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High Wages not Walls

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).

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Martin Smith on Saturday, 25 June 2016 22:21

Quite interesting but do you mean two minimum wages? One already in place; a second (lower} one for migrants? With a special category for demonstrably skilled migrants like doctors or train drivers? It sound good, but I could not really grasp what you are recommending....

Quite interesting but do you mean two minimum wages? One already in place; a second (lower} one for migrants? With a special category for demonstrably skilled migrants like doctors or train drivers? It sound good, but I could not really grasp what you are recommending....
Eric Livny on Sunday, 26 June 2016 07:57

No, Martin, he proposes a single minimum wage for immigrants to be set ABOVE the average wage in a host society. In this way he hopes to prevent the arrival of low-skill workers who are not qualified for the kind of jobs that pay above-average wages.

No, Martin, he proposes a single minimum wage for immigrants to be set ABOVE the average wage in a host society. In this way he hopes to prevent the arrival of low-skill workers who are not qualified for the kind of jobs that pay above-average wages.
Martin Smith on Sunday, 26 June 2016 12:29

Well that is far too academic. they just come, they hope first and look second. They are glorious scholars and lovely people, our friends who uniquely come together and write this, and write it so very well, to my very great pleasure and excitement, but they need to rub shoulders with these poor people a bit more. We all do. But we also need to assuage the racism that emanates from eg Newcastle the night before last. We need to create structural work, eg ecological volunteer type work, basic tasks to build infrastructure, in ALL the host countries where displaced people come, so that there is a kind of quid pro quo (which can only be at the very lowest feasible wage levels and maybe shelter and basic food) for newcomers. I have done this kind of work. It is actually pleasant and great. Live in a communal setting. Just like your own wonderful Kibbutz system. We do not need to be over elaborate in these policies. And we need to carry on at a more meta level, in righting the wrongs in the war torn places which produce these migrants in the first place...

Well that is far too academic. they just come, they hope first and look second. They are glorious scholars and lovely people, our friends who uniquely come together and write this, and write it so very well, to my very great pleasure and excitement, but they need to rub shoulders with these poor people a bit more. We all do. But we also need to assuage the racism that emanates from eg Newcastle the night before last. We need to create structural work, eg ecological volunteer type work, basic tasks to build infrastructure, in ALL the host countries where displaced people come, so that there is a kind of quid pro quo (which can only be at the very lowest feasible wage levels and maybe shelter and basic food) for newcomers. I have done this kind of work. It is actually pleasant and great. Live in a communal setting. Just like your own wonderful Kibbutz system. We do not need to be over elaborate in these policies. And we need to carry on at a more meta level, in righting the wrongs in the war torn places which produce these migrants in the first place...
Eric Livny on Sunday, 26 June 2016 08:53

An interesting proposal, but I am not sure it really solves the problem it purports to solve.

First, one has to distinguish between two different types of labor migration:

1) Legal migration subject to quotas approved by the national authorities such as practiced in many countries. For instance, Israeli employers can apply for a license to import a certain number of foreign workers for seasonal or regular employment in, say, tourism, construction or agriculture. In this case, the standard minimum wage provision, if there is one, should do. Immigrants are often slaved (=paid below minimum wage) because they are illegal. Artificially raising legal immigrant wages to above average for the country (or even for the industry in question), would kill both immigrant and native workers jobs, reduce output, exports, taxes and all other good things we all care about.

2) Illegal migration fueled by desperation (and tolerated for humanitarian causes). In this case, the possibility of uninhibited entry into a developed countrys labor market will result in inundation. Desperate people will arrive in the hope of finding jobs that pay above average wages. Of course, few would actually find such jobs immediately, going into hiding. Identifying and deporting such individuals would become a national headache. Putting them in concentration camps, a la Israels conduct with respect to Somalian refugees? Deporting them back to Syria, Lybia or Gaza? That would go against Europes human rights religion which is so often invoked to intervene abroad, destabilize unfriendly regimes, and send desperate people in wave-after-wave of migration.

Europes problem today is, of course, about the second type of migration. Labor market regulations, such as minimum wages, are too rational a tool for dealing with a humanitarian disaster that is unfolding in Syria, Lybia, Iraq, Yemen, and elsewhere in the seething cauldron that is todays Middle East. When a boat sends an SOS signal, other vessels rush to rescue, without engaging in rational P&L calculations, not thinking whether they have enough food and water to sustain a doubling in the number of passengers.

