The Biden administration is at a turning point. Even now, it is beginning to double down on the enforcement-based policies of the Trump administration. For those who seek legal status for undocumented immigrants, the window is closing. History shows that the opportunity to normalize the status of undocumented immigrants may not recur for a decade or more. If you want to try something new -- perhaps something as radical as the textbook policy solution -- now is as good as it gets.
In our last post, I argued that illegal immigration is materially a black market. The border jumping, wall climbing, caravans, fake asylum claims and the rest arise for lack of a legal channel for migrants to enter the US to work. Create a legal channel, and all the cruel and bizarre manifestations of black markets will disappear by themselves in as little as one month. To combat illegal immigration, the government should do less, not more.
The plain vanilla version of doing less is 'open borders' of the sort championed by, say, CATO or a number of the libertarian economists over at George Mason University. How would that work in practice?
Polls have shown that as many as one-third of Mexicans and Central Americans would want to work in the US, representing a potential pool in excess of 20 million unskilled migrant workers, with the vast majority of these currently earning not more than $2.50 / hour, assuming they are employed at all.
Prior to the pandemic, the effective minimum wage in the US was about $10 / hour, probably higher now. About 20 million Americans work for these wages. Therefore, the pool of potential minimum wage workers from Mexico and Central America (MCA) is about the size of the total minimum wage market in the US, 20 million in both cases. Put another way, there is a large potential pool of minimum wage migrant labor in the MCA countries, even by US standards.
What would happen if these migrants could enter the US at will with a free visa subject only to a background check?
Our pre-pandemic analysis of JOLTS labor market survey data showed 2 million open jobs which could be filled by unskilled, non-English speaking migrants. For the moment, let us assume that all these jobs were open as advertised and filled solely by MCA migrants. What would be the impact on employment and wages?
Let's start with employment, assuming no impact on wages. After the 2 millionth job was filled, the next migrant would show up offering to work for less or willing to provide better service. As a result, we might expect this influx to create unemployment. And in fact, high unemployment would be rational for incoming migrants. Our analysis suggests that those earning $2.50 / hour in the MCA countries would be willing to work for $6.50 / hour in the US, a wage sufficient to cover higher US expenses and an hourly wage premium to make it worthwhile to leave their homes. If they could earn $10 / hour, it would be rational for them to come to the US even if they expected to be unemployed 40% of the time. Further, if they were unemployed 50% of the time in the US, they would still be making as much net as working full time at home. Such unemployment does not represent indolence or some lack of moral character, but rather rational economic behavior: In some cases, it's better to earn a higher hourly wage and work fewer hours, particularly when that wage is four times your normal rate. This implies, however, that open borders with just the MCA countries could draw in 50% more migrants than the jobs available, and assuming two million jobs, that implies one million unemployed migrants hanging about the US.
And this situation could persist for some time. As unemployed migrants are absorbed, those remaining in the large pool of MCA migrants would have an incentive to come to the US with a willingness to remain unemployed for 40% of the time. Unemployed young men have a propensity to get into trouble, and the US public -- even in the vanishingly remote chance that it would ever support an open borders policy -- would be unwilling to countenance the side-effects for more than a presidential term.
Alternatively, open borders could be felt more in wages than employment. Incoming migrants could push down wages to their Relocation Wage, the hourly wage needed to make it worthwhile to come to the US, about the above-noted $6.50 / hour for Mexicans. This would make a mockery of those seeking increased minimum wage laws, with the result that either unskilled US workers would see higher unemployment, potentially much higher unemployment, or have to work off the books at wages below the much-maligned Federal minimum wage of $7.25 / hour. Such pressure could fall disproportionately on the unskilled black community -- a critical Democratic constituency. But even more so, it would affect the unskilled, undocumented immigrant community.
We tend to think of undocumented residents and illegal immigrants as being the same. But in many ways they are not. Most undocumented immigrants have been in the US for fifteen years or more. They are established here, with long-standing jobs or businesses. They quite possibly have raised their own children here, who may be both US citizens and think of themselves that way. They are closer to undocumented Americans than migrant Mexicans or Central Americans. Importantly, most of them are earning $10-12, not $6.50, per hour. In many cases, incoming migrants could easily displace the incumbent undocumented working population. As a result, open borders with the MCA countries promises to be a disaster for undocumented US residents. Thus, there is a very good chance that the 2,000,001st migrant is not displacing another recent migrant, who is also willing to work for $6.50 / hour, but rather a long-established undocumented resident costing his employer $12 / hour. Open borders, therefore, should yield one million unemployed unskilled Hispanics, but the brunt could be borne disproportionately by those who arrived before the Great Recession. By implication, long-time undocumented residents and incoming illegal immigrants are not one interest group. They are two interest groups, and at high levels of migrant entry, have diametrically opposed economic interests.
If open borders would be unacceptable, perhaps we could stem the flow of migrants with a modest visa fee. In his book 'Open Borders', GMU economics professor Bryan Caplan suggests an entry fee of $1,000, equal to about 50 cents per work hour. What would be the effect?
