in Quebec or Canada, and the democratic institutions of Quebec are strong enough to handle a free and open dialogue with the world.  Even ardent sovereigntists don’t generally want to seal Quebec’s border with Canada upon independence.  And the open US border with Quebec provides the same sort of benefits for Quebec that the open borders with New Brunswick and Ontario provide.

Conclusion

The Canada/US border is probably one of the easiest questions of open borders in the world.  We are both rich countries with strong economies and extremely similar systems of law.  We have lots to gain from opening up what is already a slightly ajar door.  If you want to take incremental steps to opening borders, the Canada/US border is the first increment.

The photograph featured in the header of this post is of the US-Canada border. Via Reddit.

Immigration and Cobb-Douglas: A Response to Eric Rasmusen

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Tyler Cowen recently linked to a piece by Eric Rasmusen about potential scenarios where immigration hurts the American economy.

Rasmusen considers a few variations on the Cobb-Douglas production function where the amount produced by the economy is given by the equation: $latex Q=L^{.7}K^{.3}$ where L is the total amount of labor and K is the amount of capital available for production.

According to this model, if L = 100 and K = 100, the total production is 100. Of this amount, 70 is divided among the laborers and 30 goes to owners of capital. If L increases to 140 due to immigration and K remains constant, total production increases to 126.6. 38 of this goes to capital, 63.3 goes to native labor and 25.3 goes to immigrant labor. So capital wins and native labor loses. The amount capital gains is a bit more than the amount native labor loses.

This is a pretty standard analysis, but we should note that it assumes that K remains constant. This is the sophisticated equivalent of assuming that the number of jobs is constant, so that when immigrants enter the country they take “our” jobs. In fact, the amount of capital devoted to production depends on demand, which depends on the number of consumers. Since immigrants are consumers in addition to laboersr, we can expect the amount of capital devoted to production to increase.

But this isn’t the biggest complaint I have with the paper. In his analysis of the standard Cobb-Douglas approach, Rasumsen makes some very confusing comments about the impact of taking the welfare of immigrants into consideration:

“What about the benefit to immigrants? Some readers will want to include those in the policy objective for the United States… Although American labor definitely loses, immigrant labor either wins or is unaffected. The aggregate benefit to labor can be negative because if foreign wages are just a little bit lower than American post-immigration wages, then the gain to the immigrant labor is very small, while the loss to American labor is unaffected and therefore exceeds the immigrant gain. In fact, one might expect that if there is open immigration and the amount of immigration is 40, it must be that wages in the other country are .63, i.e., immigration stops at 40 because foreign and American wages equalize. Suppose further that the rest of the world is large compared to America, so that the rise in wages elsewhere in the world as a result of emigration to America is trivial. Then, the immigrants have neither gained nor lost by immigrating to America. The only welfare effects are the loss to American workers and the gain to American capital-owners.”

This analysis is baffling. If we are using the Cobb-Douglas model to understand the impact of immigration on the US, let’s use the same model to understand the global impact. In particular, let’s assume that we have two countries. In the US, L=100 and K=100, so Q=100 just like in Rasmusen’s model. But then let’s assume that there is one other country where labor and capital are out of balance. That is, L = 1000 and K=50 with the result that Q=407.1. Total production between the two countries is 507.1. Now what happens if we open the borders between the two countries? Then we can combine L and K so that L=1100 and K=150. But we don’t simply add the Q’s. In fact, total production is now 605.1. We got an additional 98 production for free!

How did that happen? We even assumed that the US contribution to K didn’t go up in response to the open borders, a likely result that would push the numbers up even more (if K went all the way up too 1100, then production would go up to 1100 as well). The reason is that the best way to maximize output under the Cobb-Douglas model is to evenly distribute the capital among laborers, not to split it up in disproportionate pieces.

Of course, it remains true that if we prevent K from going up then native labor will suffer. In the closed borders regime, the 100 native laborers received a wage of .7 each and the 1000 foreign laborers got .284. Under the open borders regime, all laborers got a wage of .38. Again, this is because we assumed that K remained constant.

Rasmusen includes a few other scenarios in which not only does native labor lose, but net American output per person goes down. The most plausible of these is a scenario in which he assumes that the production function is a modified Cobb-Douglas function $latex Q=(L^{.7}K^{.3})^{.8}$, which represents the idea that we have diminishing returns to the combination of labor and capital. This could be due to a fixed amount of natural resources or land. In the basic model, the amount capital gains is more than the amount native labor loses. With this modified model, the amount capital gains from immigration is less than the amount lost by native labor.

