Milton Friedman once remarked that it was difficult to combine open borders with a welfare state. I thought about that observation when reading a couple of articles in a recent issue of the Economist. The first example discusses the views of a half-Arab Swede who is a member of the anti-immigrant Sweden Democrats:
One of those MPs will probably be Mr Robbjens. Three years ago, he left the centre-right Moderate party for the Sweden Democrats. As a man of mixed race whose mother was deputy mayor of Tripoli, he seems an odd fit for a far-right party. But he is not against immigrants; he is against Sweden’s failure to integrate them. He voices a common criticism, that because the country has not demanded that immigrants assimilate, too few consider themselves Swedish and too many rely on social-welfare programmes.
And a few pages later:
RETURNING to Turkey from Germany with four children in tow was not easy for Faisl Alakrch, a 36-year-old Syrian. He had to use a people-smuggler to retrace, in reverse, the route he had taken the year before. His younger brothers have remained in Germany and are studying at university, but he wanted to work, and complains that “I could not do anything there.” Turkey, by contrast, has made it easy for him to operate. He was able to register a company and set up a café in Gaziantep, a city close to the Syrian border. He has now been invited to become a Turkish citizen. His six-year-old son speaks a mixture of German, Turkish and Arabic.
Around 3.5m Syrians live in Turkey, the largest number of refugees anywhere in the world. Turkey is not fully signed up to the 1951 Refugee Convention so, although Syrians there get access to health care, education and a small stipend, partly paid for by the European Union, they do not receive the many benefits that refugees in the EU get, such as accommodation and child benefit. Nevertheless, Turkey is proving a better refuge for many than Europe.
Of course it’s not easy to suddenly absorb 3.5 million refugees, and the article also mentions a few problems. But Turkey seems to have done better than Sweden at integrating the immigrants. The best way for an immigrant to integrate into a new society is to work side by side with local residents. (The US has been pretty successful with its Muslim immigrants.) Having a Swedish-style welfare state may make that harder to do.
Some people worry that immigration reduces wages and steals jobs from locals. Thus it’s worth noting that Switzerland has perhaps the developed world’s highest wages and lowest unemployment rate, despite unusually high levels of immigration:
Switzerland’s high wages, strong economy and location lure foreign workers. About a quarter of its 8m residents are foreigners while 320,000 workers commute daily into Switzerland from EU countries including Germany and France.
That commuting figure is actually rather mind-boggling, when you think about it.
READER COMMENTS
Obvious Things
Sep 16 2018 at 6:18pm
Unusually high levels of immigration from where? “Immigrants” are not homogeneous.
E. Harding
Sep 16 2018 at 8:32pm
“That commuting figure is actually rather mind-boggling, when you think about it.”
Not really. I’m sure a larger number commute to NYC.
“But Turkey seems to have done better than Sweden at integrating the immigrants.”
That’s because Turks are more similar to Syrians than are Swedes.
Scott Sumner
Sep 16 2018 at 11:50pm
You said:
“I’m sure a larger number commute to NYC”
From other countries?
You said:
“That’s because Turks are more similar to Syrians than are Swedes.”
I doubt it. That doesn’t explain why Muslim immigrants have done well in America.
Max
Sep 17 2018 at 4:19am
If New York would border a different country im certain more people, compared to Switzerland, would commute.
Look at a map of Switzerland. Both Genf and Basel are major Swiss towns that border France and Germany. It takes about 15-20min with a car to reach the border from these towns. Add Schaffhausen to that list and you probably have most of your 320000 commuters.
E. Harding
Sep 17 2018 at 7:48pm
Why?
Muslim immigrants to America are much, much more selected than are Muslim immigrants to Sweden or Turkey.
B Cole
Sep 16 2018 at 8:37pm
A country with higher wages will attract immigrants.
Ergo, looking at nations with high wages and concluding that immigration does not depress wages is a strange way to approach macroeconomics.
Thailand has a lot of Burmese and Cambodian labor in rural areas. Wages in Thailand are lower than in the US. Should we conclude that immigration reduces wages?
It seems to me a logical deduction is that immigration will roughly equalize wages when allowed.
If wages are markedly higher in Tennessee than Kentucky, I would expect to see migration from Kentucky to Tennessee until rough equality was obtained.
Jon Murphy
Sep 16 2018 at 8:56pm
Why? The latter is not a logical consequence of the former. Indeed, the empirical evidence finds that to the extent wages equalize, it is because the foreigners’ wages rise to domestic levels, not domestic wages fall to foreigners levels.
