Exploring the Place Premium
By Bryan Caplan
Clemens, Montenegro, and Pritchett continue to expand the frontiers of human knowledge about migration. Their latest working paper, “Bounding the Price Equivalent of Migration Barriers,” mostly measures the total wage effect of globally relocating identical workers. But it closes by weighing the wage effects of immigration restrictions versus all-other-factors-combined.
[I]nformation is available to form reasonable qualitative priors about the fraction of the place premium that arises from policy barriers. To begin with, most people outside the United States are prohibited by default from entering the country and working there unless they acquire a special license from the federal government, a visa. This includes citizens of all 42 countries we study. Such policy barriers have large effects on migration flows… Many U.S. visas are tightly rationed, with waiting periods measured in decades. The United States government spends more on enforcing its immigration restrictions than it spends on all other principal federal law-enforcement agencies combined–including the Federal Bureau of Investigation, the Drug Enforcement Administration, and the Bureau of Alcohol, Tobacco, and Firearms (Meissner et al. 2013, p. 22)… These suggest a reasonable starting prior that the fraction of the wage gap R related to policy is nonzero, even substantial.
An ideal natural experiment to isolate policy costs would require countries that are highly similar to the 42 countries studied above, but do not face policy barriers on U.S. immigration. There are no areas so similar in all other respects as to allow precise decomposition of the ‘policy’ portion and ‘natural’ portion of the place premium.
Not do-able, but:
There do exist territories free of policy barriers that are nevertheless similar in some respects to foreign countries. People from Puerto Rico and Guam hold U.S. citizenship and can live and work at will to any part of the United States. It is illustrative to estimate Rc for these territories.
Table 8 carries out the same exercise in Table 1 for Puerto Rico and Guam… The estimates of Rc for these areas without policy barriers lie in the range 1.3-1.5, substantially above unity… But Puerto Rico and Guam are not exceptional. It is difficult to find labor markets anywhere on earth that sustain real wage differentials Rc much above 1.5 across geographic areas in the absence of policy restrictions on migration. Kennan and Walker (2011, p. 245- 6) find that by age 34, men who are free to migrate between U.S. states have exhibited a “home premium” disutility of migration that would typically be offset if their wage in destination states were higher by a factor of 1.14. Burda (1995, p. 3) finds that Rc between West Germany and East Germany collapsed to 1.3 in the years after policy barriers to migration were eliminated and migration flows spiked. Real wage differentials between metropolitan France and French overseas departments/territories, which exhibit no policy barriers to migration, fall in the range 1.2-1.4.
Bottom line: Contrary to friends of immigration restrictions, enforcement is already draconian. Contrary to enemies of immigration restrictions, existing laws “work” in the sense that they drastically reduce migration.