Rodrik On Guest Workers

My friend and colleague, Dani Rodrik, has an oped in the NYT today summarizing his view that the gains to guest workers are so large that we should adopt this particular antipoverty program.

Each foreign worker in this country earns a multiple of what he would make in his home country — an extra $17,500 per year for the average Mexican worker in the United States...Multiply this by 200,000 guest workers per year, and by the end of a decade, an income gain of $35 billion per year would be generated for workers from poor nations.

This exceeds the $23 billion the federal government spent on foreign aid last year. It is also larger than the benefits — amounting at most to $30 billion per year — that poor nations are projected to reap from the current round of multilateral trade negotiations. And unlike foreign aid and trade agreements, the benefits in this case go directly to working people.

There's an awful lot of detail that's left out of the oped, and therein lies the crunch. In an earlier post, I put forward a few questions that need to be explicitly answered by anyone who proposes such a guest worker program:

1. What guarantee is there that the guest workers will in fact be temporary workers? How can such a guarantee be enforced in the United States?

2. What will happen when the judicial system puts its fingerprint on the program? All it takes is for one activist judge to invent some right out of thin air, and--presto--it will be hard to repatriate many more guest workers.

3. Doesn't a guest worker at the end of the visa term have incentives to become an illegal immigrant? How are we going to prevent that?

4. Why would one want to start a program that essentially creates a huge class of disenfranchised workers in the labor market? Isn't there a real danger that the exploitation of poor foreign workers--the new crop of second-class citizens--becomes a trademark of that segment of the labor market?

5. Surely a guest worker program of the magnitude contemplated by Bush-Kennedy-McCain must have some impact on the relative wage of competing workers. Shouldn't we care about these poor workers too?

Here's what Dani says about the incentives to return after the visa expires:

To help poor nations the most, the program must ensure that guest workers return to their home countries. Employers will need to accept greater scrutiny and reporting requirements. Workers must have a portion of their earnings deposited in escrow accounts, which would be forfeited if they overstay their visas. The absence of appropriate incentives has turned other “guest” worker programs — Germany’s being the best-known example — into permanent-resident programs.

...Countries could be told that their quotas in the guest worker program in future years would be reduced in proportion to the number of their citizens who fail to come back...Whatever the practical difficulties, the potential gains are too large for us not to try. A guest worker program is the most effective contribution we can make to improving the lives of the world’s working poor.

So much wishful thinking....such a nice summary of liberal aspirations...that I hate to throw a little cold water on all this utopian dreaming. But somebody must. It ain't gonna work!

Just to take one of Dani's points in detail, let's "have a portion of their earnings deposited in escrow accounts, which would be forfeited if they overstay their visas."

Example: A guest worker earns $20,000 a year in the U.S. for six years. Let's withhold all his pay. At the end of six years, that bank account will be worth about $140,000 if the interest rate is 5 percent. If he goes back, he gets the $140,000 booty and earns, say, half of his U.S. pay for the rest of his life. Discounting future earnings at 5 percent and assuming he has a very long life ahead of him, this option is worth approximately $340,000. Alternatively, he can say goodbye to the $140,000 bank account, stay in the U.S. illegally, and earn $20,000 for the rest of his life. This option is worth $400,000.

This guest worker will not want to leave. Who is going to force him and how are we going to do that?

I realize that some trade and development economists are finally beginning to realize that trade alone will not ease the pain suffered by billions of the world's poor. So they are latching on to something that may yield potentially bigger gains: immigration.

But they are forgetting a crucial detail: Trading people is not quite as simple as trading potatoes.

Comments

[Jorge Romero-Habeych]

Individuals are not goods, when poor people without any education come here they usually plan on staying and once they settle they start looking for a way to bring their loved ones here. The 1986 Immigration deal shows that most people will not return home, I wouldn't either. If we enact a worker program we should be prepared to except the fact that those people are here for good. We should be focusing on securing our borders and putting a system in place that allows us to enforce the law that is in place now. We do that and we'll see a drop on illegal immigration (especially from Mexico which brings drugs and other negative externalities along with it). After those two things are done then setting a point based worker program would then be the next step to make.

[Jorge Romero-Habeych]

accept not except

[John]

Prof Borjas-

Can you let us know your moral calculus?

How much do you weigh each U.S. citizen compared to the foreigner? So far you haven't made this clear and it seems the primary disagreement.

John

[gborjas]

John,
If I could write down my utility function, I could probably patent the process and make tons of money. I'm sure my ratio of weights is larger than Dani's. But the utility function is not the only disagreement. As an example, Dani glosses over the fact that "temporary" equals "permanent." I don't, and neither should the American people. I don't think it's good habit to get a policy through by misleading the electorate. If what you are selling is a permanent increase in immigration, then come right out and say so. We can then have an honest debate about whether to take that route or not.

