Is Illegal Immigration Kaldor-Hicks Efficient?

| 3 Comments

Bob's post about the desire for 4 in 10 Mexicans to emigrate to the US reminds me of a conversation I had recently with a close friend.

While noting with joy how her cousin could pay $75 a day (wasn't it $50 not too long ago?) for semi-skilled Mexican day laborers to fix her home in Long Island, she insisted that the federal government "should do something to help the Mexican economy so people wouldn't want to come here".

Well, this was a new one, to me at least.

I'm used to other interventionist desires (lower property taxes, lower income taxes, lower school taxes, lower corporate taxes along with cheaper drugs, cheaper college courses, cheaper gasoline, cheaper breakfast cereal [!], cheaper movie tickets, and more jobs, more social services, more heavy-fisted economic regulation, etc.), but never before had I spoken to somebody who wanted the US to intervene in the Mexican economy.

And I hadn't really thought about this very much, as my general views had been based upon Gustavo Velasco's soundbite for the Mexican economy, "Either we import capital or we export people". Well, it turns out that Mexico's been doing both for a while, but the capital/people mix isn't optimal with my friend, who would prefer to inject more capital and reject more people.

I pointed out that Mexico is a sovereign nation, and that their politicos might not like Yankee interference. And that if the politicos controlled a massive economic improvement scheme, the corruption, graft, and overall evil-doings would be enormous, and could actually harm the Mexican economy.

But that did't sink in.

I pointed out that the Mexican economy suffers from a lack of rule of law, corruption, pervasive crime, poor provision of public goods, shaky governance, limited economic freedom (although with very high trade openness), and has a dominant culture that rewards evading the system. Many of Mexico's problems are long term: It doesn't help that Mexico has had intermittent socialist tirades, during which private wealth -- e.g. land, natural resources -- is confiscated without regard to the impact on long-term economic welfare or growth. It didn't help that the Mexican government borrowed (and foreigners lent it) tremendous sums of money that it could not repay. It doesn't help that property in land is not secure and not easily mortgageable. In short, a big chunk of the needed improvement for a solid Mexican economy is outside of the influence or direct control of the American government.

But that had no effect.

I pointed out that most Mexican immigrants -- including illegals -- are not bloodsuckers, fostering a culture of economic dependence in the US; although they do have many problems here, (notably MUCH lower participation in health insurance plans and lower graduation rates, etc.) they produce economic wealth and make many the bulk of us in the US, not just those directly employing day laborers, better off.

But that didn't fly, either.

So I asked her what it would take for your average Mexican Economic Man to not want to come to the US (either to stay in Mexico or go somewhere else)? I argued, off the top of my head, that shoring up and stabilizing the Mexican economy will never be not enough, as only incredible relative economic growth or enormous wealth transfers would draw illegals already in the US, and potential illegals, back into Mexico. Also, because of the small size and type of "foreign aid to Mexico" the American electorate would tolerate, the implementation of any realistic program would not change the minds of most individual Mexicans who currently live in the US, or of those who want to come to the US.

In other words, what carrot could the US government provide to Mexicans to make it not worthwhile for Mexicans to cross the border illegally? And would paying for such a foreign aid program be worth it to the average American? At what level of "charity" are Mexicans indifferent between the US and Mexico? At what level of tax liliability are Americans indifferent between having Mexicans in the US or Mexico? Is there an optimal amount for Americans to support the Mexican economy so we get our own preferred level of illegal immigration? I doubt that these are operational concepts, but they're worthwhile throwing out there.

The US provides a lifestyle for many poor Mexicans -- in terms of economic opportunity, political security, and cultural diversity -- that far outweighs their Mexican alternatives today, or their alternatives, even if the US "did something".

Plus, even if the US could shore up the Mexican economy to the point that Mexicans were indifferent between staying in Mexico and emigrating to the US, the US Treasury and taxpayers will have lost out from much of the benefit from Mexican economic growth, while paying all of the costs.

Let's do some extremely rough estimation of the "pay Mexicans to stay in Mexico" scenario, assuming that every illegal is the average person, which of course, is totally wrong, but you have to start somewhere. First, ignore the contribution of illegals to the US economy; many people think that illegals are a net drain, and I'd rather not fight that battle here, so I'll assume the net contribution is $0.

So let's examine how much Mexicans need to be no worse off staying in Mexico. The PPP income per capita in Mexico is ~$10K, and ~$40K in the US. So each potential immigrant needs to be paid ~$30,000 annually to stay in Mexico. Let's ignore family structure and dynamics, and say there are 4 million solitary individual Mexican illegals we'd like to buy off. It would take $120billion in pure transfer to make them no worse off in Mexico than in the US. Let's go with a lower figure of ~$15K*4mil=$60 billion, and a higher figure of ~$30K*8mil=$240billion. Those are some big, scary numbers, and do not include the costs of enforcement, and providing funds to the 20million other potential illegals, which bump up the figure to $360billion to $840billion annually.

Is it really worth 2% or 5% of US GDP to keep out 30 million Mexican illegal immigrants? Not in my mind, but individual results may vary. But from the size of the amount needed alone, I gather that the status quo of illegal immigration is Kaldor-Hicks efficient, and so is more illegal immigration. The level of compensation that Mexicans are willing to accept to go back to Mexico is much higher than what Americans are, in theory, willing to offer. In reverse, no level of compensation that Americans are, in theory, willing to pay Mexican illegals is enough to make them go back to Mexico. These are crude generalizations, but you get my point.

(Note that I'd rather not go into the apparent racist premise of this "keep 'em out" vision, except to note that my friend's concern is almost exclusively economic, not racial or ethnic in origin. And for the record, I'm in the "let 'em in" camp, with Bob).

3 Comments

I often say to a friend of Mexican decent when the subject of Mexico comes up(and a few beeers have gone down) that the turning point in Mexican history was when the U.S. didn't acquire most of it following the war. It is probably just as true today that maybe a large portion of the Mexican population would support the U.S. annexing a large portion of that country. After all, if four out of ten want to move here, maybe we should bring the country to them.

Your comments and analysis of the immigration v "paying them to stay" are excellent. One doesn't want to get too bogged down in this kind of thing, but another factor you didn't consider is that, if we were to cut an annual check for each Mexican citizen, the cost of goods and services in Mexico would rise considerably, reducing the actual value of the payola.

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This page contains a single entry by Kevin published on August 19, 2005 1:00 PM.

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