Here’s what open borders could do for the global economy

As relations between immigrants and their host countries remain tense, we look at the benefits the free movement of labour could bring to the global economy

 
Migrants under arrest
Nationalist politicians have often blamed migrants for increases in violent crime and decreases in wages, though there is little evidence for either 
Author: Shardell Joseph
September 28, 2016

With the UK voting Leave in its EU referendum, European countries closing their borders to refugees, and certain high-profile Americans calling to build a wall between the US and Mexico, this year has marked a new era of immigration intolerance. Immigrants around the globe – more than 244 million of them in total – are often seen as nothing more than a burden or a threat, and are treated like a problem that needs to be fixed.
With 65.3 million people forced to migrate as a result of conflict or persecution in 2015 alone, talk of refugees ‘flooding’ host countries has become commonplace, enabling fear and hostility among citizens. It’s fair to say the dialogue about immigration has become a bleak one.

It is also safe to say that xenophobia, fear and emotive rhetoric have cast a shadow over immigration policies. It is not unknown to economists that there are vast economic benefits to be gained from the free movement of people: in a 2011 paper titled Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? economist Michael Clemens argued that loosening immigration restrictions could double the global GDP average. Now, as the emotive arguments for tighter restrictions start to crack under close scrutiny, a combination of theory and data is providing further evidence for the case for open borders.

How migration shaped the world
With many countries experiencing a sudden influx of refugees, it’s hard not to see mass immigration as a new phenomenon – but that’s far from the case. Whether people have been seeking freedom from conflict, escaping poverty or even trying to find new economic opportunities and employment, migration has been a feature of human existence for centuries. Today, immigrants and foreign-born citizens make up an increasing percentage of every major city in the world.

Loosening immigration restrictions could double the global GDP average

Throughout world history, migration has made key contributions towards social, economic and cultural change: from the age of exploration to colonial migration, nations have always been quick to take advantage of the free movement of people. Right up until the First World War, there were virtually no controls restricting travel in Europe – people could move without passports and begin work without permits.

Nations first began to exercise greater restrictions in the period between the two world wars; changes in immigration policies reflected a time of economic stagnation and a general climate of uncertainty and insecurity, causing international migration to significantly decline. Furthermore, economic and political instability sparked hostility and distrust towards migrants, setting a new tone for immigration policies. Legislation requiring tighter entry procedure controls was introduced, restricting employment possibilities for foreigners and introducing strict penalties against the employment of irregular migrants.

But despite the hostile attitudes that lingered for some time, industrialised countries in western Europe eventually reverted back to more liberal immigration controls as a consequence of high demand in labour forces. Economic necessity trumped political anxiety, and directly recruiting foreign workers facilitated the countries’ way back to solid economic growth.

Migrants’ impact on wages
As history has a way of repeating itself, wealthy nations once again find themselves in a political standoff with immigration. The events of 9/11 and the ensuing ‘War on Terror’ ignited global fear and pushes for greater national security measures, while also serving as a catalyst for the emergence of heightened hostility and intolerance towards immigrants. General attitudes in certain host countries worsened as a result of the financial crisis in 2008: as unemployment increased, many natives felt they were in direct competition with migrants.

Last year, destination countries struggled with the sudden influx of refugees. Although many of these nations approached the crisis by offering humanitarian aid, for some the situation was the final straw, and a wave of incensed xenophobia followed.

65.3m

People migrated in 2015

2x

Increase in the UK’s foreign-born population, 1993-2013

19%

of the world’s foreign-born population lives in 20 major cities

Whether they have come from outspoken political figures or the media at large, there are some critical go-to arguments people have consistently invoked in order to defend tighter immigration restrictions. We have witnessed these arguments influence widespread public opinion, from the Brexit campaign in the UK to Donald Trump’s presidential campaign in the US, but under closer scrutiny, these rationalisations lose a lot of
their credibility.