[Torben]

Professor Borjas:
I know immigration issue a bit problematic especially when you take into account social cohesion and other social problems. But, a simple evidence about slaries of "equally" qualified individuals suggests that there is very high global inefficiency in the labor market. Isn't it the case that as far as there is ineffiency, there is a room for pareto improving immigration?

[Richard A.]

A typical feature of guest workers is that they come tied to their sponsoring employer almost like a slave. A major reform of the guest worker concept would be to allow guest workers to sell their services to the highest bidder. But employers of GWs would oppose such a reform.

[K. Williams]

Richard, the bill the Senate is considering makes guest workers' visas portable. In other words, they're allowed to leave their employer and get a different job if they want.

I guess GW's employers are falling down on the job.

[Ryan Pevnick]

1. I agree that many will not return home even with the proposed accounts. Nevertheless, the economic calculations mask the fact that many will return home. For example, many current illegal immigrants return home after working seasonally in order to make a certain amount of money, protect themselves from a local recession, etc. People will choose where to live not just based on income, but also on family, cultural, and other 'soft' issues.

2. Borjas's position hinges on the *assumption* that (a) policy should be made just (or at least primarily) to benefit the domestic population and (b) that the U.S. may legitimately close its borders to people who wish to peacefully come work in the territory (and thus enter into a mutually voluntary contract with citizens). (For these assumptions, see Heaven's Door pp. 187).

So, regarding (b) [which is, of course, necessary to establish (a)] what kinds of reasons can be legitimately given to keep foreigners out of the territory in the first place? What kind of ownership can the political community legitimately claim over the territory and why?

Until these antecedent questions are answered, talk of ways to get guest workers out of the country is premature.

If it can't be answered (as Joseph Carens and others have suggested), then we should stop trying to figure out ways to keep others out of the economy and instead view such behavior as illegitimate rent-seeking by citizens.

Note: this is not to say that there is no reason to deny extended political rights (like access to the welfare state) to immigrants, this is a different issue & raises different kinds of justificatory questions.

[K. Williams]

Herewith, answers to Borjas' questions:

Questions 1-3 are all the same question, just rephrased in different ways:

Proponents of this measure do not need to "guarantee" that the guest workers will return home. Of course, they can't guarantee it. But as long as we believe that, more likely than not, most guest workers will return home when they're done -- and the experience of Puerto Rico and of the illegals Ryan cited suggests that they will -- than the economics of this measure are undeniably positive.

There is no reason to think the judicial system will "put its fingerprint" on the program. The Senate's bill is absolutely clear in its definition of the guest workers, and there is no wiggle room for judges to create a right.

As for deportation, the US actually doesn't seem to have too much trouble deporting people right now. I don't think there'd be any problem doing so six years from now, either.

Because of the provisions of the bill, there's no reason to think these guest workers will be any more exploited than ordinary workers already are -- and lots of reasons to think they'll be less exploited than illegal immigrants are.

Finally, we should be concerned about native workers. But we should not be exclusively concerned with native workers. Any reasonable conception of social justice demands that when you can hand foreigners the kind of immense gains that the guest-worker program will create, at only a small cost to native workers, the foreign workers' interests should take precedence.

[Robert Hume]

The issue is not how much a foreigner is worth compared to an American.

The issue is, should politicians elected by Americans give away wealth to foreigners without the consent of their voters. Do we live in a Democracy or not? The politicians should do what the voters want.

If the politician, or a disappointed voter, wants to give some of their own money to foreigners ... no problem, they should do so. Perhaps to the degree that their wealth declines to that of the world average.

Dani confuses morality with Democracy. His gambit is somewhat successful because everyone feels a little guilty. But they should ameliorate their guilt by giving away their own money, not that of the taxpayers.

Unless they can legitimately convince the taxpayers that giving money to the foreign poor is good for the taxpayers themselves.

Of course a straightforward approach along these lines is likely to fail. Look at how popular foreign aid is. That's democracy. Maybe we need to replace the people?

[D Flinchum]

"Any reasonable conception of social justice demands that when you can hand foreigners the kind of immense gains that the guest-worker program will create, at only a small cost to native workers, the foreign workers' interests should take precedence."

It's been my experience that those who make statements like this in the immigartion debate tend NOT to be among the "native workers" who are affected.

I don't have the exact quote but Mark Twain said something like, "Any man can stand adversity. Another man's, that is."

[Ryan Pevnick]

The issue is not how much money should be given away to foreigners. Instead, *current policy* blocks foreigners from making mutually agreeable agreements with citizens. Allowing foreigners to work here simply removes that illegitimate constraint and, thus, allows them to compete in the absence of citizens leveraging their birthright advantage to capture illegitimate gains. Surely, if we want to use government power to block people from making consensual transactions at least some reason must be given for why this is legitimate. But, so far, no such reason has been presented (and Borjas, as I read him, admits this much in the passage of Heaven's Door that I pointed to above).

