Thanks to Peter Skerry for also providing a thoughtful response to my lead essay and Wretched Refuse more generally. Peter raises a number of important issues that are not directly addressed in Wretched Refuse or my lead essay. Wretched Refuse is explicitly an empirical examination of the new economic case for immigration restrictions, not an examination of all issues that could stem from increased immigration. My lead essay focuses on one aspect of that examination—immigration’s impact on economic freedom.
However, my focus on how immigrants impact formal and informal institutions that impact productivity in destination countries does implicitly and indirectly address many of the issues raised by Peter. If, as we argue in Wretched Refuse, immigration does not harm institutions responsible for high productivity, then the overall economic gains from greatly liberalized immigration are massive. So massive, in fact, it’s hard to not find ways for public policy to redirect some of the massive gains to address other issues—fiscal, distributional, infrastructure adjustments, and so on. So-called “keyhole” solutions in Ilya’s response essay. If that is done, my work with Alex is not just a utilitarian perspective. Elsewhere, the case has been made that if the forecast gains from liberalized immigration are anywhere near accurate, then every major ethical framework recommends unrestricted immigration (Caplan and Naik 2015; Caplan and Weinersmith 2019; Powell and Brennan 2021).
Accordingly, my response here focuses on the aspect of Peter’s essay that is most directly relevant for assessing how immigration could impact the institutions responsible for our prosperity. How has recent immigration impacted economic freedom in the United States?
First, however, we need to be clear, that contrary to his title “What We Can Learn from Our Relatively Open Borders,” the United States has nothing close to an “open border,” if by that we mean an essentially unrestricted quantity of immigrants entering. Peter oscillates in his essay about how “open” the U.S. border is, from stating plainly that “we clearly do not” have a de facto open border to later saying that the United States “has been conducting an experiment in relatively open borders” in recent decades. So, let’s clear up how restricted immigration to the United States actually is. The fact that somewhere between 11 and 13 million foreign-born people reside in the United States illegally does not mean that the border is relatively open. It isn’t hard to see the evidence that the border is mostly closed. Otherwise, why would so many people be on waitlists (sometimes decades long) to legally migrate to the United States? They would “simply” come illegally. Of course, there is nothing simple about coming illegally, otherwise why would coyote fees for smuggling people across the border be so high? The high smuggling fees are an indication of how closed the border is.
More scientifically, we can turn to the wage differentials between the United States and immigrants’ origin countries. It’s hard to find any labor market on the planet where there are real wage differentials much greater than 1.5 across geographic regions where works are free to relocate. Clemens and coauthors’ (2019) study of real wage differentials between the United States and 42 poorer immigrant origin countries found wage differentials for identical workers (controlling for gender, age, education, etc.) of 3.95 between the United States and the median origin country. The differences ranged from a high of 16.4 to a low of 1.7 among the 42 countries. If immigration to the United States was relatively open, these wage differentials would not exist.
That said, even with a mostly closed border we can still learn something about the impact of immigration on U.S. institutions related to our productivity. In my lead essay, I highlighted some of what I think we can learn from when the United States had largely unrestricted immigration until 1921, its most closed borders from 1921 to 1965, and the intermediate degree of closedness from 1965 to the present. Peter wants to focus more on what we can learn from this most recent period.
The number of foreign-born people in the United States has increased substantially over the last 30 to 40 years, and the distribution of those people varies tremendously across U.S. states. Most immigrants live in California, Florida, New Jersey, New York, or Texas. Between 1980 and 2010, the average share of a state’s population that was foreign born was 7.6 percent, but the standard deviation was almost as large, at 6.5 percentage points. A few papers have taken advantage of this variation to examine how recent immigration has impacted U.S. state-level economic freedom.
