Want to Create an Immigration System That Works? Look to Airbnb

This article appeared on UK Telegraph on January 9, 2020.
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Plenty of foreigners would value the opportunity to work in the UK for a short period. Lots of UK citizens, meanwhile, would prefer some time out of the labour market to upskill, care for a loved one, or even travel. Yet today these two groups have no means of trading their desires. We have what economists call “a missing market”.

Economists view movements of people for work as synonymous with international trade. Barriers to immigration prevent workers moving to where they are most productive, making the global economy poorer. But as Brexit showed, completely “open borders” appears a politically unsustainable proposition.

Voters want migration controlled. They see their country more as a club than part of a global labour market. So although most evidence suggests immigration enriches the economy, voters place heavier weight on the welfare of adversely affected domestic citizens, the localised impact on public services, or perceptions of cultural damage, than on aggregate benefits including to migrants themselves.

Hence the Conservatives have pledged to end free movement for EU citizens after Brexit. They’ve promised instead an “Australian‐​style, points‐​based system”, applied equally to all countries. Our Government would rank potential migrants according to certain characteristics for determining visa eligibility, including educational achievement, language skills, work experience, or having a job offer.

Such a bureaucratic approach — setting conditions and allowing all who fulfil them to enter — is one of three broad ways to “control” immigration. The others are quotas (imposing a crude cap on immigrant numbers) or prices (some financial barrier to entry). Most real‐​life systems are hybrids of these approaches.

Economically, though, not all immigration controls are created equal. Capping numbers creates obvious absurdities. Suppose a limit is set at 99,999 people per year. Would the UK benefit if an international footballer was denied a Premier League job as number 100,000? The answer is, clearly, no.

Nor is the Government likely to do well at centrally planning the labour market through a points‐​based system. Already ministers are talking up a separate visa route for NHS nurses. Agriculture will surely follow. Whitehall has no knowledge of migrant’s potential for entrepreneurship, nor can it second‐​guess businesses’ needs in an environment in an ever‐​changing economy.

Is there a market‐​based immigration policy that could harness most of the benefits of immigration, address some stated public concerns, while avoiding these destructive economic impacts? There is. And it comes back to our “missing market” above.

One of the most valuable assets we UK citizens have is our permanent “right to work” in a high‐​wage economy. Yet this is an effective property right we own but can’t currently trade.

Suppose instead we had the option to “rent out” this right, leasing it to a foreigner for a contractually agreed period. Technology now exists such that the Government could do for work permits what Airbnb has done for our homes — making ownership of our “right to work” a marketable asset. Just as leasing your home on Airbnb temporarily disables you from living in it, leasing out your work right would temporarily prevent you from working.

If such trade were allowed, the foreigner would get the time‐​limited right to work in the UK in return for the UK citizen (likely to be in temporary need) getting a cash sum they’d prefer. As a voluntary trade, both sides would be better off. Most gains from immigration would still be realised, but with more of the surplus accruing to participating UK citizens.

Economists Martin Ravallion and Michael Lokshin have developed such a proposal. Under their scheme, a government auction website would announce start dates and work permit durations for bidding. Eligible UK citizens could register, setting their minimum asking price for giving up their right to work, with foreign buyers registering maximum bids.

Software would then “clear” the market, setting the final price such that demand and supply intersect. Those who bid at least the discovered market price would be matched anonymously with UK citizens willing to sell at or below it. Transactions would be complete when payments were transferred through a clearing system to the seller.

After the work permit expires, British participants would regain the right to work. Such a rental scheme brings obvious benefits. An unchanged potential number of workers would somewhat alleviate fears about migrants taking jobs. Much of the black market in foreign labour would be eliminated too — now UK citizens, rather than human traffickers, would be capturing the financial gain.

What’s more, UK citizens, would, in effect, now benefit from the option of a time‐​limited, out‐​of‐​work “basic income”. This additional social protection, fully funded by market activity, could be used to retrain, move, cope with unemployment, raise children, or remunerate people for caring for the ill, disabled, or elderly.

Other details would need to be thrashed out. UK eligibility might be restricted to those with strong employment histories, to stop it compounding social problems associated with long‐​term unemployment. Some secondary market for people whose situations change will be necessary. Other considerations include whether family members of foreign work permit holders would be able to live in the UK, the lengths of permits, and whether rental payments constitute taxable income.

But these are details for a market that’s clearly viable. According to Oxford University’s Migration Observatory, an average of 150,000 immigrants per year (between 2012 and 2016) had stays of just three to 12 months for work or study. Between 1990 and 2017, a large majority of non‐​UK nationals who left the country had lived here for five years or fewer.

A work permit rental scheme wouldn’t be the complete answer. People migrate for non‐​work reasons too. But if we want to maintain the economic gains of market‐​based immigration for work, while flipping the economic interests of poorer groups affected by or opposed to it, then Boris should harness technology to create a market in work permits. Airbnb points the way.

Ryan Bourne

Ryan Bourne is the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.