Aditya Prasanna Bhattacharya

Understanding the economic fallacies that plague the Immigration debate

This is the first post in our latest series: ‘Open Immigration’.

The question of immigration, i.e., should we open our borders for workers, or should we shut them down, is a complex one. It has several angles, which range from the economic to the ethical, and from the political to the moral. In this series, I will try to explain the existing discourse on immigration. This post deals with a purely economic perspective, and identifies 5 fallacies that have found place in the debate on immigration. These fallacies need to be weeded out with immediate effect, in order for both sides to be able to engage in an informed debate on immigration.

Fallacy ♯1: Immigration reduces the size of a country’s economy

When it comes to the effect of immigration on the net size of the economy, there is almost unanimous agreement among economists that opening borders will increase overall wealth. This is because a worker’s productivity depends on two factors: her skill level, and her location. As far as immigration is concerned, a favourable change in location can allow the worker to effectively utilise her skill level, thereby maximising her productivity. It has been estimated that by opening borders for immigration of workers, the global economy can double its total size. The only issue that some anti-immigration economists have identified with the overall wealth argument is that of distribution – they claim that poorer natives are harmed by immigration although the overall wealth of the country increases.

Fallacy ♯2: Immigrants take away jobs from the native workforce

An argument that is often cited by politicians who are running on an anti-immigration platform is that immigrants take away jobs from that rightfully belong to the native workforce. But for 2 reasons, this argument has very little economic basis to it:

1. Immigrants not only produce goods, but also consume them, thus creating more jobs. In other words, immigrants represent an increase not only in the total workforce, but also in the total number of consumers. This increases the overall size of the economy and leads to the creation of more jobs for the native workforce. Very simply, as more workers enter the labour force, more workers also get jobs.

2. Further, if the rationale of the unemployment argument were to be accepted, then it would also apply to all instances where there was a major influx of a certain category of individuals into the workforce. For instance, the twentieth century has seen a massive influx of women into the workforce. But this has not led to any long-term increase in the unemployment rate, and in fact, it has created a greater number of jobs in the industry. Further, in many cases, the new workers usually complement the existing workers, instead of substituting them.

Fallacy ♯3: Immigration depresses wages of the native workforce

This concern is based on the idea that an influx of immigrants lowers wages. This concern is unfounded for 6 reasons:

1. Admittedly, low-skilled immigrants usually cluster in certain areas and enter the workforce in that area en masse, which lowers the wages locally. But over time, the lower wages in that area causes existing firms to expand their business in that region, and also allows new firms to break into the market.

2. Additionally, on a principled level, lower wages caused by an expansion of the workforce generally leads to greater output and lower end-prices for the consumers, which is ultimately beneficial for the native economy.

3. Further, immigration can lead to a rise in wages over a long-term period, as they bring in new skills and ideas, which leads to an increase in the technological capital of the native economy. This ‘human capital’, often brought in by high-skilled immigrants boosts the native economy and increases the overall wages of the native workforce. In addition to human capital, some immigrants also bring in a substantial amount of financial capital to start their businesses, or to invest in native firms.

4. Adam Smith had pointed out that division of labour and its specialisation are mainly limited by the extent of the market. By increasing the volume of immigration, a country basically expands its market, thus leading to an increased degree of specialisation. This, of course, translates to higher wages in the native economy.

5. Lastly, labour is heterogeneous. When immigrants with a different skill-set than that of the native workforce enter the destination country, their labour complements that of the natives, instead of substituting it.

6. In any case, if the argument is flipped on its head, it has to be understood that restricting immigration will not lead to an increase in wages. With a reduction in the size of the low-skilled workforce, a firm sees greater benefit in shifting its production base overseas increases, which leads to greater unemployment for the native workforce.

Fallacy ♯4: Immigration strains the welfare system

One of the main arguments used by anti-immigration politicians is that immigrants misuse the welfare system of the developed destination countries. This characterization, however, is shockingly inaccurate. Studies conducted in the USA have shown that immigrants use the same amount of welfare as natives, and the degree to which they exploit/misuse welfare is far lesser than that of the natives. The welfare system is strained due to systemic reasons, which apply equally to native welfare users and immigrants. This argument concerning misuse of welfare is therefore an argument against the welfare system itself, and not against immigration. Politicians use the welfare argument as a mere rhetorical trick to keep foment anti-immigration sentiments.

Fallacy ♯5: Immigration leaves the country of origin worse-off

It is horribly fallacious to think that immigration has only a negative impact on the country that the immigrant is leaving behind. In fact, it has a tangible benefit on the economies of the immigrants’ country of origin in 2 ways:

1. Through remittances, immigrants send back a huge amount of their earnings back to their families. In many cases, the volume of remittances exceeds the total amount of foreign aid received by some countries. Further, unlike foreign aid, these remittances usually go directly to the people, and are not handled by layers of bureaucracy. This eliminates corruption and misappropriation, which places the funds to the targeted beneficiaries. In fact, some economists have called immigration the world’s best ‘anti-poverty program’.

2. Further, when the immigrants return to their countries of origin, they bring along newly acquired skills and ideas, and financial capital. When these individuals use all of this to set up new businesses, they provide a massive boost to the local economy.

Conclusion

These are simply the economic issues associated with immigration, and in this post I have attempted to point out and clarify the economic fallacies that exist within the discourse on immigration. There are several moral, ethical, and legal aspects as well, which will be highlighted and clarified in a similar manner throughout this series.