The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP
Two words: open borders. The noble Michael Clemens tells the full story in his new piece in the Journal of Economic Perspectives – ungated. I’m tempted to blockquote the whole piece, but I’ll limit myself to a few highlights (footnotes and references omitted).
The estimated welfare gains of open borders versus other policy reforms that get vastly more attention:
Immigration restrictions “work” – they successfully create price wedges greater than any other:
Typical international trade costs, up to and including the border–not just policy barriers but all barriers, including distance, language, currency, and information — are the rough equivalent of a 74 percent ad valorem tariff, according to Anderson and van Wincoop (2004, p. 692)1; price wedges between the same goods in different national markets are also of this magnitude (for example, Bradford and Lawrence, 2004). For identical fifi nancial instruments, Lamont and Thaler (2003) find that the price rarely differs across the globe by more than 15 percent. Both these wedges look small next to the global price wedges for equivalent labor. In Clemens, Montenegro, and Pritchett (2008), we document gaps in real earnings for observably identical, low-skill workers exceeding 1,000 percent between the United States and countries like Haiti, Nigeria, and Egypt. Our analysis suggests that no plausible degree of unobservable differences between those who migrate and those who do not migrate comes close to explaining wage gaps that large.
Labor mobility and economists’ double standard:
Further, even if emigrants modestly depress wages when they arrive at the destination, this does not justify restricting movement by the standard welfare economics analysis. Such effects represent “pecuniary” externalities rather than “technical” externalities…
For example, research on domestic labor movements has found–to the surprise of few–that movement of labor from one city to another tends to modestly lower wages at the destination, and that the entry of women into the labor force can modestly lower men’s wages. However, no economist would argue that these facts alone signify negative externalities that reduce social welfare and should be adjusted with a Pigovian tax on those who move between cities or on women entering the workforce, because these externalities seem to be almost purely pecuniary. Similarly, economists would be virtually unanimous against imposing a tax on new domestic competitors on the grounds that they imposed costs on existing firms, because again such externalities are pecuniary.
Bottom line: If research energy were proportional to the inefficiency of the status quo, virtually every economist would study immigration. And if outrage were proportional to harm, virtually every protest on earth would be in favor of open borders. Mr. Median Voter, tear down these walls!