The issue can only by portrayed as one of how much to give to foreigners if we know that the current situation is acceptable, but this is precisely what is being called into question.

The issue is very different from foreign aid and should be kept distinct.

[Ryan Pevnick]

Re: Flinchum

Those directly affected by a decision are least likely to be able to assess is fairly (this, of course, in the reason for the veil of ignorance in Rawls's work). Of course, those who are adversely effected are unlikely to be happy about it, but this doesn't show that they have legitimate reason to complain. If I run a small coffee shop and Starbucks moves in next door, I may be more unhappy about it than anyone else in the neighborhood, but this doesn't mean that I have a legitimate complaint against Starbucks.

[D Flinchum]

"If I run a small coffee shop and Starbucks moves in next door, I may be more unhappy about it than anyone else in the neighborhood, but this doesn't mean that I have a legitimate complaint against Starbucks."

You have every right to do everything in your power to legally oppose the Starbucks. BTW since when are nations required to put foreigners' interests over their own citizens'?

And your statement that "Those directly affected by a decision are least likely to be able to assess i(t) fairly " is very elitist and condescending. Are you saying that ordinary people are not cabable of assessing their own interests?

One of the things that gets me about this issue is that the folks in the gated communities with the resources to send their kids to private schools (or schools in exclusive neighborhoods) and the connections and/or education that will lessen its impact on their careers are the ones who think it's a great idea.

I call these folks Saints Elsewhere. A Saint Elsewhere is someone who wants to do "good works" and appear saintly but who wants the results of those "good works" - often quite bad - to fall elsewhere, as in somebody else's family, job, neighborhood, community, school, etc. I have no respect for them.

[Richard A.]

Professor Pevnick,
Do you favor the minimum wage and if not do you think employers should have the right to import willing foreign labor at $1.00 an hour?

Also, can you give an example of one or more countries that
allows employers to import foreign labor without restrictions?

[Florian W.]

Professor Borjas:

First of all, thanks for sharing your thoughts and opinions. It is great that non-US students like me can face new intellectual issues from over the ocean.

Relating to your post: it is quite funny to see how the world seems to be so different but we in Austria are currently having the same debate whether to lock our borders (that's the rightw-wing perspective) or to open the borders to qualified workers who can settle down here. Economically speaking, most university professors over here agree that we need more foreign people to work for us and settle down here because we're facing demographic repercussions (wow, i think i put this the right way!).

anyway, why would it be a bad idea to open the gates a bit in the US to give skilled foreigns the chance to make a living here? especially if there are shortcuts in diverse working areas. why are you debating over workers leaving after they the worked, lived and paid taxes in the US? i thought it is one of the basic american ideas to provide for an open market in which the stronger and better one succeeds. if a worker pays his taxes here, why should he go afer some years if he did his job well? i think that allowing skilled people to settle down here is a major chance for the US to secure qualified workers in the near future.

[Robert Hume]

"Any reasonable conception of social justice demands that when you can hand foreigners the kind of immense gains that the guest-worker program will create, at only a small cost to native workers, the foreign workers' interests should take precedence."

Yes, this is the issue. And the question is "Who is 'you'"?

In a democracy the people, the voters, are 'you'. Rawls and other experts in ethics have to convince the voters to act in the ethical way. If they can't then the voter's money should not be taken from them at the direction of ethnics experts and given to someone else.

That would not be ethical.

The voters approve of Social Security and Medicare. They don't approve, generally, of policies which aid foreigners at the expense of US citizens.

Ethics experts should give their own money to foreigners if they can't convince the voters to give their money to foreigners.

[Jake Jacobsen]

And I think all of this simply begs the question: Is America nothing more than a jobs program to the world?

[Dave]

The salient question, for American politicians, should be what is in the interests of the United States of America. Nevertheless, it's questionable how beneficial migrant worker remittances are to their home countries. See, for example, "Migrants' Money Is Imperfect Cure For Poor Nations", by Bob Davis, in Wall Street Journal (I was going to post a link, but no HTML is allowed here).

[Ryan Pevnick]

On Starbucks:
Of course, you have a legal right to do anything legally within your power to oppose the move. But, this doesn't prove anything since (a) it is tautological and (b) the argument is about what avenues the law ought to protect.

On Ethicists:
Of course, it is up to people like Rawls to persuade others. That, I take it, is the point of their writing. Certainly Rawls would never have advocated any kind of philosopher-king. I don't see why anyone would suggest otherwise.

Likewise, I was certainly not claiming that ordinary people are incapable of judging their interests. Instead, I was saying that people (common, elite, or whomever) are not very good at fairly assessing situations in which their own interests are heavily at stake. This is why, for example, courts privilege the testimony of neutral bystanders (whether they be homeless or CEOs) over actual particants in a case.

