Imagine there was a single policy that would dramatically and permanently reduce global poverty. Imagine that same policy could more than double global GDP, while significantly improving the welfare of women and children around the world and that of all minority groups. Would you implement that policy?
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Turns out, the answer is no. The policy, of course, is removing barriers to immigration. The problem is simple. The world is full of extremely talented and creative people. But most of those talents are wasted because of where those people were born. If those people could relocate to a country with institutions, markets and systems that let them flourish, the benefits from the massive advances in productivity, technology and human rights would be shared by everyone.
So, if the benefits of immigration are so big, why do governments restrict it?
The original argument was that immigration reduces wages and increases unemployment. A simple model of the labour market concludes that wages will fall if labour supply increases without any change in labour demand. If wages can't fall fast enough, or are prevented from falling by a minimum wage or other rigidities, unemployment will rise.
Turns out, we've run this experiment in the real world. Boat loads of immigrants left a poor country (Cuba) and relocated to a rich country (the United States - specifically, Florida) in 1980. It wasn't just a few people, either. There were more than 125,000 of them. If the above model was even remotely correct, we would expect to see a big fall in wages and a big increase in unemployment.
We didn't. We saw neither. Turns out that a simple supply-demand model of the labour market is so simple that it's wrong. That's because immigrants aren't just workers. They are consumers, too. They use the money they get from employment to buy things which, in turn, creates more jobs. They are also more likely to start a business, employ people and innovate. Little wonder why most studies find immigration tends to increase productivity and wages, rather than reduce them.
These findings by last year's Nobel Prize winner David Card left many economists and politicians looking silly. Luckily, they were quick to shift to a new argument: that immigration burdens the welfare system and is bad for government budgets.
Analysis from Treasury is the most recent in a string of research papers which show this is also false. Treasury has added up all the taxes a migrant is likely to pay over their lifetime - from income tax to GST - and has done the same with welfare benefits such as education and aged care. It finds that while the average Australian is a net recipient of government payments over their lifetime, the average migrant is a net contributor.
It's a big difference, too. According to Treasury, the average Australian receives $85,000 over their lifetime from the government in net terms (presumably because high-income earners pay a lot more tax than the average Australian) while the average migrant contributes $41,000 to government coffers.
And most migrants aren't average. Because skilled migrants are younger and earn high incomes, they contribute a whopping $557,000 to government coffers over their lifetime. A single skilled migrant effectively funds the lifetime net taxes of more than six Australians.
It's not all good news for the government. The government's entrepreneur migration scheme - where the government picks winners and gives visas to those deemed to be "entrepreneurs" - is (unsurprisingly) a dud. The individuals who get hand-picked by the government for these visas cost taxpayers $117,000 on average over their lifetime. This is because they are older, and pay suspiciously little tax.
The most costly visa for the Australian taxpayer is for family reunions. The average migrant on a family reunion visa costs taxpayers $126,000. Since there are more than 100,000 of these each year, that visa class adds the equivalent of $12 billion of debt every year. The cost is even higher when the migrant is older, presumably because they are beyond working age and require more healthcare. Parents coming in through the family stream cost a whopping $394,000.
Of course, it's quite possible that skilled migrants won't come to Australia if they can't bring their family, and they are still net contributors by a healthy margin. But if immigration doesn't hurt wages, doesn't hurt employment, and doesn't hurt the government budget, why do we continue to restrict it?
The next answer, produced by economists such as Oxford's Paul Collier, is that immigrants bring bad habits with them. The logic goes something like this. Most economists believe poor countries are poor because they have weak institutions: corruption, no rule of law, weak property rights, restrictions on economic and political freedoms, and a chummy relationship between church and state.
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Collier argues that these problems didn't come out of thin air. They were created by the people in those countries. If those people were to come to our country, the argument goes, they might bring those dangerous norms and values with them, infect our own institutions and make us poor. Studies show that, if true, this would wipe out all the benefits of immigration.
Luckily, it's not true. Econometric analysis by Alex Nowrasteh and Benjamin Powell in their new book, Wretched Refuse? The Political Economy of Immigration and Institutions, finds that immigrants strengthen institutions rather than weaken them.
The authors confirm these results using case studies, including mass immigration into the US before World War I, mass immigration into Israel after the collapse of the Soviet Union, and mass immigration into Jordan by Palestinian refugees. Rather than hurt institutions, they found that immigration bolstered them. Immigration supported the abolition of slavery and the expansion of public schools in the United States, reduced corruption and increased economic freedom in Israel, and brought Jordan's institutions up to OECD levels.
The idea that immigrants hurt institutions ignores what economists call "selection bias". People leave countries for a reason. They come to Australia because they like the institutions here and don't like the institutions in their home country. Little wonder all the evidence shows that immigrants embrace Australia's institutions and do very well here. Nor can immigrants easily influence Australia's institutions, given they are not allowed to vote until they become citizens.
So, what's the real reason we restrict immigration? The real reason is political, social and cultural in nature, not economic. There is a rate of immigration that the majority are comfortable with. Any more than this, and there tends to be political backlash.
The motivations behind this are up for debate. At its worst, it would include racism and xenophobia. At its best, it would include a general preference that social changes be slow and gradual. Either way, we should be upfront about the real reasons we restrict immigration, and stop concocting tenuous economic justifications.
- Adam Triggs is a director within Accenture Strategy, a visiting fellow at the Australian National University's Crawford School of Public Policy, a non-resident fellow at the Brookings Institution, a fellow at Macquarie University's E61 institute, and a fortnightly columnist.