The problem with this model is that it seems to run counter to experience. It would imply that as our population grows, there would be a very strong tendency for GDP per capita to decrease. That is, the result is not specific to immigration. It applies to any form of population increase. Our population has been growing steadily the nation was founded. Here is a graphic showing the results for GDP per capita:

Of course, Rasmusen doesn’t argue that any of his models actually represents reality. He is trying to explore scenarios in which immigration creates a net economic detriment to natives. In the basic model, cash transfers from capital to labor (e.g., progressive taxation) can be used to compensate native labor. In the modified scenario, the net loss to natives prevents such a program from working. Luckily, the model doesn’t seem very realistic, at least based on our historical experience.

 

Understanding the place premium, or; building the economic intuition behind open borders

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There are plenty of misconceptions about the place premium — the arbitrary wage gap between different countries of the world. (The term “place premium” was introduced in a working paper titled The Place Premium: Wage Differences for Identical Workers across the U.S. Border – Working Paper 148 by Michael Clemens, Claudio E. Montenegro, and Lant Pritchett. See also our blog posts that mention the place premium). Some common ones include the mistaken beliefs that estimates of the place premium don’t account for purchasing power, or that the place premium doesn’t adjust for characteristics like job type or labour quality. But even if one avoids these missteps, it can be difficult to grasp the source of the place premium and the intuition around why labour mobility would erode the place premium by increasing real incomes worldwide.

Here’s the classic example of the place premium: the bus driver. You take the bus driver in Yemen and transplant him to the US. Same guy, doing the same job, driving the same bus, even. Just in a different place. You’ve just boosted that Yemeni’s income by about 15 times over, because now he’s ferrying highly-productive Americans instead of relatively unproductive Yemenis. He’s driving them between Boston and New York instead of between Sana’a and Aden. And yes, that 15x multiplier is real — it’s the actual point estimate from the seminal paper on the place premium, calculating the premium between Yemen and the US in terms of real wages, adjusted for all statistically-identifiable characteristics of the worker and the job.

Now, you might contend that the Yemeni bus driver isn’t himself being more productive. After all, he’s doing exactly the same job he was before. The extra income he earns now doesn’t represent any increase in his productivity; it just represents some income he’s siphoned away from Americans, who pay a Yemeni bus driver the wages of an American bus driver, even though he’s plainly less productive than the American who might otherwise drive that bus.

This intuition, I think, is related to why people make a couple of rather unintuitive (to me, anyway) conclusions about the place premium and its implications:

  1. Open borders erodes the place premium primarily, if not only, by redistributing the income of richer people to poorer people. The poor of the world do in fact benefit immensely from migration, but this is not because migration makes them more productive. They simply earn an economic “rent” by taking rich-world wages which are incommensurate with their actual poor-world productivity. World GDP does not actually increase from open borders, and rich-world GDP actually falls.
  2. People in poor countries are poor because they are innately unproductive. This is because of one or both of the following:
    1. Levels of productivity are endogenous to you as an individual, not the society you happen to be in. The value of your work is determined by you and you alone, not the society you live in.
    2. Levels of productivity are endogenous to your country of origin. The value of your work is determined by some combination of your personal qualities and the institutions you grew up in. The society you live in has little to no impact on your productivity.

These claims are incredibly unintuitive to me, because even if they might be true to some degree, there isn’t any economic theory or data to support the strong claim that where you live has no impact on productivity. The very fact that economists who study labour mobility consistently conclude that the gains from open borders would roughly double world GDP means that these conclusions are wrong. Moreover, there are plenty of reasons why your intuitions about the relationship between your environment and your productivity ought to run the exact opposite way.

If you lived in a society currently facing a civil war, or a natural disaster, you would be incredibly unproductive. An engineer isn’t of much use in a famine-ridden country; he has to spend most of his time looking for food, instead of designing bridges. The claim that the society you live in has no impact on your productivity is totally unintuitive; of course the engineer becomes less productive if you take him from his comfy home in an OECD country and plop him into somewhere like Somalia or the Congo. So vice-versa, if you find an engineer in Somalia or the Congo, and you take him with you to somewhere like France or Italy, you’ve immediately increased his productivity. He spends less time figuring out how to get food and shelter, and more time figuring out how to build bridges.