A supposed rise in unemployment – one of the more popular issues among anti-immigration parties – is often used as an argument to mobilise support, with the logic being that migrant workers will cause greater competition for jobs. Groups such as the Swiss People’s Party (SPP) are no strangers to this argument: even in a country where unemployment has reached a high of only 4.2 percent within the last 10 years, the party manages to exploit people’s fears of job loss.

Although parties such as the SPP wrongfully utilise these fears to mobilise support, there’s no smoke without fire. In November 2015, the IMF reported that, based on past experience of the pace of immigration, the Swedish unemployment rate “could rise to about 8.5 percent by 2020”. It is important to acknowledge the possibility that immigration may affect unemployment in destination countries, but even if this is a possibility, many studies by economists – including Clemens’ – conclude there is not an evident correlation between immigration and unemployment. Economists even suggest the knock-on effect may actually be beneficial to the workforce of host countries: migrants increase labour, which brings in more profit, and in turn business owners can invest in more production. They are also able to diversify, creating opportunities for a broader range of workers.

It has also become a popular belief that an increase in immigration will undermine native workers’ wages, forcing their pay down. This has definitely been a topic of contention in the wake of the Brexit vote: campaign figurehead and former UKIP leader Nigel Farage often warned that migrants undercut hard-working, low-paid British employees. In 2014, he said: “There is no question that it’s pushed wage inflation down.” And while charismatic political figures such as Farage often sound convincing when making these statements, the real question is whether a more scientific analysis can back up these claims.

It’s widely believed there is some logic behind this argument; what is often debated is the extent. Nathan Smith, author of Principles of a Free Society, agreed the free movement of people “would reduce wages for some native workers”. However, he also argued skilled workers such as doctors, lawyers and teachers could expect to see their wages rise. Even those workers who can claim to be more skilled than the incoming migrants could potentially witness an increase in their wages – but, as Smith told World Finance, “many less skilled natives would probably see their wages fall”.

However, the impact on wages may be far more anticlimactic than many anti-immigration advocates would care to admit. Research conducted by the Migration Observatory at the University of Oxford found that, in the UK labour force, immigration has a very small impact on average wages: the 2013 report found that, between 2000 and 2007, a one percent increase in the share of migrants in the UK’s working age population lowered the average wage by 0.3 percent.

Further research conducted by Giovanni Peri of the University of California determined a small, negative impact by isolating the effects of immigration in Switzerland: he found that, while the Swiss workforce grew by four percent between 1999 and 2007, there were no changes in wages or employment for natives overall. During this period, wages increased slightly for more educated Swiss people, while some less educated citizens were displaced into different jobs.

It is true there is potential for a slight decrease in wages for lower skilled workers, but the impact has often been exaggerated for popular appeal. Not only are the effects minimal and temporary, but if governments are managing immigration effectively, they should be able to offset these effects with policies such as higher taxation on migrants.

Immigration controls
Free movement almost exclusively benefits both recipient and sender countries, increasing as it does labour forces, productivity, and the money sent between the two

The cause of crime
During his 2016 presidential campaign, Donald Trump eloquently described the issue of immigration and crime thus: “They’re sending people that have problems, and they’re bringing those problems with [them]. They’re bringing drugs. They’re bringing crime. They’re rapists.”

Immigrants in the US are much less likely to commit crimes, and are imprisoned less often than native-born Americans

The many xenophobic phrases of Trump are often ridiculous and nonsensical, but views like these (although not so crudely articulated) are shared by many citizens within host countries. In Israel in 2012, waves of retaliatory violence followed claims African immigrants were responsible for 40 percent of crimes in Tel Aviv. Interior Minister Eli Yash insisted “most of the African[s] are criminals”, but official police data showed foreigners committed just 2.24 crimes per 100 people in 2011 – less than half the 4.99 figure for Israeli citizens.
This is often the case: emotive speeches such as these are very rarely informative on migrant crime statistics, but are extremely successful in mobilising violence against foreigners. In 2013, Brian Bell, Associate at the London School of Economics, reported that, as a wave of asylum seekers entered the UK between 2002 and 2009, there was little to no change in violent crime. Asylum seekers were associated with a 1.1 percent increase in property crime, such as theft, which Bell argued was most likely a result of many not being allowed to work.

