Immigration

The Arizona law on immigration is causing quite a stir among liberals. It’s much ado about nothing-since the Arizona law simply turns Federal crimes into State crimes as well. If anything, it shows that there is a big problem with immigration in the US. One tidbit missing from the hysterical reporting of the news is that a big part of the law is enforcement over business. Business will be heavily punished for hiring illegals.

This should really be a debate about economics and not law. Changing the economic incentives will change the flow of immigration.

Citizenship is guaranteed by our Constitution. If you are born on American soil, you are an American. This needs to be amended to, “if one of your birth parents is an American citizen, then you are eligible for American citizenship”. George Will expanded on this idea in this column.  This change would change demand for illegal aliens to cross the border.  This would be a structural change.

Economically, there are several incentives to cross the border illegally.  First, you can get a job since the American economy is more dynamic than the Mexican economy.  Second, wages are higher in America.  Third, it is much easier to get wealthy in the US than any other country in the world.  Income mobility is high.

The “income gap” is often cited by liberals in America.  They say the rich are getting richer, and the poor, poorer.  It is a silly argument, and can easily be explained away.  However, there is an income gap in Mexico.  A very small amount of Mexican families control virtually all the wealth of the country.  The average Mexican has little opportunity there.  In addition, it’s become a more violent society because of the drug cartels. Why not take a risk and illegally enter the US?

The wage math is easy for even an uneducated Mexican worker.  In Mexico the average wage is 55.92 pesos per hour.  This is around $4.56 US dollars per hour.  The US minimum wage is $7.25, with some states and cities setting it much higher than that.  They almost double their wages by coming here. If they can get a more highly skilled job, their wages increase dramatically.

It is an economic fact that minimum wages ensure that there is unemployment.  Unfortunately, unemployment hits unskilled workers the hardest.  It also whacks teens from disadvantaged areas and single mom’s out to earn a little extra money for their families.  Many of these minimum wage jobs are highly undesirable.  Illegal immigrants fill a lot of them.  $23.1 Billion was sent from the US to Mexico in 2006.

Another problem is the safety net put in place by the US government.  You can earn close to the same amount from collecting unemployment and welfare as you can from going out an working.  Your government benefits also are not taxed.  Here is an anecdote for you.  A friend of mine runs a factory.  His orders were starting to dip severely in late 2007.  He spoke to his workforce about it, and said that he didn’t want to lay off anyone, but was forced to.  He could lay off less people by cutting total hours, and promised to rehire people when business picked up.  He was going to take a huge pay cut himself to help out, so that less would get laid off.  When business picked up, he went to rehire.  His former employees didn’t have an incentive to go back to work because they were earning as much off their government benefits as they would have working for him.  A rethinking of how the government safety net is deployed would change these incentives.

Nobel prize winner Gary Becker has proposed charging for immigration. It is an ingenious way to look at the problem. There is a supply of immigration, and there certainly is demand for immigration, which means that you can draw curves for each. Where they intersect is a market clearing price.  It is a classic way to solve a problem, and in practice would probably have a lot of Ronald Coase’s theory applied.

The US is certainly a nation of immigrants. We should encourage immigration, but not illegal immigration. The US is in need of high quality immigration. Mathematicians and engineers, they will build the next generation economy.

A Little Color on the 23.1 Billion

Mexico actually has a sliding minimum wage that is dependent on geography.  The closer you live to the US border, the higher the wage.  Another geographical fact is that most of the wealthy Mexican families live in the northern part of Mexico.  Most of the drug violence is in the central and southern part of Mexico.  Analysis of the 23.1 billion in money transfers shows that most of it goes to the central and southern parts of Mexico.  Hence, most of the illegal immigrants probably come from these areas too.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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