Methinks you’re getting confused because of the idea of average wages.
Imagine the entire Boston Celtics are in a room. If I, who am barely 5’8, walk in, the average height of the room will fall. But it doesn’t mean 1) that the team is now shorter, 2) that they will play worse basketball, or 3) that their height regressed toward mine.
B Cole
Sep 16 2018 at 9:20pm
“Empirical evidence” in macroeconomics ranks up there with “scientific astrology.”
Has anyone, ever in the history of macroeconomics, ever uncovered empirical evidence that directly contradicted the biases they held before engaging in study?
Jon Murphy
Sep 16 2018 at 9:28pm
Don’t be glib, Ben.
Macroeconomics can provide useful information. Such as inoculation to the idea that immigration lowers wages.
Benjamin Cole
Sep 17 2018 at 12:38am
Western macroeconomists are in a bind.
I believe in supply and demand. I thought we all did.
Okay, an increase in the supply of labor means what?
The problem is, elites and liberals have sacralized immigration.
So…they have to undergo intellectual gymnastics to produce studies that find that increases in the supply of labor do not depress wages. How is this possible?
I think if you look at higher-wage positions in the US (especially those where supply is limited by licensing), more immigrant labor may actually boost those selected wages. You may get more economic activity—say demand for legal services—but no increase in the supply of lawyers.
To my knowledge, no one seriously believes more immigration will, in general, raise wages of the receiving nation.
A harsh example: The import of black labor to the pre-Civil War South did elevate living standards for some, and perhaps certain occupations, such as foreman, or independent craftspeople, say wheelwrights, who benefitted from a growing economy. Did the import of cheap labor boost overall wages and living standards? Who would be captured in a census of that time?
Are illegal migrants in the US, who work in the informal cash-pay labor sector, counted in official surveys?
I am not ready toss out supply and demand as the governing reality of economics.
But perhaps you wish to develop a new framework for macroeconomics.
You can call it “Faith-Based Macro.”
More supply equals higher prices!
BC
Sep 17 2018 at 6:32am
Benjamin Cole: “Okay, an increase in the supply of labor means what?”
Greater opportunities to gain from specialization, which leads to higher productivity and, hence, higher wages? I guess it depends on whether you think Boston residents gain from trading with New York residents or whether they suppress each other’s wages. If you believe the former, then allowing Boston and New York residents to migrate freely from one to the other creates even more opportunities for trade and specialization. If you believe the latter, then I guess you must have a completely self-sufficient household to avoid letting your neighbors suppress your family members’ wages?
Jon Murphy
Sep 17 2018 at 8:15am
As do I. My statement, indeed the empirical evidence and the opinion of the vast majority of economists is based on supply and demand analysis.
Stephen
Sep 17 2018 at 12:02am
I appreciate your example of the Celtics-in-a-room, but isn’t the more correct view Jon-Murphy-on-the-Celtics? If the Celtics were forced to take you on their team–and no disrespect intended–they would probably be worse off. They may not choose to play you, but you will earn the NBA minimum ($800K with no experience), which will count against the salary cap of $102 million. So the Celtics will incur additional cost with no benefit which I think is very much consistent with the conventional view of unskilled immigration.
Jon Murphy
Sep 17 2018 at 8:13am
Absolutely! If they were forced to do so, they would almost certainly be worse off. However, if it was voluntary, then we could reach no such conclusion.
No one is forcing immigration. Immigrants are not being kidnapped by Americans. Landlords are not being forced to rent to them. Businesses are not being forced to hire them or sell to them. Indeed, our current legislation forces them to not deal with immigrants. We must conclude that such legislation makes everyone involved worse off.
nobody.really
Sep 19 2018 at 1:40pm
Oh? Then how do you explain the loss to the Cavaliers, smart guy?
Next time, do us a favor and stay in your own room until after the playoffs, ok? I mean, maybe you’re right, but why not err on the side of caution….
B Cole
Sep 16 2018 at 9:09pm
Add on Switzerland:
Switzerland is probably a one-off. It is a small nation (8 million) and a refuge for very high net worth immigrants and investors.
Suppose one million very high net worth people migrate to Switzerland, and begin to demand services, but migration of ordinary laborers is limited.
Yes, in that case wages may rise.
Scott Sumner
Sep 16 2018 at 11:53pm
Ben, I think you might want to learn more about Switzerland before leaving comments. It’s immigrants are not primarily “high net worth individuals”.