An interesting proposal, but I am not sure it really solves the problem it purports to solve. First, one has to distinguish between two different types of labor migration: 1) Legal migration subject to quotas approved by the national authorities such as practiced in many countries. For instance, Israeli employers can apply for a license to import a certain number of foreign workers for seasonal or regular employment in, say, tourism, construction or agriculture. In this case, the standard minimum wage provision, if there is one, should do. Immigrants are often slaved (=paid below minimum wage) because they are illegal. Artificially raising legal immigrant wages to above average for the country (or even for the industry in question), would kill both immigrant and native workers jobs, reduce output, exports, taxes and all other good things we all care about. 2) Illegal migration fueled by desperation (and tolerated for humanitarian causes). In this case, the possibility of uninhibited entry into a developed countrys labor market will result in inundation. Desperate people will arrive in the hope of finding jobs that pay above average wages. Of course, few would actually find such jobs immediately, going into hiding. Identifying and deporting such individuals would become a national headache. Putting them in concentration camps, a la Israels conduct with respect to Somalian refugees? Deporting them back to Syria, Lybia or Gaza? That would go against Europes human rights religion which is so often invoked to intervene abroad, destabilize unfriendly regimes, and send desperate people in wave-after-wave of migration. Europes problem today is, of course, about the second type of migration. Labor market regulations, such as minimum wages, are too rational a tool for dealing with a humanitarian disaster that is unfolding in Syria, Lybia, Iraq, Yemen, and elsewhere in the seething cauldron that is todays Middle East. When a boat sends an SOS signal, other vessels rush to rescue, without engaging in rational P&L calculations, not thinking whether they have enough food and water to sustain a doubling in the number of passengers.
Simon Appleby on Sunday, 26 June 2016 10:03

It is an interesting concept, but it assumes that employers of illegal immigrants (who break the law by engaging them) will be withholding taxation and conducting the workplace relationship in accordance with all laws. In practice, employers of illegal immigrants tend to pay cash-in-hand and keep everything off the books, so the most expertly crafted legislation wont help, given that both employer and employee are breaking the law already and are evading scrutiny. An illegal immigrant is unlikely to risk detention and deportation by litigating against an employer also.

It is an interesting concept, but it assumes that employers of illegal immigrants (who break the law by engaging them) will be withholding taxation and conducting the workplace relationship in accordance with all laws. In practice, employers of illegal immigrants tend to pay cash-in-hand and keep everything off the books, so the most expertly crafted legislation wont help, given that both employer and employee are breaking the law already and are evading scrutiny. An illegal immigrant is unlikely to risk detention and deportation by litigating against an employer also.
Martin Smith on Sunday, 26 June 2016 12:22

Maybe we need an amnesty on tax scrutiny, in certain circumstances, and maybe even certain kinds of insurance, just in the interests of humanity in a crisis. Simon, however, and as ever, is wonderfully realistic and tough!

Maybe we need an amnesty on tax scrutiny, in certain circumstances, and maybe even certain kinds of insurance, just in the interests of humanity in a crisis. Simon, however, and as ever, is wonderfully realistic and tough!
Rafael Castro on Monday, 27 June 2016 13:09

Thank you for your comments. I think that differential minimum wages should be one amongst a set of instruments used to regulate migration. It is alone not a silver bullet, yet in conjunction with other policies it can contribute to drying up demand for low-skilled immigrants. Regarding Simon Applebys point that immigrants would not sue employers if this would expose them to deportation, the latter objection is based on the premise that these immigrants would be deported, which according to my proposal is not the case. On the other hand, I think that the right to sue for wage-arrears should be supplemented by the immigrants right to earn a large share of the fines slapped on employers for evading their minimum wage obligations. Adding higher wage arrears plus the fine incentive would seriously disrupt the appeal of hiring low-skilled immigrants in developed economies. A final consideration would be to combine differentiated minimum wages with the the sale of entry visas to immigrants so that immigration becomes attractive only to those who have a credible chance of landing well-paying jobs. Low-skilled immigrants would not buy these visa rights, because they would know that they would not be able to secure jobs that would allow them to recover their original investment.

Thank you for your comments. I think that differential minimum wages should be one amongst a set of instruments used to regulate migration. It is alone not a silver bullet, yet in conjunction with other policies it can contribute to drying up demand for low-skilled immigrants. Regarding Simon Applebys point that immigrants would not sue employers if this would expose them to deportation, the latter objection is based on the premise that these immigrants would be deported, which according to my proposal is not the case. On the other hand, I think that the right to sue for wage-arrears should be supplemented by the immigrants right to earn a large share of the fines slapped on employers for evading their minimum wage obligations. Adding higher wage arrears plus the fine incentive would seriously disrupt the appeal of hiring low-skilled immigrants in developed economies. A final consideration would be to combine differentiated minimum wages with the the sale of entry visas to immigrants so that immigration becomes attractive only to those who have a credible chance of landing well-paying jobs. Low-skilled immigrants would not buy these visa rights, because they would know that they would not be able to secure jobs that would allow them to recover their original investment.
Martin Smith on Monday, 27 June 2016 15:01

Very interesting thoughts in progress. You, Feldwebel Florian, and Prof. Eric, along with Simon could have a really interesting public seminar, Eric should arrange it at ISET. You are all way ahead. I have some photos of the Urban workfare in action, will forward once I have take the temperature of the rerun of the referendum issue for today.

Very interesting thoughts in progress. You, Feldwebel Florian, and Prof. Eric, along with Simon could have a really interesting public seminar, Eric should arrange it at ISET. You are all way ahead. I have some photos of the Urban workfare in action, will forward once I have take the temperature of the rerun of the referendum issue for today.
Martin Smith on Monday, 27 June 2016 15:02

And maybe Skype conferences to precede.

And maybe Skype conferences to precede.
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