Immigration: Labor Markets & Economic Growth Should Drive Policy

Posted on May 5, 2009

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The talk about immigration and border control again rises to the surface of American politics. It’s a false assumption to think that those in favor of enforcing the borders are “anti-immigration.” While enforcing the laws and are vital to maintaining our borders, free markets call for the natural flow of labor based on supply and demand, and thus require immigration as a means to achieving this balanced state in the labor market.

If illegal immigrants are willing to work at lower wages than required for US  citizens, the problem is not with immigration but the fact that the minimum wage itself is an improper price floor that inhibits Americans from taking these jobs.  Take away the minimum wage, and there would be little need for immigrants.  (Milton Friedman succinctly explained the wreckage caused by the minimum wage in this 1975 interview on the Open Mind.)

This is a contentious issue for many who feel the need to “protect American jobs.”  That should not be the goal of immigration reform. Instead, the goal of immigration reform should be the encouragement of economic activity and economic growth. Labor is a major input to economic production, so if a business owner determines the wage-labor productivity for a worker at any price (or wage in this case) is profitable for the business venture, then the owner should have the ability to pay that wage to any worker willing to accept it.

Alternately, there are immigrants that fall into another labor category – those that become innovators, business owners, and technology leaders.  Last week, Gordon Crovtiz wrote an excellent piece in the Wall Street Journal that highlighted the importance of immigrants to our economy’s ongoing development.  From the article:

Companies founded by immigrants include Yahoo, eBay and Google. Half of Silicon Valley start-ups were founded by immigrants, up from 25% a decade ago. Some 40% of patents in the U.S. are awarded to immigrants. A recent study by the Kauffman Foundation found that immigrants are 50% likelier to start businesses than natives. Immigrant-founded technology firms employ 450,000 workers in the U.S. And according to the National Venture Capital Association, immigrants have started one quarter of all U.S. venture-backed firms.

We’ve written in support of abandoning the H1B Visa system and identified the need for innovative ideas from anyone willing to develop them here in America. The debate on immigration reform and Crovitiz’s article is another clear reminder that clear laws should be passed and enforced to track immigrants, but those that pass the nececessary requirements should be welcomed with open arms to contribute when most needed – during times of economic downturns.

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