Wednesday, June 16, 2010

Nobel Laureate Gary Becker says immigrants should pay

Daily Telegraph article "Nobel Laureate Gary Becker says immigrants should pay" (June 16th, 2010) suggests an interesting revenue-raiser for governments:
Professor Gary Becker will say that it would be up to individual governments to set a price, adding that a charge of $50,000 (£34,000) per immigrant could generate $50bn a year in the US.
The same sum could generate about £17bn a year in Britain, based on Office for National Statistics data which showed 503,000 immigrants arrived between October 2008 and September 2009.
The Telegraph's re-calculations from Becker's figures do not make sense if the Law of Demand holds. Once you raise the price of immigration (from $0 to $50,000), fewer immigrants will enter the country legally. Thus, the revenue to the government is strictly less than the number of immigrants times the entry price.

This policy may have two additional effects: 1) it may increase the number of illegal immigrants and 2) it may reduce the amount of discrimination against members of large immigrant minorities. The first point is simply because the cost of legal entry has increased, so some who were willing to go through the legal system before will be unwilling to do so now. They may instead substitute into illegal immigration. One positive spillover to illegal immigrants, however, will be that the perception of immigrants will improve, as Becker notes:
He said the programme would also reduce opposition to immigration, by eliminating the sense that immigrants were getting "a free ride"
Because it will be difficult to distinguish those getting a free ride from those not doing so, the reputation of all immigrants (legal or not) will improve.


  1. My first reaction was "ridiculous!" too, but consider:

    The cost is not going from $0 to $50,000. Presumably a monetary entrance fee would (at least partially) fill the rationing role that current nonmonetary mechanisms do. (people have to wait in line for a really long time, etc.)

    Ignore the revenue a fee would generate for a moment. If the government is just trying to ration spots, then it can raise the fee until the same number of spots are desired as were allotted previously. Solving for this fee X, we would be right to then calculate the revenue by multiplying the _current_ number of immigrants by X.

    That is, it depends completely what angle you come at the problem from. Perhaps $50,000 _has_ been computed as the price that keeps the number of immigrants constant. But if not, then you still don't get to say something about the Law of Demand, unless you _do_ know the actual equalizing price Z and whether 50000 is bigger or less than it.

    And then we can play the game of how the govt would actually want to set the price if it cared both about # of immigrants _and_ revenue from immigration.


  2. Corrections likes your point in general, but doesn't think it holds in this instance. Perhaps there is surplus demand for immigration that clearing markets with money rather than time would fix, but Corrections is dubious that for 3 reasons--expanding on our initial thought that the simple calculation assuming the same number of immigrants is likely to be wrong.

    First, historically, more than half of U.K. immigrants come from EU member countries. Given a GDP per capita of $33,052 in the EU, ($43,541 in the U.K. and approximately $46,400 in the U.S. for comparison purposes). $50,000, or more than one year's before-tax pay seems rather steep. Immigrants are not waiting long for their visas, and, given the immigration is largely from former Warsaw Pact countries and Eastern Europe in general, we don't expect them to make the sort of money necessary to make markets clear at $50,000.

    Second, Corrections posits that many of the 27 member states of the European Union, containing approximately 500 million people, are close substitutes for British immigration (we may also consider places like the United States as alternative immigration destinations). Given an average six-month visa clearance rate and high acceptance/rejection rates (especially for workers), we don't see the sort of wait-time-clearing-markets that we might associate with a price of $50,000.

    Third, Corrections notes that the Telegraph's numbers are from surveys of people arriving at, or leaving airports. This survey (International Passenger Survey) is the only manner in which the United Kingdom counts immigration in a systematic way.

    Corrections understands that in the absence of a monetary, market-clearing price, often other, "inefficient" methods of clearing markets occur--such as shortages and resultant waiting times. However, it is very difficult for us to imagine that the UK is able to generate 1% GDP growth (one third of yearly growth) (from the sort of immigration reform that Professor Becker suggests.

    For UK growth to be in line with U.S. expectations from immigration, (e.g. naively taking Becker's U.S. estimates and applying them to Britain) we might expect a .4% GDP growth, 40% of the initial figure suggested by the Telegraph. Lower, if you think that the backup for this sort of legal immigration in Britain is lower than the U.S.

    Corrections is rather confident that a $50,000 charge would increase the price of immigration to the United Kingdom, and that demand for immigration is not perfectly inelastic.