The Nation As A Whole Gains, But...

Dani Rodrik has a great post discussing Robert Driskill's excellent new paper, Deconstructing the Argument for Free Trade. Among many other things, Driskill asks a fundamental question that applies to both trade and immigration:

What does it mean for a change in economic circumstances to be "good for the nation as a whole", even when some members of that nation are hurt by the change?

The textbook economic model proves that free trade increases national income on net, but that some persons will lose while others will gain. For example, consumers gain from car imports, but auto workers in Detroit lose. There is a net increase in national income because the dollar gain accruing to consumers exceeds the dollar loss suffered by workers.

The same argument applies to immigration--except there's more to the story. The textbook model of how immigration changes labor market productivity implies that the dollar gain accruing to the persons who gain from immigration (employers and eventually consumers) exceeds the dollar loss suffered by the losers (competing workers). But all available estimates suggest that the net gain is small, while the redistribution that takes place from workers to employers is large. If one were to believe recent estimates, the net gain is probably around $30 billion.

And even putting aside the cultural impact of immigration (which is mostly irrelevant when talking about free trade), there is the non-trivial matter of the fiscal impact. By much does the cost of the social services provided to immigrants exceed the taxes they pay? Given the predominance of low-skill immigration in recent decades, it is almost inevitable that there is a net fiscal burden. This is how I summarized the evidence from the 1997 National Academy of Science study on the short-run fiscal impact of immigration in Heaven's Door:

The typical native household pays somewhere between $166 and $226 in additional taxes because of immigration. There are approximately 90 million native households in the United States, so that the national fiscal burden lies somewhere between $15 billion and $21 billion per year.

Adjust these numbers for a larger population and for inflation, compare the numbers giving the net productivity gain and the net fiscal loss, and the conclusion is inescapable: On net, immigration is a wash. Yes, it is true that immigrants gain a lot from immigration. But it is hard to argue that the U.S. "as a whole" is worse off, and it is just as hard to argue that it is better off.

Returning to Driskill, let me rephrase his question in the immigration context: Why do some economists have such a strong bias for more immigration when the net impact is pretty close to an economic wash and there is probably a substantial redistribution that leaves many natives worse off?

The answer, I think, is obvious. The bias has nothing to do with economics. It is instead the implication of having a value system that attaches a greater weight to the gains accruing to immigrants than to the losses suffered by natives. There's nothing wrong with having that ideology--but it would be extremely helpful if all cards were on the table before one goes off making policy pronouncements based on "science."

Comments

[Tim Worstall]

"It is instead the implication of having a value system that attaches a greater weight to the gains accruing to immigrants than to the losses suffered by natives."

Not quite. The gains to the immigrants are greater than the losses suffered by natives. So being pro-immigration can be the result of a value system which is indifferent to either natives or immigrants: ie, all people are equal.

[Moe]

Since employers benefits the most from immigration, a null value system that presents no ethical problem screwing the powerless in the name of bigger profits also leads to a pro-immigration stance.

[James Hanley]

This was a great atricle but has to deal with the core issues of USA and Canada immigration. I saw something at www.visa-canada-immigration.com that was catchy.

[corvid]

As for free trade, if I and 10 of my neighbors, as consumers, can buy cars that are 10 percent nicer because of availability of imports but the price is that my autoworker neighbor down the street loses his job, his family loses their health care and they are all thrown into desperate financial straits, I'd say that's a pretty lousy tradeoff regardless of which way the dollar signs lean. This is doubly true since the autoworker often bears little or no responsibility for the lousiness of his product; it's mainly executives who are responsible, and they never lose their jobs--or if they do, they have golden parachutes. The same probably applies in every industry.
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[Mike Williams]

Tim Worstall,

Did you miss this bold-faced part of Dr. Borjas' commentary?

"On net, immigration is a wash."

Perhaps your own value system blinded you to this phrase?

[dissent]

"It is instead the implication of having a value system that attaches a greater weight to the gains accruing to immigrants than to the losses suffered by natives."

I appreciate this point. It is true that America seems to hate its workers: declining pensions & health care, ever more expensive tuition, shrinking middle class. What the corporations want, they get. (And economists are for the most part thrilled to be the handmaidens and apologists.)

A study a few years ago by the NSF found that 17K Americans die every year simply because they lack health insurance. What extraordinary hatred! Think of Bin Laden, and his victims: that we identify as hatred. But WE do this to OUR people. It's nothing less than vicious.

[Blissex]

«As for free trade, if I and 10 of my neighbors, as consumers, can buy cars that are 10 percent nicer because of availability of imports but the price is that my autoworker neighbor down the street loses his job, his family loses their health care and they are all thrown into desperate financial straits, I'd say that's a pretty lousy tradeoff regardless of which way the dollar signs lean.» But the 1 who is ruined acts as a powerful lesson to the 9 who manage to keep their jobs: better to keep their wages and heads down or the boss will hire another immigrant or outsource again. Try to imagine this experiment: a boss asks a bunch of headcount, commodity workers, whether to choose between: #1 Every 100 of you 10 are going to be fire and their jobs outsourced. #2 All 100 of you are going to take a 15% pay cut. What do you think most will go for? In a real case, the vote was overwhelmingly for #2, but after they took the pay cut, the boss fired a good chunk of them and outsourced their jobs, because obviously they were desperate to keep their jobs and had no leverage. If they had voted for #1 that meant they thought they could easily find new jobs. http://money.cnn.com/2007/08/22/news/economy/lazy_american_workers.fortune/index.htm «More important, in the growing number of jobs not paid by the hour, people who work harder may just produce better results. General Electric chief Jeff Immelt put it bluntly while recalling a trip to Beijing last year, when he got a big order from the Transport Ministry: "The whole ministry was working all day on a Sunday. I believe in quality of life, work-life balance, all that stuff. But that's the competition. So unless we're willing to compete ..."» The new message from the plutocrats is ''There is a long queue of people begging to take your job outside the door, so work sundays till you drop.''. As The CEO of