A nation of immigrants? US immigration policy needs a fresh start

A nation of immigrants? US immigration policy needs a fresh start

The Biden administration is badly mishandling immigration. That was the only thing the U.S. electorate – otherwise split along party lines – could agree on in October national opinion polling. And except for Donald Trump, no U.S. President has ever faced approval rates as low this early in his term: the only truth Americans are as confident in as Biden being unequipped to make "wise decisions about immigration policy" is him being unable to "unify the country."

Republicans are livid that President Biden has ended workplace raids priorly ensuring employees have work authorization, and has allowed illegal border crossings to reach a 20-year-high. Democrats are frustrated that not more has changed: Biden continues to expel migrants without giving them the chance to apply for asylum, using a Trump-era exception already invoked over a million times. The practice, which the Trump administration argued was necessary to slow the spread of COVID-19 using Title 42 of the U.S. code, violates international law. This renders Biden’s campaign promise a farce: "Trump has waged an unrelenting assault on our values and our history as a nation of immigrants. It’s wrong, and it stops when Joe Biden is elected president."

A key reason for President Biden’s failure to unify the nation on immigration is that his policy is built on an erroneous assumption: that the U.S. is still the nation of immigrants it used to be. Immigration to the United States – what was still an easy feat (at least from a legal perspective) for Biden's ancestors – has become incredibly hard for anyone not illegally crossing the Southern border. In 1907, the U.S. added 1.3 million new permanent residents. While the U.S. population has almost quadrupled since then, and global migration flows have increased, this number has since only ever been surpassed in 1990/91. From 2015 to 2019, net immigration fell by 40% – a trend not reversed since. At this rate, U.S. population growth will grind to a halt by 2050.

This problem is not trivial. U.S. fertility is declining at 2% annually, hitting a record low of 1.64 in 2020. This is still above the 1.4 that stagnating Germany and Japan have been faced with over the past two decades; but for the U.S. to be a vibrant, innovative economy with a competitive edge vis-à-vis China and other prominent challengers, it needs to continue growing. Immigrants are particularly interesting for two reasons: they're often young and they're more likely to work, shouldering a sizable part of the taxes that pay for programs like Medicare and Medicaid. And they tend to be even more enterprising than people born in the U.S. However, the biggest beneficiaries of migration are the immigrants themselves. The benefits to migrant labor are so incredibly large, trade economists estimate that if developed nations were to allow the number of immigrants to increase by 3% of their existing workforce, humanity would benefit more than if goods could be traded tariff-free across the entire globe.

So then, why not just open the U.S. borders? If both the host society and the immigrants benefit, there is no respectable reason for people to speak out against immigration, it appears. That's what a large number of people on Stanford's campus believe: if everyone benefits, the reason why governments around the world are under pressure to curb immigration must be xenophobia. Dismissing demands for limited immigration as racist is easy. But doing so fails to recognize the economic truths that underlie the calls for closed borders.

Immigration is not a zero-sum game: both the host country and the immigrant benefit – at least in the aggregate. However, this analysis doesn't dive deep enough to be politically useful. It does not shed light on the scope and the distribution of the fruits that come from an influx of immigrant labor. While immigrants themselves gain the most, the benefits to the receiving country are actually quite modest, and captured almost exclusively by capital holders: a porous border provides employers with easier access to labor, skilled and unskilled. Domestic knowledge workers aren't negatively impacted and can benefit from a productivity boost, but less skilled workers are harmed. While there is little to suggest that immigration actually costs jobs, it does depress the wages of the domestic workers whose limited skillsets most closely overlap with the immigrant workers’ skillsets.

Pointing out these realities has become unsavory for Democrats. However, President Biden’s push to keep the hopeful migrants at the Southern border out of sight and out of mind, while silently shuttling the lucky ones to different parts of the U.S., shows the White House is aware of the downsides that large-scale immigration does bring for workers (already) in the U.S. and thus key Democratic constituents. Sending the message that they aren’t welcome to South Americans – and by extension people around the world wishing to start a new life here – but avoiding the economic realities in the domestic debate is harmful. Even Milton Friedman, never averse to corporate interests, concluded that open borders aren't compatible with the welfare state as it exists in the U.S. today.

