Categories:
Labor Mobility, Immigration, Outsourcing
How open is the U.S. border? There are many measures, but my favorite is: How many months’ wages do immigrants pay smugglers (“coyotes”) to get them across the border?
Coyotes’ current price is about $3000 per person.
I can’t find good recent data on Mexican farm workers’ wages, but back in 2001 the U.S.D.A.’s estimate was $900/year.
Even if we round that number up to $1500/year, it looks like Mexicans pay about 2 years’ income to get here.
You might want that number to be even higher. But anyone who claims that the U.S. border is “already open” (yes, I’ve heard this many times) is dead wrong.
READER COMMENTS
OJFL
Sep 15 2011 at 12:37pm
Dr. Caplan,
is this not associated with what Dr. Thomas Sowell calls the economics of crime? That is circumventing or absolutely breaking the law becomes more attractive as the costs of doing so decrease? I understand that two years’ salary is a lot to pay but for these people what is the alternative? Also the bigger question is that it is absolutely impossible to live anywhere in the US with only 1500 dollars a year. That is less than 5 dollars a day and that may not even be enough to cover food, let alone shelter and clothing, is it not? So these people may have some other for of increasing their income, or is that not a probable conclusion?
Alex J.
Sep 15 2011 at 1:24pm
$900 + whatever welfare or publicly provided goods and services they use. (Which may be more or less than the average Mexican farm worker pays in taxes.)
TimG
Sep 15 2011 at 1:53pm
This is an important point. All empirical data in the last couple of decades on the effects of immigration in the US has been collected under conditions of relatively closed borders. We should remember this when people attempt to extrapolate this data to open borders.
Jody
Sep 15 2011 at 2:43pm
Aren’t future earning more relevant than past earnings? I.e., why wouldn’t they take a loan against future earnings? Remittances are pretty robust.
Assuming minimum wage and only a 40 hour week, that $3000 in the US takes just about a couple months to make. Actually, slightly more, but call it 3 months with interest.
Dan Hill
Sep 15 2011 at 3:16pm
Since most immigrants don’t make it through on the first attempt, I think the price of one trip understates the size of the barrier – you probably need to multiply it by 2 or 3.
And yet they still want to come. Damn hard working, determined people. We don’t need any of those thanks.
@Jody – I think you need to calculate the net increase in future earnings rather than the gross total to understand how big $3000 is to a potential illegal immigrant. So maybe they’re a few hundred bucks better off per month than if they stayed in Mexico. Then $3,000+ doesn’t seem insignificant.
Mr. Econotarian
Sep 15 2011 at 3:28pm
“We should remember this when people attempt to extrapolate this data to open borders.”
Indeed, in an open border situation, immigrant workers would be legalized, and instead of hiding in informal work situations to avoid detection, they could be put to more productive work by larger companies backed with more productive capital investments and economies of scale, thus enhancing their contribution to the US economy.
Also it is possible that legalized immigrants might be more willing to return to their home country temporarily should unemployment in the US rise and they lose their formal job, rather than the current situation where they are scared to leave the US lest they never get back in.
Jody
Sep 15 2011 at 3:45pm
I think you need to calculate the net increase in future earnings rather than the gross total
Ok Dan.
Bryan gives a Mexican annual income of $1500. I’m assuming US minimum wage and only about 40 hrs / week for a US annual income of about $15,000 (7.25 x 2080). With a gross increase of $15,000 annually, the annual net increase from crossing the border is $13,500. For which #3,000 / $13,500 = 0.2222 * 12 = 2.66 months which is still less than the conservative 3 month bogey I gave without running the arithmetic.
Short takeaways:
1) When the base is so close to 0, gross is good enough for a back of the envelope calculation.
2) There’s a reason med students (and expected high draftees) are able to take out loans.
So don’t be surprised that a large expected bump in earnings (in this case 10x) enables borrowing against future earnings.
3) That’s a huge ROI with a very short payback period. That’s why millions try to cross the border every year.
Floccina
Sep 15 2011 at 4:38pm
It the concept of USA citizens being allowed to sell their USA citizenship is interesting to me. Somebody puts up (lends) the money for some bright hard working Indian, Chinese or Mexican to buy some poor American’s citizenship for $100,000. The Poor American goes to Mexico of China to try and live cheaply and make the money last for the rest of his life and the immigrant comes to USA and works hard to pay off the debt.
Floccina
Sep 15 2011 at 4:42pm
Even better maybe they rent their right to work in the USA to a foreigner. So they stay in Mexico while the Mexican comes here and pays them the rent which they live on.
joshua
Sep 15 2011 at 6:31pm
What percent of immigrants use the coyotes? Are there any who risk coming for “free”?
Rob O.
Sep 15 2011 at 8:38pm
Perhaps I don’t fully understand your meaning of “open,” but I fail to see how the costs involved in contracting the services of a coyote is connected to the openness (or not) of the border. Price and availability are two different things.
We’d be doing Mexicans & Americans alike a favor if we’d decide to aggressively handle the border issue in a suitable manner. That is, we need to redeploy the military resources that we withdraw from the Mideast to our southern border. Who needs walls or fences when we have tanks and F-14s?
Scott Gustafson
Sep 18 2011 at 7:38pm
If I understand your argument you imply that the border is effectively closed because low wage Mexican farm workers must spend the equivalent of two years wages to get here.
How many years worth of wages does a high school graduate have to spend in order to get a 4 year college degree? More than a couple. Given that, would you argue that college admissions are effectively closed in the US?
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