It certainly would not discourage any of those migrants coming across to take those two million jobs, as they would still earn far above their Relocation Wage (the US wage necessary to induce them to leave home). It would, however, influence both wage pressures and the number of unemployed migrants in the country. At the extremes, it would reduce migrants' willingness to remain unemployed to about 35% of the time or reduce the effective minimum wage from $10 to $7 / hour for those jobs which unskilled migrants could fill.
What if we raised the visa fee higher? For example, a fee of $2 / work hour would see the optimal unemployment rate fall to around 22% -- still very high -- and the maximum wage impact would be $1.50 / hour, that is, reducing wages to $8.50 / hour for jobs which unskilled migrants could fill. Even a $2 / work hour fee would not be sufficient to protect incumbent workers and sustain public support.
If, however, we let the visa rise to its market value -- which we estimate around $3.50 / work hour -- the incentive for unemployment falls to zero and the wage impact is also zero. That is, migrants would have to earn the prevailing US minimum wage of $10 / hour to cover both the visa fee and their own Relocation Wage (which includes a premium for coming to the US). This allows virtually no unemployment and no undercutting of prevailing wages. This is the expected result of the bidding process for visas.
Therefore, protecting the domestic workforce -- primarily the undocumented Hispanic workforce -- from migrant competition requires a market value for our proposed H2-M, market-based visa. This minimizes disruption to domestic labor markets and helps ensure public support for the program. If you want to protect the undocumented resident population of the US, then you want incremental visas to be issued at a market rate.
Moreover, the market price is essential to end illegal immigration. Let's go back to where we started:
The migrants depicted above are willing to clash with Guatemalan security forces because they believe they will never have access to a US H2 visa. Practically speaking, they are right, because the US government issues H2-A and H2-B visas far below their market value and therefore demand vastly outstrips supply. If the US government issues our proposed H2-M market-based visas below market value, they will immediately stock out, no different than the H2 visas today. Remember, even in a market-based visa system, no more than 5% of the migrants in the picture above will receive an H2 visa of any sort, including an H2-M visa, at any given point in time. We maintain order in the market, however, by ensuring that H2-M visas are available on demand, in unlimited quantities, 24/7. And we can do that at the market price -- but not below it.
This changes the calculus for the migrants. The question becomes not 'Can I get over the border?' Of course, a background-checked Honduran could run the gauntlet as he does today, but it would be far easier to simply buy a visa online and book a flight to Atlanta. Therefore, the question will be instead, 'Can I find an employer willing to pay me enough to cover both the visa and my Relocation Wage?' We have a term for this in the United States. It's called 'a job search'. By this means, we convert a border security problem into a garden variety labor markets issue. The pressure moves away from the border and to the employer, where it organically belongs.
Of course, if we fail to issue enough visas, regardless of price, we will see illegal immigration revive at the southwest border. Therefore, we set a target for southwest border apprehensions, say 150 / day, and we issue more visas if the apprehensions rate exceeds this level. This underlines the chief philosophical difference between, for example, CIS and ourselves. CIS is aiming for absolute sovereignty. The US government is allowed to dictate the number of visas, and MCA citizens should respect that decision on US soil. The US government is the absolute sovereign on US territory.
By contrast, we think 56 years of futile attempts to stop illegal immigration suggests that absolute sovereignty is not feasible under real world conditions. We believe instead in constrained sovereignty. This begins with the premise that only a fool would get between a poor man and his job. Don't fight titanic economic forces. Instead, focus on channeling such flows to maximize the ordinary conservative objectives of safety, propriety (following the laws), conformity (following customs), and compensation (members should pay their own way). A market-based visa system can deliver all of those at a high level. A very high level. But the price of this approach is that the government is shaping flows, rather than mandating them. In a market-based system, if we need more visas to end illegal immigration, we issue more visas. It is in this sense that sovereignty is constrained. Notwithstanding, our analysis suggests we can close the southwest border to illegal immigration with a 3 x 350,000 tranche of H2-M visas (about 1 million incremental visas over three years) on top of the 300,000 H2-A and H2-B visas issued in 2019. As a conservative, would I gamble 1 million visas (that's $18 bn of revenue to the Feds over three years) for a shot at ending illegal immigration and normalizing the status of undocumented Hispanic immigrants?
Absolutely.
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President Biden is already beginning to turn to those Trumpian policies many of my readers decried as despicable and inhumane, notably resumption of construction of the border wall in places and the enhanced use of Mexican, Guatemalan and Honduran troops to better seal their borders. The Biden administration is doubling down on exactly the use of force depicted in the photo above. This is dreadful policy, but the inescapable result of an enforcement-based approach to illegal immigration.
We can do better, and I think we might find the necessary Republican votes to get there.
For my readers who are pro-migrant and on the left -- and some of you have close ties to the administration -- you are at the crossroads. You can propose something new, something with hope for a better future for millions of south of the border and the prospect of normalization for seven million undocumented Hispanics in the US. Or you can wait and hope that, ten years from now, we will not still be spinning our wheels in the rut of the last half century, wasting vast taxpayer resources in a barren and cruel effort to keep poor migrants from filling jobs needing them in the US.