Sunday, November 23, 2014

Insuring Immigration

NEW YORK – Almost immediately after the suspects in the Boston Marathon bombings were revealed to be immigrants, opponents of immigration reform in the United States seized on the case to highlight the danger of adopting a more open approach to the issue. After all, stoking public fears effectively derailed immigration reform in the wake of the terrorist attacks of September 11, 2001; why shouldn’t it work today, as the US Congress takes up the issue again?

The role of fear – fueled and manipulated by political interests, nationalist sentiment, and religious intolerance – in shaping the immigration debate is not exclusive to the US. To be effective and persuasive, however, such fear often requires a rational, seemingly credible argument.

That is why resistance to immigration so often relies on a common misperception that it has a profound and perverse economic impact on both source and destination countries. Migrants are believed to impose a fiscal burden on destination countries’ welfare systems or to take their citizens’ jobs. Meanwhile, source countries fear a “brain drain” as their most productive citizens seek better opportunities elsewhere.

Such fears tend to overshadow the more pragmatic aspects of immigration, leading to tightly – even irrationally – regulated borders that limit the global economy’s potential. Some economists have estimated that open labor migration would double the world’s GDP; even the most conservative assessments project an increase of 5-12% of GDP.

The problem with existing, nationally bounded labor markets is a skills mismatch. Destination-country employers cannot access needed talent – even talent that is not useful in the source country. Despite some destination countries’ efforts to facilitate the migration of workers with particular skills, state-dictated screening methods cannot keep up with mutable labor markets. Like matching consumers to products, matching workers to jobs works best when left to market mechanisms.

Although both source and destination countries would benefit from more open borders, global immigration reform is not currently politically feasible. Indeed, a recent survey conducted by the Pew Research Center found that majorities in 44 of 47 countries supported tighter immigration restrictions. In order to tap the vast benefits of an open labor market, policymakers must work to allay the public’s fears, many of which are misplaced or exaggerated.

Foreign-born populations have been shown to strengthen the fiscal positions of several destination countries. In 2008-2009, people who migrated from Eastern Europe to the United Kingdom paid 37% more in direct and indirect taxes than they received in benefits and public services. Similarly, migrants in Germany are equally or less dependent on social services relative to native citizens. Moreover, evidence demonstrates that migrants rarely displace native workers, and that any “brain drain” is often offset by gains from outward migration, including remittances.

Greater international cooperation would maximize immigration’s economic benefits. But, despite the potential benefits of cooperation in controlling illegal immigration, most countries, including the US and the UK, seek to reform their immigration laws unilaterally. They view cooperation as infeasible, given the natural competition between destination and source countries for the most productive workers.

A new system, in which “reversible bonds” replaced quotas and desirability screenings, would diminish such competition, while mitigating the risks to destination and source countries. Reversible bonds would act as an insurance mechanism for both sides, shielding destination countries from the expense of fiscally motivated immigration and protecting source countries from the costs associated with the loss of talented workers.

For example, if an American company wanted to hire a Colombian worker, it would post a bond, the amount of which the US and Colombia had set. If the worker later became unemployed, the bond would be released to the US to cover welfare benefits. Likewise, if the worker committed a crime, the bond would cover deportation costs. If, however, the migrant remained an employed and law-abiding resident for a specified period, the bond would be divided between the company that had posted it (as a reward for having screened a productive foreign worker) and the Colombian government (as compensation for productivity loss and the costs of educating and training the worker).

Finally, if the migrant returned to Colombia after a specified period of working productively in the US, neither country would need compensation. The US and the employer would have benefited from the employee’s labor and tax revenue, while Colombia would benefit from the worker’s return, presumably with more money and enhanced skills. In this case, the bond would be released to the worker, creating an incentive for return migration and cultivating “brain circulation” instead of brain drain.

A reversible-bond system would essentially eliminate the costs to governments of undesirable migration, while allowing them to reap the benefits of desirable migration. It would ensure that labor markets’ actual needs, not rigid government policies, determined migration patterns, by enabling employers to choose who migrates. At the same time, it would guarantee employers access to the skills that they need, thereby increasing their contributions to the economy, while enabling workers worldwide to seek the most attractive jobs.

Furthermore, such a system would be fairly easy to sell to destination-country voters, who tend to be more accepting of high-skilled immigration. Unskilled workers migrating within the reversible-bond system would likely have to post the bond themselves, possibly with a loan from their home countries, reducing the likelihood of fiscal loss. And, by ensuring that the cost of hiring a foreign worker was high enough to eliminate an employer’s incentive to forego an equally qualified domestic candidate, reversible bonds would eliminate concerns about labor displacement.

Notwithstanding the public’s resistance, advanced-country populations should embrace immigration. Europe, for example, is expected to face a shortfall of 30-50 million workers by 2050. And the US needs a sustainable, efficient labor-migration policy to replace its current approach, which fuels illegal immigration.

Empirical studies of economic migration have long supported greater liberalization of immigration policies. But fear continues to impede meaningful reform. By eliminating the risks associated with labor migration, reversible bonds can unlock the international labor market and point the way to a more productive global economy.

Then, once the pseudo-rational economic justification for opposing labor migration is addressed, the prejudice that underlies it can be dealt with directly.

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    1. CommentedDavid Morgan

      I am in full agreement that workers with skills are needed, but what of the thousands of uneducated young Muslims turning up on European shores? Any suggestions?

    2. CommentedRavi Shanghavi

      We see horrific prejudice towards immigrants wherever we go in the Western world, however people do forget that the 'Boston Bombers' could have infiltrated the USA and succeeded with their plan on a tourist visa.

      There needs to be a social reform towards immigration - a change of mind-set if you will - and only then can rational judgements and decisions be made.

      - Ravi Shanghavi Ottawa

    3. CommentedCraig Hardt

      Professor Bradford, this is a very interesting idea. I have two questions, however.
      1. What impact do family formation and cultural ties have on the adaptability of the international workforce? It seems your idea assumes an easy flow of workers to and from destination/source countries determined primarily by economic, not social, linguistic, or cultural factors.
      2. What incentives do destination countries have for investing in education and training if they can rely on other countries to provide their workforce? Presumably the bond value would be far less than the cost (both in money and time) of educating a citizen for 20+ years.

      I would be very interested in hearing thoughts on this.

    4. CommentedJeremy Sobotta

      This is an interesting and thought provoking idea which would certainly seem to appeal to the average voter's qualms about immigration/emigration, but it seems rather difficult to implement practically. As somebody who has lived and worked in five different countries, I know that many times the costs to the individual and employer are already great enough to be prohibitive, and adding an additional burden will only discourage mobility of human capital further. It has always struck me as quite bizarre the way the free trade of labor invokes a type of irrational protectionism which is unmatched in any other part of the economy. I refuse to accept this as inevitable and believe eliminating this mindset is the only way to sustainably ensure black swan events such as 9/11 do not derail any positive movement towards openness. With each small win, we build more public exposure to immigrant neighbors, and this exposure further breeds tolerance. It will admittedly take a slow, grass-roots effort, but this is the only type of evolution which will survive political distortions in the long-run.

    5. CommentedJohn Spiegel

      It's an interesting proposal. However, as is typical it leaves the core opposition out of the mix. It looks to leave the foxes managing the henhouse. As it turns out one man's (company's) shortage is another man's (worker's) wage arbitrage. IT has been ground zero for this and a great many domestic, currently-skilled developers can tell about the time(s) they were tossed aside or overlooked for foreign labor. How does the bond system deal with this any differently?