You might protest that this is a high-skilled immigrant, so let’s go back to the bus driver. Exactly the same intuition applies. Take an American bus driver and drop him down in Yemen. Would he still really deserve his American wages in Yemen? Sure, it’s no fault of his own that we’ve forced him to live and work in Yemen instead of the US. But the fact is that the Yemenis he’ll be driving around are less productive than his old American passengers. He used to drive software engineers and Starbucks baristas (you laugh, but baristas save productive doctors and executives plenty of time and money) in the US; in Yemen, he drives shepherds and hotel cooks. Given that the entire productivity of being a bus driver comes from ferrying valuable people around, it’s unsurprising that when the economic productivity of the people he transport drops, his productivity drops as well. So vice-versa, taking a Yemeni bus driver and giving him a bus in the US to drive makes him incredibly more productive. He used to support a small, relatively undeveloped economy; now he supports a much more prosperous economy. His taking that American job has directly lowered the transportation costs for quite a few highly-productive people.

You might protest that while this is true at the individual level, you couldn’t simply take every person from Yemen and put them in the US and expect to achieve the same result. You’d be right, which is why nobody that I know of seriously suggests forcing poor people to immigrate to the rich world. It’s the people who have a lot to gain from immigration — those whose potential productivity means they can reasonably expect a substantial wage hike from moving to a better society even just doing the same work they’re used to doing — that will migrate. People who aren’t productive enough to justify the large financial and non-financial costs of moving simply won’t move. Unless you subsidise migration, you won’t see unproductive people swarming highly-productive societies.

Still, on one level, it can seem intuitive to say that if you’re doing exactly the same job in two different places, your productivity doesn’t matter: you should earn the same wage for the same work wherever you are. But that’s actually incredibly unintuitive. Even if you’re just a farmer, your crop yields depend on where you are. If you can buy or rent land elsewhere that is more fertile, you can do the identical job on that piece of land and immediately become more productive. And that’s just the simplest scenario. If you’re a machinist, you are more productive working in a society with a functioning power supply than you are working in a society with frequent blackouts. If you’re a hairdresser, you are more productive working in a society where your clients are corporate executives instead of a society where your clients are subsistence wage-earners — because even if you save your clients exactly the same amount of time and effort, in one society your clients’ time is worth a lot, and in the other it is worth little.

It might be intuitive to conclude that open borders is simply redistribution, allowing unproductive people to claim wages meant for highly-productive people. But some basic economics suggests this can’t be true. If a Yemeni bus driver is 15 times less productive than a US bus driver, he basically will get his passengers lost or injured so often that the only way his employer can find it profitable to keep him on staff is if they slash his wages down to the levels he earned in Yemen — if they slash his high-productivity wages by 15 times. Something has to give: either he has to be productive enough to merit higher wages, or he has to go back to Yemen and back to his old job. Otherwise, he ends up jobless and destitute in the US.

Having travelled on public transport in different countries, I could swallow the claim that a bus driver from a poor country is only half as productive as a bus driver from a rich country (because of poorer driving habits, etc.), though I’d still be skeptical of it. But I’ve never met a bus or taxi driver who is so thoroughly incompetent that I would deem his driving skills worth 1/5th or 1/10th of his professional counterparts whom I’ve encountered in the rich world.

The place premium doesn’t actually mean all the gaps we see between rich and poor countries would disappear under open borders. Even in jurisdictions with open borders, such as between Guam or Puerto Rico and the mainland US, we observe a place premium where it seems the American bus driver earns 25% to 40% more than his statistically-identical counterpart in Guam or Puerto Rico. That probably is explained by true productivity differences (though some of it might also stem from xenophobia or other reasons making it difficult for a bus driver in Guam or Puerto Rico to undercut a bus driver on the mainland). But nowhere in the history of the world have wage gaps as big as the ones we see internationally today been observed. We can quite surely say that most of the place premium comes from arbitrarily coercing otherwise productive people into staying in unproductive regions or societies.

The intuition behind this is clear: your productivity does in fact depend on where you are. You produce more living in Australia than you do in Antarctica for a reason — just as you produce more living in South Africa than in Zimbabwe for a reason. Whether it’s a better geophysical climate or a better political climate, some places just make us more productive citizens and human beings than other places do. We need a damn good reason to arbitrarily force people to stay unproductive — especially when it means consigning them to a life of grinding poverty that would shock just about anyone reading these words.

The photograph featured in the header of this post depicts Italian immigrants laying tram tracks in Springfield, Massachusetts circa 1900.

Are the linguistic externalities of open borders important?

