Adding Economics to the Immigration Debate

Published May 20, 2014

A debate on immigration policy was held recently in Chicago between a conservative and a libertarian. It was an exercise between light regulation and lighter regulation. Both regimes would enlarge the programs for highly skilled foreigners and temporary workers and tighten the border with Mexico.

Left out of the two-hour discussion was a good deal of relevant history and economics. First, there is the history of regulating classes of people. It is not a very pretty history. It includes slavery, Holocaust victims, internment of Japanese-Americans during World War II, abuse of Chinese workers in building the Central Pacific Railroad, race riots in Chicago and elsewhere, abduction of Christian school girls in Nigeria, apartheid, the Armenian genocide, health care for veterans, Cesar Chavez’s United Farm Workers’ opposition to the braceros from Mexico, the discrimination against employing Irish workers, and the treatment of Native Americans, which bordered on genocide. My fellow descendants of the Cherokee tribe and I are still perturbed about that. 

The missing economics is even more interesting. First, the history of U.S. immigration indicates before many of the legal restrictions were put in place, approximately one-third of the immigrants went back to their home country. This puts in doubt the idea that all immigrants want to be citizens and vote Democrat. It also implies that making the border more secure might actually increase the number of illegal immigrants by virtue of their being trapped on the U.S. side of the border. The high cost of re-crossing the border makes staying in the United States illegally a better option for some immigrants than temporarily rejoining family and friends in their country of origin.

Another complication in relations between Mexico and the United States has to do with the drug trade, which has made Mexico into a dysfunctional narco-state. Drugs and dealers cross the border every day. There are two ways of dealing with the problem—reduce the supply of drugs or reduce the demand. The former is a failed policy, while the latter has barely been attempted. It is clear, to me anyway, that diverting resources from restricting supply to restricting demand will be more successful in improving conditions in the United States and Mexico, while making the border more secure.

A fundamental economic principle in play has to do with prevailing wage differential between countries. For most of the history of relations between the United States and Mexico, the prevailing wage at the unskilled level in the United States has been substantially higher than in Mexico. This is a powerful draw for Mexicans to enter the United States both legally and illegally. A similar differential exists between Central American countries and Mexico, where the latter has a higher prevailing wage. According to the Dallas Fed, this condition has led to an influx of illegal immigration into Mexico from the Central American countries. 

By contrast, the wage differential between Canada and the United States is small, thus obviating the need for security enhancement at that border. Indeed, during the Vietnam war, migrants moved north, not south, to avoid the U.S. military draft.

Recent economic conditions in the United States have added irony to the immigration debate. The wage differential between the United States and Mexico has decreased markedly because of the recession in the United States and has reduced the net migration from Mexico to near zero. According to the Pew Hispanic Center, “from 2005 to 2010, 1.4 million Mexicans came to the USA—down by more than half from the 3 million who came from 1995 to 2000. From 2005 to 2010 , the number of Mexicans who moved from the USA to Mexico rose to 1.4 million, roughly double the number who had done so 10 years before.”

Thus, the Obama Administration has inadvertently discovered one way of reducing illegal immigration: Keep the U.S. economy in permanent recession.

The lesson for the rest of us is the laws of supply and demand trump legislation proposed by Congress. As the economist Julian Simon convincingly argued, human beings are the ultimate resource, even when they come from other countries.

Jim Johnston ([email protected]) is an economic advisor to The Heartland Institute.