Padilla and Cachanosky (2018) look at 10-year panels from 1980 through 2010 and employ pooled OLS, fixed-effect OLS, and system GMM methods to analyze how initial shares of foreign-born adults or naturalized citizens impacted state-level economic freedom a decade later. They control for initial levels of freedom, so that they are essentially using initial stocks of immigrants to examine how they impact the change in economic freedom. In follow up papers Padilla and Cachanosky (2019) follow a similar methodology but then separate the foreign born into four different quartiles based on the economic freedom in their origin country to see if immigrants from less free origins might have a different impact than those from more free origin countries. Similarly, their third follow up paper (Padilla et al. 2019) divides the foreign born by educational attainment to see if less educated immigrants are detrimental to economic freedom. Tuszynski and Stansel (2019) is closely related to the Padilla and Cachanosky studies but attempts to better deal with endogeneity by using two decade-lagged stocks of immigrants. Yao et al (2019) take a different approach and use a synthetic control methodology (like we did for Israel and Jordan) to see the impact the Immigration Reform and Control Act of 1986 (IRCA) had on state level economic freedom. After reviewing each of these studies in much greater detail in Chapter 5 of Wretched Refuse, Alex and I summarize their overall findings:
Taken as a whole, the group of papers studying the effect of immigration on state-level economic freedom is not as positive as our findings for how immigrants affect country-level economic freedom. However, the US state-level research does not find any compelling systematic evidence that greater immigration erodes state-level economic freedom either. Results are often insignificant or weakly significant at the 10 percent level and, even when they are statistically significant, their magnitude is small. The statistically significant changes reviewed here would rarely result in any state changing its economic freedom ranking among the other states if it received a one standard deviation increase in its immigrant share. Taken together with the study of IRCA, the overall results in this section suggest essentially no meaningful relationship between immigration and US state-level economic freedom (Nowrasteh and Powell 2020: 94).
This finding is largely consistent with what we should expect from surveys on the policy opinions of the foreign-born in the United States and their political participation rates. Alex’s coauthored work with Sam Wilson found that naturalized immigrants (those eligible to vote) and descendants of immigrants had policy views not statistically different from the native-born on government spending on welfare programs, Social Security benefit levels, government spending on the environment, and government programs to reduce income differences. The opinion differences on these issues shown by non-citizen immigrants was larger but still not statistically significant (Nowrasteh and Wilson 2017).
In his recent book, Bryan Caplan (Caplan and Weinersmith 2019) also examines the policy opinions of immigrants using the General Social Survey and finds that immigrants and the native born are equally hostile to taxes on the poor and middle class and, if anything, immigrants are more hostile to taxes on the rich than the native-born. In contrast to these more general results, he finds that immigrants without a high school degree are more in favor of greater government regulation of the economy and spending. However, there are good reasons why these policy views might not influence actual policy as measured by economic freedom. First, many of these low-skilled immigrants are not eligible to vote. Second, immigrant voter turnout rates (48 percent of those eligible) are lower than native-born turnout rates (72 percent), and voter turnout rates among low-education immigrants eligible to vote are even lower (27 percent).
To sum up, although the United States does not currently have anything close to unrestricted mass immigration, I do think we can learn something from how recent immigrants have impacted U.S. institutions of economic freedom. So far, what we’ve learned is that they don’t have much impact on state-level economic freedom.
References
Caplan, B. and Naik, V. (2015). A Radical Case for Open Borders. In B. Powell, eds., The Economics of Immigration: Market-Based Approaches, Social Science, and Public Policy. New York, NY: Oxford University Press.
Caplan, B. and Weinersmith, Z. (2019). Open Borders: The Science and Ethics of Immigration. New York, NY: First Second.
Clemens, M., Montenegro, C. and Pritchett, L. (2019), The place premium: Bounding the price equivalent of migration barriers. The Review of Economics and Statistics, 101 (2): 201-213.
Nowrasteh, A. and Powell B. (2020). Wretched Refuse: The Political Economy of Immigration and Institutions. Cambridge: Cambridge University Press.
Nowrasteh, A. and Wilson, S. (2017). Immigrants Assimilate into the Political Mainstream. Economic Development Bulletin No. 27. Washington DC: Cato Institute.
Padilla, A. and Cachanosky, N. (2018). The Grecian horse: Does immigration lead to the deterioration of American institutions? Public Choice, 174(3-4), 351-405.
Padilla, A. and Cachanosky, N. (2019). The Grecian Horse II: Do Immigrants Import Their Home Country’s Institutions Into Their Host Countries? The Case of the American States.” SSRN.https://ssrn.com/abstract=3316415.
Padilla, A. and Cachanosky, N, and Beck, J. (2019). Immigration and Economic Freedom: Does Education Matter?. Journal of Private Enterprise. Forthcoming.
Powell, B. and Brennan, J. (Forthocming) The Ethics of Doing Business with Illegal Immigrants. Independent Review.
Tuszynski, M, and Stansel, D. (2019). Examining the Relationship between Immigration and State Institutions: Does Region of Origin Matter? Working Paper.
Yao, L., Bolen, B. and Williamson, C. (2019). The Effect of Immigration on US State-level Institutions: Evidence from the Immigration Reform and Control Act. Working Paper.