As the Brexit campaign reached its xenophobic peak this year – which included the appearance of signs saying “Leave the EU, no more Polish vermin” – a wave of hate crimes and racial abuse was reported to have followed.
Contrary to the violent crimes Donald Trump is convinced immigrants are the cause of, the Migration Observatory stated its US study found no evidence of a causal link between migrants and violent crime. It did find, however, that immigrants in the US are much less likely to commit crimes, and are imprisoned less often than native-born Americans.

Doubling the world’s wealth
While the evidence is lacking in anti-immigrant advocates’ argument that migrants flood across borders and become a burden on native taxpayers, there is significant evidence suggesting large-scale economic, political and societal benefits can be reaped from the movement of people.

A combination of theory and data has provided a remarkable projection of what a global economy without borders would look like. According to estimates cited by Mark Wayne, Vice President of the Federal Reserve Bank of Dallas, free labour mobility would increase world GDP somewhere in the range of 67-147 percent. In other words, the world’s $80trn economy could potentially double by opening borders.

Clemens also presented data from various estimates insisting the elimination of migration barriers would bring gains of epic proportions – including the doubling of world GDP within approximately 23 years. Clemens’ research included a simple back-of-the-envelope calculation, which, while offering a more conservative estimate, still showed a plausible GDP gain of 20-60 percent.

Clemens explained: “Divide the world into a ‘rich’ region, where one billion people earn $30,000 per year, and a ‘poor’ region, where six billion earn $5,000 per year. Suppose emigrants from the poor region have lower productivity, so each gains just 60 percent of the simple earnings gap upon emigrating – that is, $15,000 per year. This marginal gain shrinks as emigration proceeds, so suppose that the average gain is just $7,500 per year. If half the population of the poor region emigrates, migrants would gain $23trn – which is 38 percent of global GDP.”

Smith, who also estimated a doubling of world GDP, suggested “opening borders would trigger migration of billions of people, developing countries would witness a massive exodus of population to rich countries”. The knock-on effect of this would be “the Dow Jones would soar, investors would thrive, landowners would also be enormously enriched”.

Last year migrants sent home $440bn to developing countries – seven times more than global aid contributions

Economists such as Smith have argued free movement of people almost exclusively benefits both the recipient and the originating countries. More migrants means larger labour forces, more production and higher consumer spending, all contributing to boosting markets and growing their economies. These are often knowledge-intensive countries, meaning they can readily adapt to and make the most of the new forms of labour.

Simultaneously, developing countries often experience additional benefits: the World Bank reported that last year migrants sent home a collective total of $440bn to developing countries – seven times more than global aid contributions. As Smith noted, this injection of funds could “spread economic development and political freedom back to the countries that they came from”.

An ageing population
As the global population continues to age, the opening of borders will become even more important to ensuring a strong labour supply. In 1950, there were only 14 million people living over the age of 80. Today there are 100 million, and the UN Population Division (UNPD) predicts there will be nearly 400 million by 2050. As fertility continues to fall below replacement levels in all regions except Africa, experts are predicting rapidly rising dependency ratios, while the OECD workforce is expected to drop from 800 million people to 600 million by 2050. Immigrants are therefore crucial to maintaining the size of a country’s labour force.

The problem is particularly acute in North America, Europe and Japan. In a report titled Replacement Migration: Is it a Solution to Declining and Ageing Population?, the UNPD stated: “In the absence of migration, the declines in population size will be even greater than those projected and population ageing will be more rapid… If retirement ages remain essentially where they are today, increasing the size of the working population through international migration is the only option in the short to medium term to reduce declines in the potential support ratio.”

