Impact Stories
August 4, 2021 – Immigration

Understanding the economics of immigration

A new book from scholar Ben Powell investigates the relationship between immigration and economic productivity.

Understanding the economics of immigration
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Understanding the economics of immigration

Does increased immigration lead to decreased economic freedom? Scholar Ben Powell says no — and has the data to prove it.

In his latest book Wretched Refuse? The Political Economy of Immigration and Institutions (Cambridge University Press, 2020), Powell dives deep into the relationship between immigration, freedom, and economic productivity. In this Q&A, we find out what he learned.

Powell is the executive director of the Free Market Institute and a professor of economics in the Jerry S. Rawls College of Business Administration at Texas Tech University. He earned his B.S. in economics and finance from the University of Massachusetts at Lowell, and his M.A. and Ph.D. in economics from George Mason University.

CKF: What is your research about? How did you become interested in the political economy of immigration?

Powell: My research interests span many aspects of political economy, applied to concrete issues that affect people in the real world, often in the context of developing countries. Immigration is one aspect of that — allowing people to move from countries that have low productivity and bad government policies to places like the United States is one of the fastest ways to improve their quality of life.

I became interested in the topic in graduate school. I had been fairly skeptical of unrestricted immigration. But as I learned more economics, and resided in an apartment complex filled with immigrants, I became more sympathetic to the idea. Over the years, my views have become more nuanced as I engage with various conservatives who are fans of freedom and markets but skeptical of unrestricted immigration.

CKF: What are the main arguments in your book, Wretched Refuse?

Powell: In the book Alexander Nowrasteh and I empirically investigate the argument that immigration lowers productivity and leads to the degradation of institutions or less freedom. We look at the flow of immigrants over time in the United States, and in a cross-section of more than a hundred modern countries. We ask whether immigration decreases economic freedom or increases corruption and terrorism. We found no systematic evidence across countries that immigrants degrade institutions or increase violence.

We also looked in depth at three case studies: Jordan, Israel, and the United States. In these cases, we find that mass immigration significantly enhanced institutions of economic freedom.

This does not prove that immigration could never decrease economic freedom or productivity, but we found no evidence of that. We conclude that, given the massive gains in global productivity that come from mass migration, and the lack of evidence that immigration degrades institutions, there is no reason to assume that increased immigration will destroy our freedoms or our productivity.

CKF: What kind of global gains are associated with increased immigration?

Powell: Immigration produces huge gains in global productivity. The economic gains from the productivity of place — allowing one person to move from, say, Haiti to the United States — are massive. When a Haitian moves to the U.S., even if you change nothing about their education or background, their average income goes up 1000%. That’s an extreme example, but from Mexico to the U.S. it’s still 150%. Economists estimate that completely unrestricted immigration would roughly double global output.

With a doubled global output, you can usually solve whatever material problem you think would stem from hundreds of millions of people moving. The exception would be if immigrants decrease the things that make the places they move to productive — such as economic freedom, lack of corruption, stable institutions — because in that case, the global gains won’t hold. But as we show in our book, there is no evidence that immigration causes those types of changes.

CKF: Your book uses Jordan, Israel, and the United States as case studies. Why did you choose these cases?

Powell: We selected Israel and Jordan because each country experienced a large exogenous shock of mass migration that was not a result of a change in the destination country’s policy, but rather something external. We selected the United States because of its long history as a nation of immigrants that placed few restrictions on immigration until the 1920s.

Israel experienced a 20% population increase in the 1990s when the Soviet Union relaxed its emigration policies. Many Russian Jews moved to Israel, where the “Right of Return” law gave them immediate citizenship and the right to vote. Similarly, Jordan experienced a 10% increase in population after Iraq’s invasion of Kuwait in 1990 displaced Palestinian Kuwaitis, who had rights to citizenship in Jordan. And the United States is a case study because we had a long period of essentially unrestricted immigration from Europe beginning at the country’s founding up until 1922. 

In all of these cases we found that immigration increased economic freedoms. In fact, in the United States, the period of unrestricted immigration had the period of smallest government growth, while between 1922 and 1965, when immigration was at its most restrictive, the government grew significantly.

CKF: Are there one or two popular misconceptions about immigration you wish you could correct?

Powell: Not all economists or social scientists agree on all aspects of the desirability of immigration, but the ways in which they disagree are vastly different than the misconceptions the public has when it comes to immigration.

First, you will not find any self-respecting social scientist who says that immigrants take jobs, on net, from native-born citizens. This is a widely held belief among the public. Immigration does change the mix of jobs done by the native-born population, just like international trade does. And that’s actually where we get some of the economic gains associated with immigration — if we don’t shift the mix of jobs, we don’t get gains in productivity. However, just like international trade, there is no effect on the net quantity of jobs.

Second, there is no evidence for an overall wage decrease for native-born workers when there is more immigration. Instead, most laborers in the United States possess skill sets that are different from immigrants, and may see wage increases because of immigration. Only those who directly are substitutable with immigrants — in the United States that means mostly high-school dropouts — will have some wage decreases. But even then, economists find these wage decreases are small and temporary.

CKF: What advice do you have for young people or graduate students interested in this subject?

Powell: This field is still relatively wide open; there are many more studies that can be done about immigration impacts. A particularly under-studied question is how immigration impacts the institutions of origin countries — the places where immigrants are coming from. That is an area where scholars who want to do good, applied work will find receptive audiences.

The Charles Koch Foundation partners with social entrepreneurs to drive societal progress through academic research and innovations that help all learners realize their potential. Read more about the Foundation’s support for academic research on immigration.