Trillions on the Sidewalk
The benefits of free migration
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Not all of our human capital is “domestically” produced, sometimes it has to be imported. In an increasingly xenophobic world, it’s almost blasphemy to suggest that cracking the immigration doors open a bit further is in everyone’s interest, but the data are clear. Free migration is a vast and largely untapped source of economic growth and human progress. It’s a long-overdue upgrade to the social supercomputer. Global border controls should be loosened to increase human capability and innovative capacity.
The Lump of Labor Fallacy
The most common refrain to expanded immigration/migration is the false notion that “immigrants” take domestic jobs, therefore immigration should be restricted to protect local employment and wages. This is a position shared by extremists on both ends of the political spectrum, from Donald Trump to Bernie Sanders. While some might truly believe this, I contend that many use the “jobs replacement” as a convenient excuse to disguise xenophobia. Nevertheless, the notion that immigration results in fewer jobs and lower wages is categorically false. As I have written many times before, the factors of progress are often counterintuitive. What appears to be “zero-sum,” often is not.
Indeed, the non-zero-sum nature of immigration on employment was proven by economist David Frederick Schloss in the late 19th century. He called it the Lump of Labor Fallacy. The fallacy holds that there is a fixed amount of work to be done that is distributed to labor. Therefore, when immigrants arrive, they take jobs that otherwise would have gone to the “native” population: a zero-sum outcome. In reality, as confirmed by Schloss, the influx of immigrants increases both the supply and demand for labor. Immigrants need places to live, they need cars, to attend school, go on vacation, and consume just as the “native” population does.
This phenomenon is perhaps best illustrated by research done in the wake of the Mariel Boatlift, an event that saw the mass emigration of Cubans to Miami, Florida in 1980. The event increased the Miami labor supply by some 7 percent in a short period, creating a “natural” kind of social experiment. Yet, despite the rapid increase in the local labor force, there was no discernible impact on wages or unemployment. The labor market was able to quickly absorb and adapt to the influx of migrants, as the surge of labor was accompanied by a surge in demand for labor. It’s worth noting that this event occurred amid a severe economic recession in the United States and still didn’t move the needle on unemployment or wages. Similarly, after the collapse of the USSR, mass migration into Israel swelled the population by 12 percent with no discernable impact on employment.
Another study published in the National Bureau of Economic Research, found that with every immigrant that arrived in the United States between 1980 and 2000, 1.2 new jobs were created. If you find the research unconvincing, use your common sense. The United States has been welcoming immigrants in varying degrees for centuries. If immigration made the country poorer, the United States would be the world's poorest country! Instead, the United States rose to become the wealthiest, most innovative, and most powerful nation to ever exist (at least for now).
If this fact is still unconvincing, ask yourself, why would this zero-sum view of labor only apply to immigrants? If fewer workers meant more growth, better wages, and more opportunity, why don’t anti-immigration advocates also encourage fewer native-born children and earlier retirements? After all, fewer children today mean better wages tomorrow, right? More retirements mean less competition for jobs and better wages, right? Against all logic, it is often the same group of immigration hawks who encourage large domestic families and high labor participation. Such logical inconsistencies further bolster my thesis that their motivations are not genuine.
Growth and Innovation
While we have established that immigration doesn’t increase unemployment or reduce wages, what about the economy as a whole? On that front as well, immigration is a net positive. Immigration has been a key ingredient keeping the US economy growing while other would-be “superpowers” floundered. Japan was once the world’s second-largest economy and outpaced US economic growth from the 1950s through the 1980s. Many predicted that Japan would overtake the US in the 90s, yet that never happened. Japan’s economy has slipped further and further behind the US. One reason for this is Japan’s restrictive immigration policies that reduced Japan’s economic productivity and its ability to innovate.
A recent study published in the National Bureau of Economic Research further bolsters the case that immigration promotes growth. The study found that the Chinese Exclusion Act, passed in 1882, depressed the economy of Western US states for generations. Notably, the Chinese Exclusion Act was broadly popular at the time, justified by specious claims of “protecting” the jobs of white American laborers. The act was, in fact, part of a series of escalating restrictions that were continually amended and extended. It began as a thinly-veiled effort to prevent Chinese women from immigrating to the US and Chinese immigrants from buying or owning land. It escalated into a complete and permanent ban on all ethnic Chinese from entering the US…even those who were already legal immigrants, as well as preventing them from naturalizing as citizens.
Unable to establish families or permanent livelihoods in the US, many Chinese immigrants packed up and left. Yet, the white American laborers, the primary “beneficiaries” of the Act, didn’t benefit in aggregate. The act(s) reduced the growth of the white labor supply in Western states by 28 percent, lowered their occupational income scores, and total manufacturing growth was reduced by 62 percent. The researchers conclude, “Contrary to the intentions of the Chinese Exclusion Act, we find no evidence that the average white worker benefited from the departure of the Chinese.” This is a lesson we best heed today as US states are once again ramping up efforts to restrict ethnic Chinese from owning land and the Federal government is growing increasingly hostile to immigration in general. What begins as a small and temporary restriction can easily expand into sweeping and counterproductive bans that hurt the domestic economy, lower wages, and restrict innovation.
This study is just one of many arriving at the same conclusion; closed borders are counterproductive. In a separate study examining 130 years of migration into the US, researchers found that immigration had a positive impact on innovation and growth, as measured by patent applications and real income for “native” workers, respectively. In addition, they estimate that liberalization of US immigration law after 1965 increased total US innovation by 8 percent and wages by 5 percent.
In the US as recently as 2019, 45 percent of Fortune 500 companies were founded by immigrants or their children. Together, these companies brought in $6.1 trillion of revenue. Overall, immigrants have founded 20% of all American businesses. In STEM fields (Science, Technology, Engineering, and Mathematics), non-Americans account for an astonishing 54% of master’s degrees and 44% of doctorate degrees issued by American universities. Many of these degree recipients choose to stay in the US after they graduate and work for American tech companies like Google, Microsoft, or Tesla (if they are allowed to remain).
The Global Supercomputer
It is clear that the US benefits from immigration, but what of the world as a whole? Models suggest that if every country eliminated migration barriers global economic growth would accelerate dramatically. Untethering people and allowing them to move freely about the planet, could unlock anywhere from 50 to 150 percent of new GDP globally. That’s adding approximately $45 to $135 trillion in global wealth. This wealth means higher wages, more opportunity, and more rapid technological advancement. It means more children going to school, better healthcare, and prosperity for more people than ever before. That said, we don’t need to erase borders entirely to gain a huge economic and innovation boost. Even a partial easing of migration barriers can increase global GDP by tens of trillions of dollars. Quite literally, we have trillions of dollars “lying on the sidewalk,” we just need to bend down and pick it up.
Closing borders may be a popular policy with some groups, but it is profoundly and utterly short-sighted. It makes most of us poorer by unnecessarily capping the compute of the ‘social supercomputer;’ it inhibits economic growth and innovation. This, in turn, stunts human progress at a relatively high hazard level, thus increasing the probability of civilization’s collapse in the medium and long term. We must continue to resist the temptation to fall for these zero-sum fallacies. While completely open borders are, admittedly, unpalatable for now, there are some practical approaches to immigration that we could implement today that would accurate growth and progress. I will discuss those next.
