This piece was orginally published by CNBC on Jan. 26, 2017
During his presidential campaign, Donald Trump promised not only to 'build a wall' to seal the southern U.S. border, but to make Mexico pay for it, at a cost of some $10 billion to $38 billion. Mexico on Thursday reiterated it's refusal to foot the bill.
Yet, a market-based immigration policy allowing Central Americans who passed a background check to purchase work visas at market rates (instead of paying thousands to human smugglers) could generate revenues for the federal government in excess of $40 billion, or more than enough to pay for that wall. You can read the details in an earlier article I wrote for CNBC.
But here's the best part: With a market-based visa system, President Trump could materially end illegal immigration within a month or two, even without a wall. Here's how it would work.
Illegal immigration is a variety of black market. Black markets always arise as the direct result of government policy, when governments either cap prices or restrict volumes. For example, during Super Storm Sandy, a number of East Coast governors put price caps on scarce gasoline, creating a black market within a matter of hours.
Young men with gasoline cans would stand in line at gas stations and wait their turn. As soon as they filled up, they would walk around the corner and sell the gasoline to motorists at a 200 percent profit. When governments allowed market prices to prevail again, black market activity disappeared just as fast. The black market existed only because of government policy.
In the case of immigration, the sorry truth is that the government provides only about one third as many visas as needed by U.S. businesses, primarily in agriculture and construction, even as these businesses are unable to find Americans to fill these jobs.
President Trump argues that Americans want 'good jobs'. Well, illegal immigrants do not get 'good jobs'. They are taking the jobs no one else wants. This includes almost anything outdoors (not involving a football), for example picking fruits and vegetables, dairy and other agriculture, construction, lawn work, and indoors, house cleaning. Most of these jobs pay around the minimum wage, and often involve travel and difficult working conditions. Very few Americans aspire to these jobs anymore—that's how we know we're a rich country.
"The system does not have to be perfect. As long as Central Americans can buy visas at will and U.S. employers can obtain low-end labor on demand—even if it may be a bit costly at some times—both Mexicans and the U.S. businesses sectors would have an incentive to use the system."
But the need for labor hasn't gone away. Indeed, about half of the farm workers in California are undocumented. Illegals are not a nice-to-have, they are an essential component of the agricultural business model in the U.S.
Now, Mexicans have no love manual outdoor labor, either. But the reality is that US farm work pays about four times as much as those Mexicans could make in Mexico. If lawyers or investment bankers in New York could earn four times their wage picking strawberries in Guadalajara, there would be no shortage of recruits.
The black market in labor therefore exists because certain businesses in the U.S. are desperate for low-end labor and because unskilled Mexican workers can earn multiplies of their income by coming to the U.S. The U.S. government has, for decades, actively tried to prevent these two sides from coming together by enforcing the border. After all, if the border were open, conservatives argue, we would be inundated with Mexicans. And that's absolutely true.
However, if we issued an appropriate number of visas, then we would cover domestic needs and Mexicans would no longer have an incentive to jump the border. We could do that by selling visas at market rates to eligible Mexicans and other Central Americans and monitoring the prices of visas and field wages to get the number more or less right.
The system does not have to be perfect. As long as Central Americans can buy visas at will and U.S. employers can obtain low-end labor on demand—even if it may be a bit costly at some times—both Mexicans and the U.S. businesses sectors would have an incentive to use the system.
This would eliminate the need to jump the border. The decision to come to the U.S. would come down to economics. An eligible Mexican could go online—in Mexico—and check available U.S. jobs and the cost of a visa. If the numbers work, they could apply for the job and buy a visa. If not, they stay home.
If entering the U.S. legally is easy—as long as the applicant has passed a background check and has the money to pay for the visa—then virtually every Central American migrant will be using a visa. Why risk your life in the desert if you can pay a fee and hop on a bus? It is the ease of complying with the law—not enforcement—which guarantees compliance. But once compliance is universal, companies will not hire workers who fail to comply. If employers can obtain documented labor, they will avoid illegals.
Undocumented immigrants will find their situation untenable. Not only will employers will shun them, President Trump can declare that any immigrant caught crossing the border illegally will be ineligible to purchase a visa in the future. Border jumping will be quickly transformed into the single worst way to enter the U.S.
If legal entry for a fee is easy and border jumping disqualifies an applicant from the legal labor market, then illegal entry by economic migrants will all but cease. A wall will not be necessary. To make it all happen, Trump needs only signal his credible support for a fee-based visa system and tweet that crossing illegally will disqualify an applicant from obtaining a visa. If Mexicans believe a reasonable market-based visa system is coming in relatively short order, many will defer a difficult, risky and illegal desert crossing. It's that simple.
Many Americans regard President Trump with a mixture of hope and fear. If the President chooses to focus on making deals, on applying business principles to policy problems, he could be a great success. He has the flexibility to look at programs in terms beyond the sterile left-right vocabulary which has ossified the Washington political class.
Want to work in my backyard? You've got to pay an entry fee. Any businessman could understand that. So can any immigrant. A market-based visa program could generate $33 bn in net revenues, and create value for U.S. business, migrant labor and social conservatives at the same time. It could be a spectacular win for the Trump administration.