Matt Yglesias agrees with William Galston that the democrats would do well to switch their focus from immigration to the economy. I don’t know -or care- what’s best for the democrats politically, but I think immigration policy is actually one of the few levers that the government can push on to improve the economy at this point.
Most economists would agree that an increase in house prices right now would be a good thing. It would increase household wealth and bank balance sheets, which would potentially stimulate consumption and lending. A large enough increase can send a clear signal to hesitant homebuyers that the bottom has been reached, and lead to further increases in demand. Construction output increases to meet demand… and so on and so forth. These things are obvious though. The question is, how do we increase prices at a low enough cost to make it worthwile?
The most efficient way I can see to do this is to increase immigration. I think increasing all immigration would work, but even more targeted to economic growth would be a very large increase in H1B visas for skilled workers. This is a more efficient means to increase house prices than any other stimulus/housing policy plan out there, because it
1. requires no market distortions (you’re welcome Arnold Kling)
2. does not encourage buying over renting (Ryan Avent and Felix Salmon, that’s for you)
3. is Keynesian stimulus, because the spending on housing, transportation costs, and new furniture associated with immigrating would not have happened otherwise (DeLong, you can celebrate)
Now if you auction these H1Bs at a couple thousand dollars a pop and then use that money to build those crybabies in Arizona their border fence then you’ve got a Pareto improvement. What about lower wages for high skilled workers? I can believe that the increase in output from more immigration might be enough to actually increase the marginal productive of skilled labor, and thus wages. If someone wants to work out the general equilibrium result there please do so.
If you’re concerned about the welfare of the emigrating nations consider that remittances are often sent back, and the ability to leave the country and get higher returns on human capital raises the incentives for citizens of that country to accumulate human capital. This in turn would increase the supply of human capital generating institutions like higher ed, which the non-emigrating population benefits from. I can’t cite specific literature on this, but I believe the work done on this generally supports the notion of a positive impact of emigration.
Perhaps then we should be considering pro-emigration policies too. For instance, as Dean Baker has suggested, if we let the elderly take their medicare to Europe they will get more for their money and we will spend less on medicare.
In a global sense more immigration is just allowing labor to move to where it is most productive. For all the urbanists who criticize pro-homeownership policy for reducing labor mobility, this should be an obvious win. Let’s lower barriers to entry and exit, and not let nativism get in the way of economic recovery.
5 comments
Comments feed for this article
Friday ~ April 30th, 2010 at 11:44 am
jsalvati
Let me first say that I absolutely favor drastically increased immigration.
Increased immigration is very likely to increase the demand for US dollars. New immigrants would require dollars for their use (though this would reduce the demand for other currencies). This puts *downward* pressure on the price level even though it would put upward relative price pressure on housing.
The increased dollar demand would exacerbate monetary disequilibrium in the US if the central bank does not expand the money supply. This is exactly the opposite of what we would like to happen. Increased immigration is a bad stimulus plan, given likely monetary policy even though it’s a good policy in general. I suppose immigration would also decrease money demand for the currency zones immigrants were coming from.
Friday ~ April 30th, 2010 at 3:45 pm
jazzbumpa
Have you taken a look at the employment situation for Engineers, IT specialists, programmers, data analysts? These are typical H1B type jobs.
The specialties listed above were once professions that offered career paths. Now these specialists often end up working for contract houses, who skim off a terrifying amount of what their clients pay them for the use of these people.
Encouraging immigration when the real unemployment level is in the high teens will place further downward pressure on wages, and undermine the ability of workers in general to afford housing of any kind.
I really don’t see this path as any kind of road to recovery.
Cheers!
JzB
Friday ~ April 30th, 2010 at 5:05 pm
Adam Ozimek
I agree that, ceterus paribus, an increase in labor supply would decrease wages or increase unemployment. That is the partial equilibrium story. But my argument is that the increase in output resulting from a large increase in skilled workers -through the mechanisms in my second paragraph- could be large enough offset that effect, and potentially cause a net increase in employment. That is the general equilibrium story, but agreed, it is but one possible general equilibrium story.
Friday ~ April 30th, 2010 at 10:38 pm
teageegeepea
I gave my plan for immigration here. A lot of restrictionists in the comments don’t find it nearly restrictive enough.
Thursday ~ July 29th, 2010 at 12:42 pm
An unemployment problem with an easy solution « Modeled Behavior
[...] fix. It’s actually a fix that doesn’t require government spending, includes a bit of non-government Keynesian spending, and will help with our debt as well as lower global poverty. Right now, there are millions and [...]