Carolyn
Sep 19 2018 at 2:51pm
Switzerland has high immigration with low unemployment, because getting a long-term visum for Switzerland very difficult if you do not have a signed work-contract when you apply for residence.
The following information can be found on the homepage of the Swiss government:
https://www.ch.ch/en/working-foreign-national-requirements/
Working in Switzerland as third-country nationals
Self-employed
Generally speaking, third-country nationals who are resident in Switzerland must obtain authorisation under the cantonal and federal authorisation procedures before doing any work on a self-employed basis.
Authorisation may be granted if justified on economic grounds, if certain personal, financial and business requirements are met, and if the possible limits on the number of foreign nationals permit.
Foreign nationals who are married to Swiss citizens or to persons with a permanent resident permit do not require additional authorisation to become self-employed.
Work permits for non member EU/EFTA
Non self-employed
If you are a third-country national who has been offered a job in Switzerland, your prospective employer must submit an application to the cantonal immigration or labour market authorities. If the application is accepted, it will be forwarded to the State Secretariat for Migration (SEM) for approval. The SEM will then notify the parties and the cantonal authorities of its decision, but this decision does not constitute authorisation to enter Switzerland.
If you require a visa, the cantonal migration authorities will send a visa clearance certificate via e-mail to the Swiss diplomatic/consular mission in your home country. You can then obtain the visa there. Within 14 days at the latest of your arrival and before taking up employment, you will need to register with the communal authorities in the place where you are living and only then can you begin work.
The following requirements apply to employment of third-country nationals:
Persons are admitted when it is in the general economic interest.
Authorisation is only granted if established quotas have not been used up.
Third-country nationals may only be hired if no one with equivalent qualifications can be found in Switzerland or in an EU/EFTA member state.
Only managers, specialists and other qualified workers will be admitted. “Qualified workers” are primarily the holders of higher education qualifications (i.e. from a university or university of applied sciences) who also have specific technical expertise and several years of professional experience. Integration criteria will also be taken into account when issuing residence permits: ability to adjust to a new occupational and social environment, language skills and age.
Salary and working conditions must also be equivalent to those that apply to Swiss inhabitants.
Matthias Goergens
Sep 16 2018 at 10:26pm
Germany explicitly bans refugees from working until they’ve been in the country for about a year. (Sorry, don’t remember the exact durations.)
As you say, scrapping that idiotic ban would lead to much better integration. And would even help the welfare state, since working migrants are tax paying migrants.
(Ie there might be other grievances to bring against a welfare state, but the most that applies here seems to be making employment bans tenable in the first place—since Germans wouldn’t put up with starving amidst their relative plenty.)
Benjamin Cole
Sep 17 2018 at 7:29am
“Switzerland, located in the heart of Europe, is universally known for its quality of life, privacy and freedom, political neutrality, beautiful landscape and excellent business environment. It is a member of the Schengen area but is not a member of the European Union. It is easily accessible by flight and is a short drive from many European business and cultural capitals.
Swiss residents can enjoy visa-free travel in Europe, making it an ideal destination for retirees, business investors and wealthy families. Switzerland levies relatively high personal income taxes on the worldwide income of most residents, however, in order to attract ultra high net worth individuals who contribute meaningful amounts to the Swiss economy, some of the 26 cantons within Switzerland are willing to negotiate an annual flat tax.
The flat tax avoids the need for any declaration of worldwide income, and also allows the taxpayer to claim the benefits of Swiss residence under Swiss tax treaties, offering attractive wealth management opportunities.
Technically, the flat tax is a taxation based on expenditure. The tax is therefore calculated not on the basis of earned income, but on the basis of an estimate of the taxpayer’s living costs in Switzerland. The tax is individually negotiated, but is typically calculated based on “five times the rent or rental value of accommodation in one’s own house in the case of tax-payers who run their own household” as a starting point.
As a rule of thumb, investors will require a net worth of at least $10 million to qualify for the Swiss flat tax residence.”
—30—
Obviously, not every migrant has $10 million. Many “ordinary” people migrate to Switzerland to service the wealthy migrants. If the the money-soaked migrants generate enough outlays to cover the “ordinary” migrants, then you can get real rising wages from migration.
My understanding is that Switzerland goes to lengths to protect domestic agriculture and other industries, and some fear Switzerland becoming a nation of shopkeeps, bars and boutiques and party-girls.
Scott Sumner
Sep 17 2018 at 12:37pm
Ben, “Supply and demand” tells us nothing about the impact of immigration on wages, for the simple reason that immigration impacts both supply and demand. The US had ten times as much immigration a sCanada, and has equally high wages, if not higher.
