Keeping immigrants out of the US may be a trillion-dollar mistake

Immigrants to the US at a naturalization ceremony in May 2019.
Immigrants to the US at a naturalization ceremony in May 2019.
Image: AP Photo/David Zalubowsk
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There’s a mystery at the heart of the current global economy.

“A guy hammering a nail into a board, literally doing the same physical act, the same task, the same occupation to build the same structure, is worth in economic terms 10 times as much in one country than in another country,” says Michael Clemens, a senior fellow at the Center for Global Development.

Clemens and two co-authors call this a “place premium”—a disparity that can be attributed simply to working in the United States and nothing else. Their experiment suggests that America’s strenuous efforts to limit immigration could be causing trillions of dollars in lost earnings.

Clemens, along with Lant Pritchett at Oxford University and Claudio Montenegro at the World Bank, have spent a dozen years assembling a database to compare workers in 42 developing countries, migrants from those countries to the United States, and American workers themselves, in a paper published this month in the Review of Economics and Statistics.

One quotable figure: They found that immigrants from the average country in their sample earned a “place premium” of more than four times the wages of their counterparts at home, equal to an increase of $13,600 or more in purchasing-power adjusted dollars.

If it makes sense that workers in the United States are paid better than those in poorer countries, well, “it’s one of those strange papers,” Clemens admits. “That’s the most obvious fact in the world, why would you spend years and years documenting it?”

There are several reasons. One is to understand the global cost of decisions to bar migrants from advanced economies, a policy trend championed in Donald Trump’s White House and by nationalist movements around the world. Another is to get at the basic question of economics—what makes a nation wealthy?

The paper, Clemens says, refutes the idea that poorer countries suffer from a deficit in human capital—”that there is some inherent cultural or genetic component to those differences.”

In order to establish that, the researchers had to prove that migrants to the United States aren’t especially different than those who stay behind. Some economic models assume that immigrants represent the poorest and most desperate, while others assume they are wealthier, smarter or somehow better prepared to succeed in some unobservable way.

The researchers carefully selected only prime working-age men with 9 to 12 years of education in their home countries, and compared them to those who did not migrate and to American-born workers with the same characteristics. This allowed them to establish that intrinsic differences between migrants and those who remained were not responsible for the huge increases in productivity caused by their change in location.

Immigrants to the United States from Yemen, for example, earn among the largest place premiums. “If it is such highly motivated, risk-loving, high-IQ Yemenis, then you would expect them to perform way better in the labor market than 32-year-old American males, and 32-year-old Guatemalans with 10 years of education, but they don’t,” Clemens said.

Proving the place premium exists, and that it is not tied directly to human capital, doesn’t answer the question of why some economies are wealthier than others. But the premium itself suggests to these researchers that there is a missed opportunity to “to make everybody better off…not cutting your slice of the pie to make mine bigger,” Clemens said.

Their estimate of  a trillion dollars in lost earnings estimate comes from comparing current US labor markets to those without any artificial barriers—a politically unlikely future, but a potentially illustrative one.

The point is to inform pragmatic policymaking. Rather than looking to cut legal immigration in half, as the Trump administration has proposed, Clemens said these findings suggest the opposite: The United States should instead increase immigration. The National Academy of Sciences has recognized that immigrants in the United States are economically beneficial, despite continued misinformation about American job losses and wage reductions.

Clemens offers a metaphor: The economic discourse around immigration is as if the conversation about the wider entry of women into the workforce in the latter half of the 20th century had only asked about the effect on male wages and didn’t consider the impact on women themselves and the overall economy.

“This is an economic analysis of migration as if the economy mattered,” he said. “It is the way you would study the economics of female labor force participation if you believed it was important to the economy, which every serious economist does.”