Looking High and Low for Sources of Economic Growth

High-skilled immigrants are sexy.  By definition, they possess talents that are rare relative to the skills possessed by the bulk of workers in both developing and developed countries.  High-skilled immigrants, therefore, stand apart from other immigrants as well as from most workers in destination countries

Government officials and the general public – largely failing to think seriously about economics and, hence, defaulting into a mercantilist interpretation of the economy – are more prone to tolerate, or even to encourage, the in-migration of high-skilled workers than of low-skilled workers.  High-skilled immigrants, after all, seem better armed to help a domestic economy “win” its economic “competition” against other economies.  Not only do these high-skilled workers, unlike low-skilled workers, directly perform high-tech feats for the home team, they are less likely to be loafers who drain the home team of the resources it needs to sustain itself and to compete successfully against foreign rivals.

So while the modern welfare state – by turning a great deal of private wealth into a common-pool resource – continues to intensify nationalist suspicions of ‘outsiders,’ this ‘anti-foreigner’ effect is somewhat moderated when the discussion turns from “immigrants” to “high-skilled immigrants.”

This moderating effect is good, but not unqualifiedly so.  It is good insofar as it does in fact result in greater ease of people to move freely across political borders in response to economic conditions.  As several of the empirical analyses in High-Skilled Immigration in a Global Labor Market make clear, economic conditions do in fact work in predictable ways on the pattern of international migration of labor.

But the qualification is this: a focus on the (very real) benefits of a liberalized policy toward high-skilled immigrants removes attention from the (very real) benefits of a liberalized policy toward low-skilled immigrants.  Put differently, treating the immigration of high-skilled workers separately misleadingly suggests that a categorical distinction separates high-skilled immigrants from low-skilled immigrants.

In fact, though, no such categorical distinction exists – either in theory or in practice.

The non-distinction here is more than the fact that workers’ skills are arrayed along a spectrum from unskilled to the extraordinarily highly skilled, with no bright line separating high-skilled workers from the rest.  And this non-distinction is also more than the reality that a person possessing a rare talent is not necessarily a worker possessing a talent that is in high demand at a high wage – that is, a worker possessing a talent that other market participants will pay handsomely for that worker to exercise.  (Someone who, say, can sing every Beatles’ song backwards possesses a rare talent, but that talent is unlikely to command a high market wage.)

The non-distinction is chiefly the fact that low-skilled workers are no less capable than are high-skilled workers of producing net value – and of fueling economic growth – in their destination countries.

Consider a simple example.  Suppose that high-skilled immigrant Lee produces, by virtue of his being now in the United States, a new piece of agricultural technology that generates a net increase of $100 million in agricultural output over, say, 50 years.  That is, after deducting Mr. Lee’s salary and other expenses, as well as deducting all other costs of creating and using his new technology, the net increase in the value of agricultural output in the U.S. over these 50 years is $100 million.

Mr. Lee contributed.  He contributed a lot.  We should all applaud him and celebrate his coming to America.

But suppose also that 200 low-skilled immigrants – Gonzales, Perez, Ramirez, and many of their relatives and friends – produce, by virtue of being now in the United States, a net increase in the value of agricultural output of $100 million over the same 50 years.  These low-skilled immigrants produce this added output, of course, not so much with brilliant brain power but, rather, with more mundane – much less sexy – back and arm and hand power.  And as a result, in comparison with the market rewards that Mr. Lee will reap from his productive efforts, each of these 200 low-skilled immigrants will reap a smaller individual reward (albeit a reward presumably large enough to compensate each of these immigrants for the trouble and anguish endured as a result of moving away from his or her home country).

By what metric is Mr. Lee more productive – by what calculus is he better for America’s economy – than is this group of 200 low-skilled immigrants?  I can think of none.  In both cases, the U.S. economy is larger by $100 million over the course of a half-century.  More precisely, in both cases each of the hundreds of millions of people who rely upon the American economy for their well-being has, on average over the span of 50 years, access to a pool of valuable outputs that is annually $2 million bigger than it would have been without the immigration.

If the productivity of a high-skilled worker justifies his or her immigration into America (or whatever country is in question), then surely the identical productivity of a group of low-skilled workers is equally justified.