We clearly need a better solution. I did not write this essay to lecture people wary of immigration about its benefits. Repeating that mantra doesn't make it any more true for the people who have historically not benefited from immigration. And the sooner politicians face this fact honestly, the sooner we can move beyond it: if U.S. laws allow for foreigners to be hired, the job market will become more competitive – to the benefit of employers, and to the detriment of existing workers with limited skills who have a harder time competing than more skilled ones. Even as both employers and immigrants make rational decisions, their choice harms others with no say in the transaction; the definition of a negative externality.

Importantly, the negative effects extend beyond the depressed job prospects for parts of the native population. An influx of people can significantly increase housing prices for everyone, which has an outsized impact on the part of society harmed by immigration already. Lastly, while not as clear-cut a negative externality, society as a whole also has to bear the significant cost that the integration of immigrants brings.

These negative externalities caused by the otherwise symbiotic relationship of employers and immigrant workers contribute to the increasing political pressure on established parties from fringe groups, as shown by a detailed report on why Britons voted to leave the European Union, for example. Arguments such as the one which quickly emerged after the Brexit vote, that the decision to leave was caused by low levels of education and – presumably – intelligence, are neither fair nor productive in this debate. Decrying voters with negative views of immigration as racists spares people with opposing political views from having to critically re-examine their own stance, but it won't solve the tension created by the economic reality that the benefits and drawbacks of immigration are distributed very unevenly.

We should therefore consider what economic theory around externalities can teach us. To shift the labor market closer towards giving preference to people already in the country, the cost to society associated with these hiring decisions should be internalized. In other words, the U.S. government should impose a tax which increases companies' cost of hiring immigrant workers, so that the costs that immigrant labor imposes on society are paid by those who benefit most, not the other way around.

One could imagine such a tax as a source tax: every employer would simply have to pay per foreigner hired. This could be a flat annual tax per immigrant (which would discourage hiring less skilled immigrants more than it would discourage hiring skilled immigrants), a percentage tax based on the immigrant’s income, or a combination of the two. This wouldn't just ensure that the negative externalities of hiring immigrant labor would be priced in from the beginning, but would actually give companies an incentive to hire local workers whose labor would be made relatively more affordable. While the suggestion to discriminate based on immigration status might sound outlandish, it is actually nothing new: non-resident aliens already pay 30% in U.S. capital gains tax, twice as much as the average U.S. household pays.

The gains from such a tax should be used for the benefit of the people negatively impacted by immigration. This could take the form of higher direct payments to people out of work, or – more sustainably – offering less skilled workers free or discounted advanced training to improve their economic prospects. It could also be used to cover the cost (local) government incurs when integrating newly arrived immigrants into society. Critics might decry this approach as protectionist. However, such a policy would simplify the U.S. immigration system and allow the people who want to immigrate the most to do just that. Even from a pro-immigration point of view, this would be a tremendous improvement over the nebulous and sluggish processes currently in place.

A similar program has been in place for a long time for workers affected by free trade, who suffer from the same problem: certain subgroups lose out significantly as a result of policies which advance the rest of society. While that program doesn't focus enough on education and training and too much on the protection of vested interests, it has been successful at mitigating some of the effects of free trade agreements which otherwise would have greater political weight. The same should be attempted with regards to immigration. Continuing to turn a blind eye to the negative effects of immigration for some while preaching its benefits will lead to even more voters souring on migration. This will backfire in the long run, and will guarantee that Biden continues to fail at his administration's stated goal of unifying the nation.

The proposed measures, on the other hand, would increase the acceptance of immigrants. In fact, if the U.S. government were to set the immigration payroll tax at reasonably low levels, it might not even significantly reduce immigration. But the U.S.-Americans most affected being compensated (and directly benefiting from newly arrived immigrants’ salaries) could increase the acceptance of immigrants so much so that more immigration would become possible. Counter-intuitively, levying a tax on immigrant labor might be our best shot at ensuring the gains of immigration can eventually be realized. All while safeguarding working class Americans' dignity.

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