The Economics of Immigration


During the last few months I’ve been taking a class on migration and had an opportunity to ponder upon the topic a bit.

When talking about migration, one tends to concentrate on rather obvious social, cultural and even political issues overlooking the economic aspect. The latter though, plays a crucial role both as a push/pull factor causing migration and as an essential aspect shaping the very social, cultural and political responses mentioned above.

First of all, let’s make a distinction between legal and illegal immigration. And I want to emphasize the word immigration, since, emigration is also a type of migration which I would use if I meant to discuss the economic implications for the home countries, however, for now, I am going to concentrate on the host countries.

Well, actually, migration itself is a human right and decision that cannot be illegal, right? However, the host countries where the migrants immigrate can have certain laws and regulations that can either give the comers legal status/documentation or decide not to give based on certain criteria, conditions, etc.

First, about legal immigration. There is a consensus between the overwhelming majority of the economists that the net effect of immigration is positive.

The arguments for immigration are the observed increase in the host country’s GDP and Productivity. The against arguments concentrate on the rising income inequality by shifting money from labor to capital and the short term drop in wages for local workers coming from the increased labor supply.

Let’s dig deeper now.

First, Immigration increases population, including the workforce. When the labor supply increases  costs get lower for the producers and the productivity increases. This drives down the wages coming at the cost of the people who are already working. However, in the long run, since  wages drop and productivity increases, prices decrease which results in an increased demand. This, in its turn, raises wages and job availability. Taking into account that on the one hand, in case of being high skilled, immigrants can also bring innovation into the country through diversity, increased specialization, and boost entrepreneurship and on the other hand, they are also consumers, in a long run the benefits of immigration do not only outweigh but exceed the costs. This immigration surplus theory which is accepted by most of the economists was proposed by a well-known economist Borjas.

Now, let’s see how do these effects differ in case of the undocumented immigration where most of the controversies reside. It turns out that despite the ongoing debate and disagreements, strictly from the economic standpoint, it doesn’t matter whether documented or undocumented; Borjas’ theory holds and immigrants boost national output. The only difference is the size of the net positive impact.

The primary reason is that not being documented, immigrants do not pay income taxes, receive government benefits, such as health and schooling at the expanse of the taxpayers, that is, the  citizens of the host country.  Besides, illegal immigrants are more likely to be low-skilled rather than the legal ones, so the value and specialization that they could bring is limited.

Currently, a lot of debates are going on concerning the policies about illegal immigration. Supporters of the immigration argue that from the economic perspective, deporting people does not make sense. In fact, a wide range of studies find that extending legal status to undocumented immigrants would be a net positive. One study estimated that full legalization of undocumented immigrants could result in 0.53% increase in the GDP, legalization with border control would result in 0.17% increase in the GDP, whereas full deportation would result in 0.61% decrease in the GDP. They also argue that documentation would bring the immigrants into the tax base and that will also have a positive impact on the government revenues, hence the GDP.

So, if the debates over immigration were solely about economics, there wouldn’t be much of a debate, but as we know world is a complex place. Many immigration opponents argue that expanding immigration is a security risk, they argue that relaxed border enforcement would lead to  more illegal items like drugs being smuggled to the country, increased crime rates, etc. On the other hand, concepts of discrimination and stereotypes associated with immigration also do not leave the economic impacts unaffected. The gains coming from the labor supply of immigrants are being decreased when employers do not hire immigrant workers considering them culturally inferior, or, when, for instance, property owners do not rent their property to immigrants who agree to pay higher prices.


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