The FINANCIAL - High Wages not Walls

High Wages not Walls

The FINANCIAL -- People who decide to leave their country and test their luck elsewhere are usually no random sample of a population. In his 1987 paper “Self-Selection and the Earnings of Immigrants” (American Economic Review 77, pp. 531-553), Harvard Political Scientist George J. Borjas discusses the so-called self-selection of migrants.

As of 1987, the standard view among migration economists was that migrants, at least those who came to the United States, belonged to the “upper tails” of the income distributions in their home countries. As income reflects economic performance, they were considered to be of “high quality”, as Borjas writes. This assertion was backed by empirical findings. For example, new arrivals to the United States started with lower wages than natives, yet subsequently their incomes increased steeper in each year than those of native workers. About 15 years after immigration, when the initial disadvantage of being a newcomer had disappeared, the average immigrant received a higher salary than a native of equal observable characteristics. “The ‘best’ persons leave the country of origin and when they get to the United States, they outperform the native population” and generate a “brain drain into the United States”, as Borjas paraphrased the predominant view of the time.

The story was probably always a different one in Europe, which attracted immigrants not only thanks to its economic opportunities but also through generous welfare subsidies. In terms of those who come to Europe today, e.g. in the recent immigration waves, there is evidence that they are anything but economic high-performers. To the contrary, many of these immigrants seem to be particularly ill-suited to serve the needs of advanced economies. With regards to Syrian refugees, Ludger Woessmann, head of the ifo Center for the Economics of Education in Munich, estimates that two thirds of the refugees “are severely limited in their reading and writing skills and can solve only the most simple mathematical problems” (Die Zeit, December 3rd, 2015).

In Europe, self-selection has turned into the negative, with underperformers being more likely to immigrate than those who do well. The point I want to develop in this article is that there is a possibility to restore positive self-selection using labor laws. If applied smartly, these may provide an effective and inexpensive solution to regulate the massive flow of immigrants to the developed world.

SELECTIVE MINIMUM WAGES

There is no need for citizens and immigrants to be bound by the same minimum wage laws. It would be better to couple an open-door immigration policy to the stipulation that the minimum hourly wage for immigrants exceeds the average hourly salary in host economies (which is, for example, around $25 in America).

An open-door immigration policy coupled with a higher minimum wage for immigrants would limit demand for immigrant workers while getting government bureaucrats out of the messy business of deciding who would be allowed to cross the border. In principle, everyone could come, provided a job which pays the immigrant minimum wage is started up within a certain amount of time. Aside from performing background security checks, immigration authorities would not have to be involved anymore in deciding who is able to work where. Any immigrant whose skills and education earn above average salaries will pay above average taxes and thus raise the relative welfare of the host society. Any immigrant who does not earn this amount depresses average income indicators and undercuts vulnerable native workers.

Moreover, a selectively higher minimum wage policy would deal elegantly with the millions of illegal immigrants currently residing in the United States and Europe. It would enable all those who are worth a higher minimum wage to remain legally, while those who are too unskilled to earn above average salaries would be unable to secure jobs and would repatriate.

For practical matters, it would be necessary for illegal immigrants to be entitled to sue wage arrears from employers paying salaries below this higher minimum wage and that non-payment of this wage entails draconian fines. This would ensure that any employer thinks thrice before hiring immigrants for salaries lower than their legal minimum wage.

POLITICAL IMPLICATIONS

There is another advantage to the adoption of selective minimum wage laws. These laws will steer debates on immigration from emotionally-charged demagoguery into rational territory. The difference between conservatives and liberals would no longer revolve around those who want to expel and those who want to absorb millions of unskilled immigrants, but on the best peg at which to set the higher minimum wage for immigrants.

Were this to happen, we might see a grand political realignment around the issue of immigration. Conservatives, supported by business-owners eager to hire foreign workers, might push for immigrant minimum wages to be kept low, while liberals could support higher minimum-wages that shield their college-educated constituencies from the job competition created by skilled immigrants.

The establishment of selective minimum-wages may be a recipe to manage immigration flows in the 21st century. In the long run, the relocation choices of immigrants must mirror the needs of host societies, and higher minimum wages for immigrants achieve this goal by bringing back the positive self-selection that has been diluted in recent decades.

Rafael Castro is a political commentator residing in Germany. He is a frequent contributor to Ynetnews, Israel’s premier news portal. He received his bachelor’s degree from Yale University and his master’s degree from the Hebrew University of Jerusalem (in economics and political science respectively).

 

Author: The FINANCIAL


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