Gary Becker & Immigration: The price of entry

North Africans risk their lives to try to cross the Mediterranean to southern Europe. Mexicans pay “mules” to get them across the border with the United States. Afghans camp outside Calais in filthy surroundings, waiting to cross into Britain. Everywhere, it seems, there are people trying to get into another country. Even those who seek to move legally in order to work face huge barriers to entry in certain countries. People on work visas account for 70% of legal migrants to Germany, for instance, but only 5.6% of those entering America, the original land of opportunity. Most of the rest get in because a member of their family is already in the country. America’s annual quota of visas for the highly skilled can run out in a matter of weeks. More people want to move to rich countries than are able to.


In a lecture delivered on June 17th at the Institute of Economic Affairs, a think-tank in London, Gary Becker proposed a “radical solution” to this messy problem. Fittingly for a Nobel laureate who pioneered the application of economics to areas such as discrimination, crime and the family, his answers involved market mechanisms. Mr Becker argued that immigration was out of kilter because of the absence of a price that would match supply and demand. Governments, he suggested, could use economic principles to allocate visas, either by selling the right to migrate at a price that called forth a desired number of migrants, or by auctioning immigrant visas.
As with any price, one for immigration would allocate the ability to migrate to those who desired it most. Successful migrants, Mr Becker argued, would still be better off, even after paying a hefty fee for the privilege. But the receiving country would benefit, too. Adjusting the price from year to year would allow governments to retain control over how many immigrants came while responding to changing labour-market conditions. And the revenue raised might go some way to assuaging the concerns of those who oppose immigration, especially now when clever thinking is needed about ways to improve public finances. Charging $50,000 for the right to immigrate would net America $50 billion if it let in 1m immigrants, roughly as many as it currently admits legally.
More importantly, the immigrants most tempted by such a fee-based system would be those who would garner the biggest economic benefit from migrating, such as those whose wages would increase by the largest amount. Mr Becker reckons that such people would have other desirable qualities. They would be the kind of innovative, hard-working go-getters countries want to attract, such as the engineers of Indian or Chinese extraction who received 14% of the patents awarded in America between 2000 and 2004, even though these ethnic groups make up less than 5% of the population. The young, he argues, would also be more interested than the old, because they would have more years to recoup the costs of the visa. An attractive idea, perhaps, in a rapidly ageing Europe.
What about people who are talented but unable to pay? Mr Becker proposes a system where potential migrants could borrow from the government, under something like a student-loan scheme. Or perhaps employers could lend foreign workers the visa money, which the worker could pay back out of his wages over time. But if governments had to lend immigrants the money, the idea would not do much at first to reduce budget deficits. And the idea of people bonding themselves to a foreign employer in return for the costs of getting to their place of work, and then repaying the debt through labour, has been tried before. In the 19th century it was called indentured servitude. Among its legacies are the many Caribbean descendants of Indians who migrated to work on plantations. Just as Mr Becker proposes that a worker would be able to buy his loan off his present employer if he decided to change jobs, the bond in the Caribbean could also be bought off.
Even if employers do not resort to the tactics used by Caribbean sugar-plantation owners, Abhijit Banerjee of the Massachusetts Institute of Technology thinks the system would still have problems. A firm importing a worker under such a scheme would presumably pay him a lower wage than it would pay an equivalent local (otherwise why not just hire a native?). A mutually beneficial contract could be entered into, since the worker would still make more than at home. But having arrived the immigrant’s best option would be to get fired (perhaps by not working) and get a new job at the market wage. To prevent this, the employer would need to threaten the worker with things like deportation. The very existence of such a threat would allow the employer to reduce wages further.

Migrant migraine
Sendhil Mullainathan of Harvard University points out another problem with the idea. Prices lead to allocative efficiency when the benefit of what is sold (in this case, a visa) accrues entirely to the individual who buys it. But the entry of an immigrant has effects on the wider society—what economists call “externalities”. When the private and social benefits of a person’s presence in a new country differ, basing admission decisions on willingness to pay may not be the best approach. America may want lots of scientists, for instance, but could wind up instead with an excess of Indians near retirement age, tempted by the idea of using their accumulated savings to buy free Medicare for the rest of their lives.
If the benefits of immigration depend more on people’s characteristics than their willingness to pay, the answer may already exist. Countries like Britain and Canada use a “points” system, which aims to select migrants who have educational levels or specialised skills that are deemed economically desirable. The politics of immigration in rich countries are too poisonous for Mr Becker’s radical rethink. But it is not clear one is even needed.