In a recent interview with Nathan Goodman of the Mercatus Center at George Mason University, Professor Michael Clemens, a GMU specialist in migration economics, put forth “a strange and striking fact about the world economy.” A lower-skilled person’s location in the world can make a significant difference in how much wealth he creates, not just for himself but for society in general.
According to Clemens, few people appreciate that, say, a poor shoeshiner in Haiti could earn far more money doing the same work in a wealthy American city because his customers, who are rich by world and historical standards, have much to gain by paying the Haitian to free up their time. By the law of comparative advantage, even a CEO who can shine shoes better than anyone would benefit from paying the shoeshiner.
That principle applies to any kind of work. The free movement of people from impoverished to affluent places increases wealth overall. That’s why Clemens titled one of his scholarly papers “Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?” (Journal of Economic Perspectives, Summer 2011).
As Clemens told Goodman:
It’s not just taking a fixed quantity away from one person or group of people and giving it to another, a reallocation of resources; it creates value. It adds to aggregate prosperity. And when you have a world in which … the exact same Haitian worker in Cap-Haitien can [perform] labor whose value is about $10 a day at home, but has a value of $10 an hour in the United States, that means that the same person over the course of a year could go from adding value that is valued by the world market at $3,000 a year to $30,000 a year.
Immigration restrictions leave money on the sidewalk. Clemens said that “those kinds of large changes add up quickly with even modest movements of people. It doesn’t take a large movement of people across borders to add quite a lot to the world economy.”
He described his scholarly paper this way:
I just did a back-of-the-envelope calculation that was … just a scenario to illustrate how large those gains are at the global level. And the bottom line is that even the movement of one in 20 people from poorest countries to much richer countries would add more value in aggregate to the world economy than the total elimination of … all remaining barriers to goods trade and all remaining barriers to cross-border capital movement put together…. That was a … calculation to suggest what is the impact of a marginal change in border regulations, and that impact is just vast.
Note well: the new increment of wealth from only one in 20 people in the poorest countries moving to rich countries would be greater than the increment produced by abolishing all restrictions on the global movement of products and capital. How can we afford to keep people out?
Immigration policy favors highly skilled workers, although Trump inexplicably proposes to charge $100,000 for H-1B visas. Unfortunately, the contributions of lower-skilled workers go largely unnoticed. Clemens has some interesting things to say about how such workers benefit us all. The reason is the complementarity of labor in a market economy. Workers in one line of production compete against similar workers, but they also complement the efforts of other workers. They add crucial value. Regarding the disparagement of lower-skilled immigrants, Clemens said:
[T]his is another area where there’s just a lot of magical thinking…. Sure, Silicon Valley runs on programmers and highly educated entrepreneurs. What I wish people understood more is that Silicon Valley runs crucially on farm workers. It runs crucially on delivery workers and security workers and construction workers and childcare workers and many other essential inputs to that production process.
In other words, to produce great value, the highest-skilled people require a huge array of supporting goods and services produced by lower-skilled people. Without them the high-skilled workers’ productive efforts would suffer or disappear. Here’s how Clemens explained it:
The example I often give to students is a surgeon and a cleaner. There are zero people who want to have surgery in a dirty surgery room. There are essentially zero surgeons who are going to clean the surgery room. So there needs to be somebody to clean that surgery room if there’s going to be any surgery, and it’s not going to be the surgeon. That doesn’t mean that the surgeon isn’t essential to surgery, but the cleaner is equally essential to the surgery because my demand is zero for surgery in a dirty, bloody surgery room. And the necessity for workers at all levels of formal education and tacitly acquired skill[s] to complement each other is something that I wish were a greater part of the public discussion of immigration.
When you look at the wages of migrants, which reflect their marginal productivity relative to their best option, the surgeon earns more and the cleaner earns less. That doesn’t mean that at the margin the economy only benefits from admitting marginal surgeons and never marginal cleaners. They are inputs to a joint production function that complement each other.
Someone is bound to respond that without immigrants, Americans would gain jobs. But, Clemens noted, research earlier in this century indicates that, perhaps counterintuitively, a crackdown on immigrant labor “eliminate[d] employment of native workers…. [T]he net effect was strongly negative.” How so? “[B]y deterring business activity, by deterring the formation of new businesses and by encouraging the exit of existing businesses.”
In other words, “small landscaping firms that just never get founded, and all of the US jobs that would be associated with that within the firm or outside the firm—to do the books for that landscaping firm, to deliver fuel or supplies to that landscaping firm—and all the ripple effects that would generate US employment in both inside and outside that firm are gone.”
Markets are marvelous. Interference eventually harms us all.