On the benefits of a guest worker program:
While clearly not a panacea for development, there are significant benefits at stake for the potential guest workers themselves.

On Saint Elsewheres:
This argument can't distinguish between those who want to allow more immigration and restrictionists. That is, why not say that restrictionists want to be seen as doing something good locally while depositing all the negative implications in a far away land beyond their view and immediate environment? After all they propose to use gov't power to exclude individuals who need work from an area which has willing employers. They do this because they think that it will benefit them (and, perhaps, their 'kind') while they (and those they know) will not be subject to the exclusions.

On the minimum wage:
This, I think, is a legitimately difficult question. In this kind of forum, I will just say two much too brief things:

First, I don't support *any* mutually agreeable transaction. I just think that there is a strong prima facie case in support of such transactions such that if you want to use government power to overrule them some good reason should be offered. (Again, the question to restrictionists is what justifies the government using force to block such transactions? This is *not* a case of forcing people to give $ to foreigners. Instead, it is a question of whether or not the state is justified in using force to block such transactions and, if so, why?)

Second, in the original minimum wage cases (and in the struggle for it in cases like Lochner v. NY) a good reason (in my view) was presented: namely, the power disparity between employers and potential employees facilitated a kind of objectionable exploitation of workers. How exactly this kind of reasoning applies in an increasingly globalized world economy in which the opportunities are distirbuted very unequally is not obvious.

Finally, I do not mean to be disrespectful of dismissive of other views. I appreciate the opportunity to have this discussion and Dr. Borjas's willingness to provide the arena for it.

[Show Me]

It seems disingenuous (actually it’s explicitly disingenuous) to ignore the political dimension of immigration.

Worldwide, governments rarely approach the constitutional standards familiar to Americans, and while nominally democratic governments are (currently but historically unusually) common they are frequently fragile or abusive.

Importing third worlders necessarily imports a tendency to their style of government. Why impose this risk on unsuspecting Americans?

[Harry]

Ryan Pevnick:

Doesn't your implementation of Ralwsian ethics depend on a somewhat novel definition of "society"? I would think that, in American politics, "society" is usually defined to mean American society. If you expand "society" to mean world society, then using the "veil of ignorance" framework might lead you to advocate American policies that would benefit the poorest people in the world, which aren't Mexicans. Following this logic, we should let every Haitian in before the next Mexican.

This is an interesting moral position -- and one that would be wholly rejected by American voters given the chance -- but how do you act on it in your daily life? Do you donate the bulk of your income to the poorest people in the world?

[napablogger]

Does anyone ever think about the fact that there is too many friggen people in California, whether they are profitable or not? We have wall to wall bodies here and it is getting worse. I don't care if we can make some money off of more immigrants from Mexico or anywhere else, it is destroying the quality of life. I have lived in California since 1980 and have seen the population explode, and it is all from immigration. Traffic, pollution, overcrowded neighborhoods. It's not that they are not nice people, most of them are just as nice as anyone else, it is that there is too many people here and it creates all kind of stress and friction. My question is, is it ok to have your home town stay nice and comfortable, or do we have to cram as many people in as we can just because someone wants to make some money off them and somebody else says they are poor so we have to help them out by hurting our own neighborhoods? I think if we had a manageable number of immigrants coming in we wouldn't be having this debate, but there is just way too many at once and no one seems to be talking about that. Instead we make up all these other b.s. reasons to be for or against them. People are like animals, they need a certain amount of territory or they get stressed and start killing each other.
Remember Hitler's big reason for being aggressive--leibestram. Living space.

Thanks for reading my rant if you have gone this far, I am frustrated over this issue because no one seems to be talking about the real problem--overcrowding and its impact on our quality of life. Instead smart growthers are going to put us all in condos downtown so we can walk to the grocery store. Is that your retirement dream? It ain't mine.

[Ryan Pevnick]

1. Once again, we are not talking about giving money away here. That's a different issue that raises different questions.

2. I do not challenge the society's right to institute redistributive programs among member (progams that exclude foreigners). Entrance into a territory and membership in society's programs are not necessarily linked. We should think about the grounds on which people might makes claims of these two types individually.

3. I would not subscribe to an effort to extend Rawlsian political theory to all (or probably any) of these questions. I referenced Rawls just in saying that we shouldn't give deference to perspectives that are likely prone to unjustified partiality.

4. It is no doubt correct that most Americans would reject my position, but it is at least possible that they would be wrong to do so.

[Hans Suter]

Switzerland (a country with very strong immigration) wasn't able to limit influx but succeeded in keeping it legal (http://ideas.repec.org/p/wbk/wbrwps/3853.html ). Italy which has used amnesties for every illegality you can immagine (taxes, building permits or for simply staying in prison)has become a state without enforced law. (Being Swiss and living in Italy I consider myself to be a privileged observer):-)