Nothing relevant about the above simple example is strained or contrived.  Much (if not all) of what a high-skilled worker can do is done equally well by a larger number of low-skilled workers.

True, a randomly chosen low-skilled worker is more likely than is a randomly chosen high-skilled worker to seek government welfare.  But it’s not at all obvious that the net economic contribution of low-skilled immigrants will be rendered negative by this propensity.  Before the economic merit of low-skilled immigration can be adequately assessed, the added economic output of low-skilled immigrants must be weighed against whatever increased burden these immigrants are likely to impose on taxpayers in destination countries.

Moreover, if the policy issue is promoting domestic economic growth, this problem of immigrant access to government welfare is relatively easily handled.  The government of the destination country could, for example, require as a condition of entry that each low-skilled immigrant agree that he or she will never receive a range of government welfare payments.  Those persons who insist that such a requirement is inhumane or unfair should ask if it is more humane or fair to deny access to low-skilled immigrants who would agree, if presented with the opportunity, to such a requirement.  Is it more humane and fair to oblige such would-be immigrants to remain in their home countries?

It’s worth pausing to note that it’s less clear than is normally supposed that low-skilled immigrants are more likely to be a net burden on taxpayers than are high-skilled immigrants.  Low-skilled immigrants undoubtedly are indeed more likely than are high-skilled immigrants to seek government handouts to pay for food, clothing, and household energy.

But what about higher education?  A plausible case can be made that high-skilled immigrants are more likely than are low-skilled immigrants to have children who receive taxpayer subsidies for undergraduate and graduate training in institutions of higher learning.  Also, high-skilled immigrants are likely to live longer than low-skilled immigrants and, hence, more likely to consume more resources through Medicare.  And high-skilled immigrants might be more likely than are low-skilled immigrants – especially as western economies become more and more politicized – to petition government to subsidize the firms and industries in which they work.

These are all empirical questions, of course.  My suggestions might well be mistaken.  I make them only to highlight the fact that modern governments oblige their taxpayers to pay not only for welfare for the indigent but to pay also for welfare for the well-to-do.  So it’s illegitimate to assume that the poorer (or lower-skilled) someone is the more likely that person is to become a net burden on taxpayers.  The high-tech workers at Solyndra, after all, were a huge burden on U.S. taxpayers.

The relevance of the distinction between high- and low-skilled immigrants shrinks ever further when we consider this passage from page 37 of Joseph Ferrie’s chapter, “A Historical Perspective on High-Skilled Immigrants to the United States, 1820-1920” (emphasis added):

[T]he transformation of manufacturing from manual to mechanical methods occurred most rapidly in [geographic] areas where a large unskilled labor force suddenly became available in the 1840s and early 1850s.

Low-skilled immigrants promoted a high-tech outcome.  The availability of a large-enough supply of low-skilled manual workers made profitable the introduction of high-tech (for that era) machinery and factory organization whose use was not profitable with fewer low-skilled workers to supply these factories’ demand for labor.

This outcome – while perhaps startling at first blush – isn’t so surprising.  Market economies are unimaginably complex, with feedback loops, connections, and ‘reaction functions,’ that work in ways that often astonish anyone equipped with only rudimentary knowledge of economics and of economic history.

Were immigration restrictions on Uncle Sam’s agenda in the mid-19th-century, one can easily imagine intellectual and political elites back then having a discussion much like the discussion going on today: “Well, high-skilled immigrants are what we want.  They, unlike low-skilled immigrants, will prepare America for the coming high-tech future!”  (In fact, thankfully, immigration restrictions were not on the government agenda back then.  Not even the Know Nothings proposed restricting immigration; they simply wished to slow the process of naturalization.)  Had this discussion led to restrictions on low-skilled immigrants, it is quite plausible that, even if high-skilled immigrants remained unconstrained during the 19th century in their ability to come to America, America’s economic growth, industrial might, and access to high-tech production methods would have been compromised.

Denizens of market economies prosper more the greater the mobility of capital to find its most remunerative (that is, most productive) uses.  Ditto for resources.  Ditto for consumer goods.  And ditto for labor.

While we Americans should, by all means, make it much easier for the likes of foreign-born engineers, physicians, architects, and web-designers to immigrate to America, the same holds with equal force for immigrants whose skills are much fewer and far less sexy.