An often-overlooked advantage of immigration is its ability to harvest innovation, trade and entrepreneurship. Immigrants bring with them new skills and knowledge, which allow native workers to specialise in what they do best. Immigrants may also create new economic opportunities and promote innovation: in most OECD countries, immigrants are more likely to start new businesses than natives. Alex McHugh, North American Communications Associate for Students for Liberty, said: “Immigrants tend to be great innovators, often drawing their experiences of uncertainty and risk to go after business ventures others wouldn’t consider.”

A 2010 Conference Board of Canada (CBC) report titled Immigrants as Innovators: Boosting Canada’s Global Competitiveness measured how countries benefit from welcoming immigrants. It found 35 percent of Canada research chairs were foreign-born, and immigrants made up roughly 20 percent of the Canadian population. Overall, Canada is known for having embraced immigration, integrating it into its national identity. Prime Minister Justin Trudeau told the World Economic Forum at Davos 2016: “Diversity is the engine of investment. It generates creativity that enriches the world.”

Based on a survey and a literature review, the CBC report concluded immigrants in Canada – as in many other receiving countries – are a source of diverse knowledge and experience that can increase innovation in businesses.

Today’s liberal, international society has largely embraced the free movement of capital and trade. Now it’s time the global economy began to accept the free movement of people too. There is potential for a symbiotic relationship between these concepts, where the movement of people can substitute trade in labour-intensive countries, and vice versa. McHugh said: “The free movement of people should be as unrestricted as possible… Restricting the flow of goods, capital or people creates distortions to the market that can undermine economic productivity.”

The concept of open borders is not dissimilar to free trade. There will always be a need for some level of restrictions – for national security reasons, for instance – but to completely disrupt the flow of migrants is harmful to both the global economy and the societies within it. Today, the obstacles to lifting immigration restrictions are, as Smith noted, “racism, bigotry and ignorance”. Tackling these could lead to significant global economic prosperity in the future.

  • Shane Warne

    Skilled migration is far superior to unskilled migration. Mass unskilled migration leads to economic inefficiency, and an eventual collapse of the welfare state. It is not sustainable. Not to mention it increases social and political volatility. Compare this to sensible immigration of attract high productivity migrants who are net contributors to the economy, which will allow fiscal prudence and the maintenance of the welfare state (which provides additional economic benefits for a consumer based economy), along with creating less social and political volatility. One might say this is not fair, however, as more attractive nations will therefore attract better migrants (i.e. brain drain will occur from poor countries), but brain drain will occur with open borders also (on an arguably equal or even greater level). You need to add in geopolitics also. Where nation states need to compete for resources, and have different ideological, political and security motivations and interests. This same applies to non-state actors.

    Open borders just isn’t realistic at all. This borders on autistic economics again. Economics as a profession has received immense flak over the past decade especially, for the financial crisis, experimental monetary policy, and then more recently Brexit (where British economists after the vote held a literal debate on the failure of the profession) and one of the repeating themes I have heard lately over the past few years is ‘autistic economics’ (i.e. an inability to read or judge human variables appropriately – or almost ignoring them altogether). Economists need to start factoring in more variables into their reasoning and logic again, and make it more reality based and practical / pragmatic, rather than purely theoretical. In an ideal world, theoretically, open borders seems like a great idea. In the real world, it does not, and is not. In the real world free trade doesn’t even exist. In the real world economics is much different than theory.

  • juliathemechanic

    The last time the brightest guys in the room trotted out this open borders one world order tripe was in the 1930’s. That worked out so well – world-wide depression and a planet full of fascist and communist dictators. Guess the Communists in the American newsrooms are ready for round two. You can watch Europe dissolve before your eyes as the seventh century invades them for an early litmus test.

    America takes in more immigrants and refugees each year than all of the other countries on the face of the globe combined. Here’s a great reason why that’s a very bad thing: A country with traditions based on freedom, liberty, free speech and a rule of law can only be diluted and corrupted by those who don’t hold the same truths to be self-evident. Most of the world believes in slavery of one type or another and they wish to bring it here. No. We will only embrace those who hold our same standards of human decency and equality.

  • Benn76

    Go Trump! Open borders don’t work! Unless we go the way of China, Russia and limit progress! EU not working!