US is overlooking a crucial link between immigration and economic prosperity

The economics of immigration has a lot in common with the economics of trade. Lower barriers to imports raise growth and living standards in the aggregate — but harm particular people and places. Lower barriers to immigration do the same. Politicians struggle to understand this trade-off, let alone manage it wisely.

Of the two, the case for more immigrants might be harder to grasp — because the aggregate gains are more subtle.

Until recently, the case for liberal commerce was mostly taken for granted, and not just by “experts.” As Americans are in the process of discovering, high tariffs make many of the things they want to buy more expensive. That will depress consumers’ real incomes and make almost everybody worse off. The gains from trade are widely shared and, given time, obvious. The gains from immigration, by contrast, go disproportionately to the immigrants themselves. Natives might see that as no reason to welcome them in, especially if more immigration also means higher taxes (to pay for schools and other public services), fewer jobs and lower wages for the people who were there first.

There’s no denying that immigration is good for migrants. (If it wasn’t, they’d stay put.) Yet, trade-off notwithstanding, it’s a fallacy to think their gains impose a net cost on everybody else. Overall, the hosts gain too, and not just a little. In fact, squeezing immigration will probably harm the US even more than taxing imports.

Many governments worry these days about worsening demographic pressures. If the naive case against immigration were correct, shrinking proportions of workers to dependents should be celebrated. Fewer workers would mean a tighter labor market, on this view, and push wages higher. Workers’ living standards would rise as their numbers decline: The fewer workers, the better. Why is this wrong? Because adding workers, in theory and in practice, generates an economic surplus for other workers and for the economy as a whole.

Immigrants tend to be disproportionately of working age, so they reduce the ratio of dependents to workers, which eases what would otherwise be a growing fiscal burden. Far more important, immigrants tend to be disproportionately hard-working, enterprising, adaptable, mobile, and ambitious. (If they weren’t, they’d stay put.) Get this right, and the gains that follow are colossal: Just reflect on the economic preeminence of the US, and the role that immigration has played in its history. Increasingly, economists are showing exactly why and how much this source of economic advantage matters.

The connection between immigration and innovation is crucial. In country after country, skilled immigrants have driven more innovation and faster growth in productivity. One notable study found that between 1990 and 2010, US immigrants with H-1B (skilled worker) visas accounted for between 30% and 50% of the country’s productivity growth. Reviewing that paper and the rest of the literature, Michael Clemens, one of the country’s most eminent migration scholars, reports that skilled immigrants cause more patenting of new inventions and start more fast-growing businesses, leading in turn to more high-paying jobs for native workers, skilled and unskilled alike.

The Trump administration has announced that H1-B visas will now be subject to a $100,000 tax per worker. No question, this program is a mess as it stands and needs reform: It’s subject to an arbitrary cap and lets employers game the system in ways that diminish its benefits. The new tax solves neither problem. It makes about as much sense as it would to tax innovation directly. Here’s an idea: Throttle long-term productivity and shrink the economy to prop up some wages and raise short-term revenue.

By the way, to tout the benefits of immigration is not to argue for “open borders.” Borders should be secured, and immigration orderly and controlled. Blurring the distinction between refugees and economic migrants, as migrants’ advocates tend to, is a mistake; different considerations should guide policy in each case — ethical demands in the first, economic self-interest of natives in the second. Abrupt increases in immigration can burden communities and be needlessly disruptive. Even well-managed immigration can press down on the wages of competing native workers and pose fiscal challenges by adding to demand for local public services.

Permission to immigrate, even temporarily, is indeed a privilege and should come with strings attached. Language skills, willingness to comply with laws, capacity to assimilate, employment status and financial self-sufficiency are all legitimate considerations. Skilled immigrants are likely to boost the economy more than unskilled, so it makes sense to tilt permissions in their direction. (This should be politically straightforward: Strong bipartisan majorities of US voters support more high-skilled immigration.) In many cases, though, unskilled immigrants can also expand the economy, boost productivity and raise natives’ living standards.

The main thing is to understand that, for natives and not just migrants, immigration is an enormously valuable economic opportunity — and, at the same time, that it can impose costs on particular places and people. As with trade, as with labor-saving automation, as with “creative destruction” in general, governments shouldn’t deny the losses and should do more than they have to help the losers. But a politics fit for purpose would put the emphasis where it belongs — toward promoting citizens’ opportunities and economic security, and away from blocking growth.