You said:
“and some fear Switzerland becoming a nation of shopkeeps, bars and boutiques and party-girls.”
So becoming a service economy for the rich doesn’t prevent a country from having the highest wages in the world? Sounds like the US should move in that direction.
Lorenzo from Oz
Sep 17 2018 at 6:02pm
The US does a (comparatively) good job of integrating its Muslims as do Canada and Australia and for the same reasons — they are a small part of the migrant intake and disproportionately highly educated. In all three countries, jihadi plots don’t get anywhere, because local Muslims dob them in to the authorities. (In Europe, it’s a very different story.)
Even so, in Australia, about five times as many Muslims left to fight for the jihadis as join the Australian Defence Force.
Unfortunately, once the mainstream Sunni community hits a certain critical mass (as in Europe), problems start multiplying. Minority Muslim groups — Ahmadis, Ismailis, Ibadis, Alevis etc — are not a problem, because their versions of Islam have long since adapted to permanent minority status. Mainstream Sunni Islam, not so much.
Migrants really aren’t homogeneous. I live in a very high migrant area of Melbourne, with lots of Muslims. But also lots of Sikhs, East Asians, South Asians, Mediterraneans, a few Africans … There are so many groups, they pick up Anglo-Celtic public mores pretty quickly because Anglo-Celts remain overwhelmingly the dominant group, even though almost a quarter of Australia’s residents are foreign born. That is a very different migrant experience than having migrants be very identifiably of a particular origin.
Even so, support for the levels of migration is falling in polls, because transport infrastructure is just not keeping up with the inflow. Having so many housing market entrants be non-citizens (so non-voters) has entrenched British-style land “management”, so creating regulatory “shortages” of housing land, driving up government tax take while driving up the opportunity cost of infrastructure investment (in part, because it reduces the tax-take effect of infrastructure investment). Migrants affect supply and demand in all sorts of ways …
Philo
Sep 18 2018 at 12:24am
Rich people want to provide welfare to local poor people, primarily so as to reduce the likelihood of being stolen from, either via naked violence or through politics. The local poor people are the primary danger–it must seem to each rich person in a big country that many welfare recipients live too far away from him to really threaten–but, on the other hand, the cost of national welfare payments will be spread over the large number of rich fellow residents and, after all, even rather distant citizens and other legal residents might easily move nearby. Obviously, I am assuming strictly limited immigration. If open immigration were instituted, the cost of a welfare program would quickly become prohibitive, as poor people from poor countries migrated to take advantage of the welfare system. In short, the aim (of a rich person in a rich country) is: pay off the poor people already resident in the country (so they won’t steal from me), and (for the most part) keep the distant poor people out of the country.
I think these remarks reflect Milton Friedman’s thinking about the matter. In this post you are adding the observation that to the extent that a national welfare system *is* exploited by immigrants, these immigrants will be less well integrated into the national culture, and so will present difficulties not presented by well-integrated immigrants. I would think that even natives who use the national welfare system heavily may be rather poorly integrated into their own national culture; but, of course, this will be a less severe problem. Perhaps you are also pointing to regulations (minimum wage, licensing, etc.) that make it harder for people to work and thus to avoid relying on welfare: these will also impede the social-cultural integration of immigrants (and, to a lesser extent, of natives).
ChrisA
Sep 18 2018 at 4:57am
Surely some rich people, maybe even the most, want money to be given to poor people for altruistic reasons, not just to avoid violence from the poor. If it were just violence they were concerned about, I would guess personal security guards would be cheaper than a national welfare system.
P Burgos
Sep 18 2018 at 10:10am
I thought that immigrants primarily depressed the wages and employment rate of other immigrants? If true, and if it is true that immigrants need to find jobs in order to integrate well into a new (for them) society, doesn’t that imply that immigration policy (and enforcement) need to deliberate, as opposed to haphazard? That is to say, if it is important to integrate immigrants, and haphazard immigration policy (and enforcement) retards integration, deliberate immigration policy (and enforcement) that aims to select for an overall population of immigrants that will not be very likely to be employed would seem to be part of a rational regime of immigration.
Carolyn
Sep 19 2018 at 2:55pm
According to George Borjas (and common sense) immigrants primarily depress the wages of the people who have the same job skills, that they have.
If you admit low-skilled workers, they suppress the wages of low-skilled workers, if you admit software-programmers, they depress the earnings of software-programmers.
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