Cornering the Migrant Market

My contribution to this blog will be largely focused on the economics of the immigration debate, which I believe is central both to understanding public hostility to immigration and to shaping sensible immigration policies for the future. I will try to synthesize the migration economics literature that I have read in a way that is perhaps useful to a non-specialist, and I may even be able to offer a few original ideas as well. I certainly hope that readers will share any evidence or scholarship which seems to contradict my arguments, as I still have a lot to learn in the field and am constantly refining the dogma that I take for enlightened reasoning.

Politicians often talk about their desire to dramatically limit the number of migrants entering their countries, even though the economic justifications for doing so are tenuous at best. But what has always struck me as being even more interesting than politicians’ motivations for such promises is their inability to deliver on them. A recent article I read by Edward Alden of the Council on Foreign Relations says that 60% is an upper-bound estimate of the United States success rate in thwarting attempted illegal entries each year1, a figure it gets at the cost of $17 billion dollars in annual border enforcement expenditures2, and which says nothing about the immigrants who enter legally and then overstay their visas. Cash-strapped European countries, with fewer resources and less forbidding natural borders, are surely struggling to match even that rate of exclusion.

But there is of course a powerful force out there that does effectively regulate the number of immigrants who come to any given country, and that is the market. Usually when people talk about the market for immigrants they are talking about the desires of employers in receiving countries for cheap labor from sending countries. But I am talking instead about immigrant demand for a market good that I’ll call “entry,” which here refers to both entering and staying in a country for a while, and which may be desired by immigrants for a wide range of reasons. There is a rich body of literature examining those reasons, but for now it doesn’t really matter why immigrants want “entry” – they just want it. Some want it a lot, some want it a little, some will find it to be everything they hoped for and some will find it to be a massive let down. Collectively all these immigrants with their myriad motivations constitute the demand for a good whose quantity many governments want to limit.

Now the effect of government restrictions is ultimately not so much to limit supply as to stratify the market. There are ultimately a certain number of immigrants in every receiving country who are able to consume “entry” through legal channels, and then there are a great number of immigrants who are forced to gain or maintain “entry” through irregular channels once the government-approved quantity of the good has been used up. From an economic standpoint, this is unfortunate because there are huge gains to trade which are being lost, or at least going to the wrong people (gains to trade are what arise anytime that both parties in a transaction are better off making an exchange). The first losers are the irregular migrants who are not getting the same quality of “entry” that’s available to the migrants who get government-sanctioned entry. These irregular consumers live in constant fear of police harassment, exploitation, discrimination, and many other things that they would probably pay good money not to have to deal with if only they could. And the only person who could sell them a guarantee of not having to deal with those things is the government, which is the second loser by denying itself a large amount of money by trying to enforce its arbitrary restrictions. The big winner of this state of affairs is the black market of people smugglers who charge exorbitant fees to provide low-quality “entry” and often abuse or deceive their customers.

A very perfunctory perusal of history or even current events shows that black markets always arise when governments ignore demand for a good and place a legal limitation on the quantity of that good available. When the U.S. banned alcohol in the 1920s there was an explosion of organized crime which found ways to manufacture and import it illegally and by most accounts, consumption levels didn’t fall very much. From the more recent war on drugs, you of course have the Mexican and Colombian cartels and a whole host of dodgy dealers in our towns and neighborhoods. These analogies aren’t perfect because they involve setting the legally permissible quantity to zero, which few countries have done for migration. But you can imagine that if it’s difficult to stamp out illegal consumption of something when there is no legitimate consumption for which it can be mistaken, then it must be much harder when regular and irregular migrants exist side by side. As a general rule, if a good can be produced by many people, or exists naturally, then the resources governments can commit to restricting the availability of the good will simply never be as great as the resources available to smugglers making sure it’s available for those who will pay3. In the case of “entry” available to immigrants, for example, borders are too big, and there are just too many people coming and going through officially sanctioned channels to identify and stop every clandestine penetration or overstaying of a visa.

But governments really are the exclusive manufacturers of high-quality “entry,” which, if they were smart, they would simply sell at whatever price the market would bear. The key to determining this price would be to remember that low-quality entry will always be available for the reasons listed above, and if high-quality, i.e. legal “entry” is too expensive, then immigrants may decide that it’s worth it to opt for the low-quality one instead. But there is undoubtedly a price at which the vast majority of immigrants would choose to purchase legitimate entry rather than black-market entry. Surely most Mexican migrants would much rather pay $1,000 and get a work-visa that was good for five years, as well as the guarantee that they wouldn’t be harassed by police in Arizona, rather than pay at least that much to a smuggler and then live for years in the shadows of society. And in doing so they would generate revenue for the government that would certainly go beyond the cost of doing a background check and printing a high-quality ID card. Domestic workers could also get a gain from this trade because some of this surplus could be used to fund worker training programs for workers in industries where people feel particularly threatened by competition from immigrant labor. Given that this competition, to the extent it exists, is already present anyway, workers should surely agree that it’s better to have the government offer retraining classes than not.

The effects of such a policy on the total stock of migrants in a given country is difficult to anticipate and would depend in part on exactly what was being sold by governments as “entry.” Many immigrants only wish to work abroad temporarily and choose to return home after a certain period of time. In fact, evidence from the United States suggests that many irregular migrants began staying much longer once border crossings became more difficult in the 1980s, as they were reluctant to leave when it seemed unlikely that they would be able to return to the U.S. at a later date if they chose to do so4. So the frequency with which immigrants leave, as well as arrive, may be much greater, and it may also be much more sensitive to economic conditions, rising and falling rapidly as hiring conditions change (which should be additional consolation for domestic workers who feel especially threatened by migrant competition during tough times). And if, as research suggests5, low-skill immigrants mainly provide competition for each other, rather than for domestic workers, then there would probably be a saturation point at which new immigrants just found that there were already too many other immigrants with the same qualifications in the receiving-country labor market, and they would just go home.

The policy I’m advocating may sound like something no politician could ever dare defend, and is therefore moot. Yet something remarkably similar to what I’m describing does already exist in the free movement of peoples within the European Union for citizens of its member states. And despite its unpopularity in some countries, this bold experiment in liberalized migration actually works remarkably well for all parties, especially when contrasted to Fortress Europe’s futile and cruel attempts to keep immigrants from the rest of the world out. A closer look at the insights to be gained from the EU will be the subject of my next posting.

Alden, Edward (2012) “Immigration and Border Control,” Cato Journal, Vol. 32, No. 1 (Winter 2012)
Ziglar, J.W. and Alden, Edward (2011) “The Real Price of Sealing the Border,” The Wall Street Journal, April 8, 2011
3 For an excellent theoretical treatment of black market incentives, see Boulding, K.E. (1947) “A Note on the Theory of the Black Market” The Canadian Journal of Economics and Political Science, v. 13, no. 1 Feb, 1947. For an interesting but somewhat flawed modeling of people-smuggling incentives, see Gathmann, Christina (2004) : The Effects of Enforcement on Illegal Markets: Evidence from Migrant Smuggling along the Southwestern Border, IZA Discussion paper series, No. 1004
4 Reyes, Johnson, & Swearingen (2002) “Holding the Line: The Effect of the Recent Border Build Up on Unauthorized Immigration,” California Public Policy Institute, 2002
5 Ottaviano & Peri (2006) “Rethinking the Effects of Immigration on Wages,” National Bureau of Economic Research Working Paper 12497, August, 2006

One comment

  1. […] enter the country and find employment without seeking the aid of human traffickers or cartels.” Which is something I wholeheartedly endorse. On the other hand, the provision that businesses will be able to hire low-skilled immigrants only […]


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