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One of the most obvious, automatic arguments against open borders is that people won’t be able to understand each other. “They don’t speak English,” is one of the knee-jerk complaints about (some) immigrants. People will tell anecdotes about how they went into the grocery store and wanted to ask where the soup was, and the employees couldn’t help them because they were only Spanish-speaking. I don’t think I’ve seen the movie  Now, as our linguistic assimilation page points out:

To the extent that the problem [of the failure of linguistic assimilation] is genuine, a keyhole solution to it is to impose linguistic and cultural fluency requirements as a precondition for migration.

And a billion people or more speak English, so that still opens up a huge amount of immigration. Of course, more would learn. But let’s set that aside for the moment. Suppose we’re thinking about the immigration of non-English speakers.

Let me respond first of all to the supermarket anecdote. The supermarket could presumably hire English-speaking employees. The supermarket would presumably have to pay more to English-speaking employees, reflecting their greater economic value and the greater opportunity cost of their time. The supermarket would pass through the costs associated with their higher wage bill to customers. So customers face a trade-off: English-speaking staff, or higher prices. The question is not, would you rather have English-speaking staff in the grocery store, but, is it worth it to pay 1% or 5% or whatever more for your groceries to have English-speaking staff? If most customers think it is worth it, the supermarket, to remain competitive and maximize profits, would presumably give customers what they want by raising prices and hiring English-speaking staff. So, the fact that the supermarket has hired non-English-speaking staff is evidence that most customers prefer lower prices. Maybe you’re not most customers. Maybe you’d be willing to pay 5% extra for your groceries so that the supermarket staff would be able to tell you where the soup is in English. But why should the government use force to make your preferences prevail over other consumers’ preferences? Notice, by the way, that the conflict is not, for the most part, between English-speakers and non-English-speakers, but among English-speakers with difference preferences over grocery prices versus ease of communication with supermarket staff.

Moreover, the customer who wants English-speaking help may not have to do more than drive down the street to a different grocery store. Typically, free -market capitalism offers a wide variety of goods and services, catering to all tastes, and even minority and niche markets get served. It’s quite possible that the customer who complains about the non-English-speaking staff is actually, at the same time, revealing his preference for non-English-speaking staff plus low prices, by shopping at the supermarket that employs them when other supermarkets, who insist on good English, are available, albeit they charge more. In that sense, it’s improper to regard the lack of linguistic assimilation as a downside of open borders at all. I should be careful not to exaggerate here. Real world markets are imperfect, and the rough-and-tumble of markets probably will see some consumers’ welfare fall, more or less randomly, because of the interaction of these imperfections with their preferences. If you live in a small town with only a few shops, the arrival of immigrants really might deprive you of your preferred shopping environment as other people’s preferences create a new, less English-speaking equilibrium. In the same way, if white hats become fashionable, black hat lovers may suffer as stores don’t bother to carry the unpopular item. But such effects will be small, and society as a whole will enjoy gains from trade with immigrants.

A certain misunderstanding is worth guarding against at this point. Suppose we compare two worlds, in the first of which a country’s 300 million people speak a few dozen languages and have no language in common, whereas in the second, the country’s 300 million people speak those few dozen languages plus they all speak another language which is the common language of the country. Clearly the second situation is better. But that’s simply because the second country has been given, ex hypothesi, a large endowment of extra human capital. In reality, there is an opportunity cost to acquiring human capital. So this is the wrong thought experiment with which to evaluate the effects of open borders.

The starting point of an economic analysis of the effects of linguistic diversity must be that (a) linguistic human capital is valuable, but (b) immigrants who come to a country despite their lack of the appropriate linguistic human capital reveal that they gain thereby, and (c) natives who do business with immigrants despite their lack of the appropriate linguistic human capital reveal that they gain thereby. Markets and prices should accurately value linguistic human capital, and should efficiently resolve the question of whether it is worth it for this or that non-speaker of a country’s dominant language to immigrate or not. The only case which is definitely an exception to this market efficiency argument is when people use language for non-market cooperation, e.g., when you go up to a stranger on the street and ask him for the time, or for directions.

Now, being able to ask strangers for directions and rely, not on getting them since they might not be able or willing to help, but at least on having a common language, certainly has some economic value. The inconvenience of asking two or three people for directions and finding that they are non-English speakers, thus wasting one’s own time and theirs, is certainly a negative externality likely to be associated with open borders. Given the rarity of the event in question, however, I am inclined to rate the importance of the negative linguistic externalities of open borders as low to the point of being trivial. But since this argument pops up again and again, am I, perhaps, missing something? Are the negative externalities of lacking a common language somehow much more important than I suppose? Why? How could this be measured?