Labor markets are heavily distorted by immigration restrictions, producing wide and persistent wage differences for observably identical workers in developed and developing nations. Income for low skilled American workers is 16 times as high as Haitians in Haiti, about 7 times as high as Indians in India, and about 4 times as high as Mexicans in Mexico—all adjusted for purchasing power parity. Just by moving here immigrants can largely close that wage gap. 

There are very limited avenues for low skilled immigrants to immigrate legally, which raises an important question: if the economic benefits of immigrating are so high, why are there only 11 to 12 million unlawful immigrants here?  

Below are the two broad reasons: 

First, the benefits of immigrating are not as high as they seem. The probability of being employed in the destination country is a vital variable because unemployment does not confer any benefits on the immigrant. The skill level of prospective unlawful immigrants restricts job opportunities to certain occupations. If the sectors where low skilled immigrants work have high unemployment rates, as many do now, the chances of earning higher wages here is lower so the economic benefits of immigration are lower. Downward wage bargaining by immigrants is limited but unlawful immigrants do take a wage cut, all else being equal, of about 20 percent to compensate their employers for the legal risk of hiring them and other reasons. Growing economies in places like Mexico, China, and elsewhere might partially offset the benefits of immigrating by promising higher incomes in the near future.   

Second, the cost of unlawfully immigrating is very high. Opportunity costs, search costs (including language barriers), transportation costs, legal costs, the probability of dying en route, the probability of being sold into slavery, and the probability of not making it to the United States despite paying the smuggling fee are all high and increase risk. Immigration enforcement is very effective at deterring most would-be unlawful immigrants. High smuggling fees are a high up front cost. 

Immigration can be understood as an investment over a period of years.  The length of time the immigrant spends here employed at higher wages increases the economic benefits of immigrating. The costs of immigrating, like paying for a smuggler, are fixed while there seems to be a low marginal cost for staying here to avoid immigration enforcement. The psychic costs could shift with time.

Here is an example:

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A story in Reuters today offers a good reminder of why the focus of trade negotiators is so often at odds with what really matters when it comes to opening markets at home and abroad.

The proposed U.S.-EU preferential trade agreement (called the Trans Atlantic Trade and Investment Partnership) is being subject to two days of hearings from various groups with an interest in the negotiations. The article implies that most of the witnesses (at least, those who have testified so far) are wary of the deal, on the grounds that various “protections” offered to consumers will be undermined by opening markets to trade and investment:

Since tariffs between the United States and the EU are relatively low, the most difficult part of the upcoming talks will be reducing regulatory and other “behind-the-border” barriers that impede trade in sectors ranging from agriculture to chemicals to autos to finance.

That worries consumer groups such as Public Citizen, which says the United States and the EU have different regulations because the concerns of their citizens are not the same. For example, EU consumers have voiced stronger objections to genetically modified food than their U.S. counterparts.

“Trying to eliminate a big swath of regulatory differences via a trade deal would have a democratic cost because you’re taking away a power from the electorate,” said Ben Beachy, research director at Public Citizen’s Global Trade Watch.

The reason why we have protectionism, when the case for free trade is clear and relatively uncontroversial among economists, is that the powers who gain from closed markets are organised and those, like consumers, who would gain from open markets are diffuse, hard to organise, and have little individual incentive to lobby.

But this article shows us that even those who think of themselves as consumers’ advocates, and are organized ostensibly to argue their case, often agitate against freer trade. Rarely do I hear of a “consumer group” giving support to the lower prices and greater variety that international trade brings; they’re too busy fighting the agreements based on some warped sense of “democracy” or because they want to limit consumers’ choices. It’s no wonder that trade liberalization is such a hard slog.

Speaking of consumer protections, and how they can be abused by more self-interested lobby groups, a reminder to read the paper written by Bill Watson and me on the rise of regulatory protectionism.

I have a new Free Trade Bulletin out today that pours all manner of scorn on the notion that the farm bills passed out of the House and Senate agriculture committees last week in any way represent decent reform. The FTB comes just in time for a farm-bill-themed Hill Briefing tomorrow. I cannot attend the briefing, unfortunately, but my colleague Chris Edwards will be there to give ‘em hell, as will our friends from the Environmental Working Group, Taxpayers for Common Sense, and the R Street Institute. Sterling fellows all. 

Congress still – despite record deficits, high commodity and farmland prices, and a growing sense that the country is headed in the wrong direction – refuses to have a fundamental debate about the appropriate role of the federal government in farm and rural affairs (my two cents: none). They’re too busy squabbling about how to divide the spoils between North/Midwest and South, and rural vs. urban interests. America deserves better.