Migration and Human Rights (36): The Social Security Argument Against Open Borders

If there’s one Milton Friedman quote that’s repeated far too often it’s the following: “You cannot simultaneously have free immigration and a welfare state”. The income of relatively rich people in many poor countries pales in comparison to what the poor, unemployed, sick, young and elderly in rich countries get from welfare and social security transfers. Hence, the argument goes, opening borders and eliminating immigration restrictions would cause massive flows of people to those rich countries. Perhaps some of these people would come in the hope of finding a good job, but at the same time they have the certainty that, if they fail, they will enjoy generous social protection. And all the rest will come just for the benefits.

The problem, some say, is that rich countries can’t afford large increases in the numbers of welfare beneficiaries, and that they therefore must limit immigration. Open borders are only feasible when global poverty has been solved and income levels are more or less comparable across countries. Or, when rich countries would decide, unrealistically, to eliminate their welfare systems or at least coldheartedly decide to exclude all immigrants from welfare.

However, immigrants in the U.S. use welfare at lower rates than natives and have higher rates of labor force participation. In the U.K., immigrants represent about 13% of all workers, but only 7% percent of unemployment benefits (source).

Anyway, even if we assume that open borders will be a net negative for western welfare systems, there’s no need to limit the options to the stark choice between welfare and open borders. We could, for example, give immigrants access to labor markets but only limited access to unemployment benefits, or we could delay their benefits, demanding that they first contribute to the system during a number of years (something which might actually strengthen the system). However, we’d have to be careful and not create inequality, discrimination and a class society.

Or we could decide to grant immigrants full access to welfare because we believe that global inequality should be reduced. Access to welfare would then be a kind a development aid.

And, finally, it’s possible to view matters from an entirely different angle. Large chunks of welfare transfers go to the elderly. Given the demographic evolutions in many rich countries, it may be that immigration will be the only way for aging countries to sustain their welfare states.

Migration and Human Rights (35): The Economic Benefits of Immigration, Ctd.

Immigration is supposed to be bad for the economic wellbeing of (parts of) the native population (a claim that’s based on fears about unfair labor competition pushing down wages or pushing natives out of work, and about burdens on social safety nets resulting from so-called “welfare tourism”).

More open borders would be a good thing for the wellbeing of potential immigrants. But it would also be a good thing for the natives of the destination countries: it’s not just that immigration fails to harm the native population, but it actually provides some benefits. And those benefits exist even when we don’t limit immigration to high-skill immigration. That means that immigration restrictions can hurt the destination country.

How does immigration benefit the host country?

  • First, low skilled immigrants allow relatively low-skilled native workers to move to higher skilled or more specialized positions, for example as supervisors of the new immigrant workers. And those positions yield higher incomes.
  • Secondly, low skilled immigrants make it possible for natives to spend less time on non-paid, low-skilled activities that they can outsource. As a result, the latter can spend more time on paid activities, which increases their income. And even if they don’t (choose to) increase their income they probably increase their wellbeing.
  • Thirdly, immigrants produce tax revenues which contribute to social safety nets that benefit everyone.
  • And finally, immigrants consume, which creates higher economic growth which in turn benefits everyone. And when we legalize immigrants, they are likely to earn more, pay more taxes and invest, which will increase the productivity of the host economy, again to everyone’s benefit.

There’s some additional evidence in favor of these claims here. In short, this is what it says:

The effects of immigration on the total output and income of the U.S. economy can be studied by comparing output per worker and employment in states that have had large immigrant inflows with data from states that have few new foreign-born workers. Statistical analysis of state-level data shows that immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

The anti-immigration claim that immigrant labor competition harms native workers, especially the low-skilled ones, is easily refuted by the simple fact that

U.S.-born workers and immigrants tend to take different occupations. Among less-educated workers, those born in the United States tend to have jobs in manufacturing or mining, while immigrants tend to have jobs in personal services and agriculture. Among more-educated workers, those born in the United States tend to work as managers, teachers, and nurses, while immigrants tend to work as engineers, scientists, and doctors. Second, within industries and specific businesses, immigrants and U.S.-born workers tend to specialize in different job tasks. Because those born in the United States have relatively better English language skills, they tend to specialize in communication tasks. Immigrants tend to specialize in other tasks. (source)

The role of language provides an example of how immigration allows native workers to move to higher skilled or more specialized positions:

in states where immigration has been heavy, U.S.-born workers with less education … have shifted toward more communication-intensive jobs. Figure 3 [below] shows exactly this. The share of immigrants among the less educated is strongly correlated with the extent of U.S.-born worker specialization in communication tasks. Each point in the graph represents a U.S. state in 2005. In states with a heavy concentration of less-educated immigrants, U.S.-born workers have migrated toward more communication-intensive occupations. Those jobs pay higher wages than manual jobs, so such a mechanism has stimulated the productivity of workers born in the United States and generated new employment opportunities. (source)

Therefore, immigration pushes up the income of native workers.

To better understand this mechanism, it is useful to consider the following hypothetical illustration. As young immigrants with low schooling levels take manually intensive construction jobs, the construction companies that employ them have opportunities to expand. This increases the demand for construction supervisors, coordinators, designers, and so on. Those are occupations with greater communication intensity and are typically staffed by U.S.-born workers who have moved away from manual construction jobs. (source)

Of course, there are bound to be some distribution effects, which means that there will be natives who benefit and other natives who don’t and who may even be harmed by immigration. However, it’s the complete picture that counts.