Immigration is a controversial topic in most Western countries. The general perception is that it is a drag on economic growth and that decades of easing restrictions have hurt admitting countries. For that reason, “fewer immigrants should be accepted” is the statement that has gained most ground in terms of political popularity. It is part of the reason why the Trump administration has recently announced a prohibitive fee for people applying for H1B visas.
All proposals, including the Trump administration’s most recent one, to curb immigration seek to deal with the perceived costs of immigration (e.g., fiscal burdens, institutional quality, criminality, income effects). The problem is that while they reduce the costs of immigration, they also cut down the benefits of immigration. Good policy should be about cutting the costs and not the benefits.
And there are benefits. The most obvious is the increase in the living standards of immigrants themselves. Locked in countries with low-quality institutions that fail to protect property rights and secure basic individual liberties, there are billions of individuals who could be made massively better off rapidly. Imagine a typical Nigerian who earns $1,600 per year. When he arrives in the United States — and even if he enters the bottom quintile of the income distribution — despite having the same skills, experience, education, and innate talent as he had, he will be more than 15 times richer. Why? Because he is matched with better institutions — the United States being far better than Nigeria in rankings of property rights protection, ease of doing business — and better capital (that makes his labor more productive).
This is why economists — pointing out that reducing barriers to migration would have the potential to increase world GDP by between 50 percent and 150 percent — describe it as literally trillion-dollar bills lying on the sidewalk. In contrast, simulation of a world without trade barriers would increase world GDP by at best somewhere between one percent and four percent and total liberalization of capital flows would increase world GDP by seven percent. People going to the best institutionally-superior places have amazing potential for wealth creation and poverty alleviation.
But that is not all – there are substantial gains for the host countries. When immigrants arrive in a country, they shift the supply of labor in a way understood by all. But they also shift the demand curve. In an equally obvious way, they demand services that must be provided and goods that must be fabricated. However, in a less obvious way, they can shift demand more than supply, causing incomes to increase on net. There are two reasons for this.
The first is that economic growth often occurs through specialization, and specialization is limited by the extent (size) of the market. Each new immigrant is not only a potential competitor for jobs but also a consumer, entrepreneur, taxpayer, and source of complementary labor. Their presence increases the size and diversity of the market. And since specialization increases productivity, it means that the demand for labor shifts more than just because there are more people – it shifts because each person can now produce more. Wages can thus increase! This is why there is a vast literature suggesting that the effects of immigration on wages can often (but not always) be positive (even for people who most compete with new workers).
Second, immigration is often tied with people being better able to deploy ideas. In economics jargon, ideas are non-rival. This is like saying that if I teach my son to fish, I do not unlearn the ability to do so. An innovator is a person who produces ideas that can be employed by the great many. Innovation, however, requires property rights. Without them, the rewards of years of sweat and tears can be seized or eroded to the point that they are never realized or rewarded. Billions live under regimes that fail to protect basic economic rights — no patent enforcement, no reliable contract law, no credible protection from expropriation. When they migrate to countries with stronger institutions — where ideas can be protected and rewarded — the same individuals become engines of productivity.
This is why the empirical literature finds that immigration is tied to higher rates of patenting, higher rates of patent citations across patents (think of it as ideas having sex with other ideas), more business startups, and greater innovation overall. Ultimately, all of this increases productivity, which means higher wages and incomes!
There are, however, costs to immigration. These are often tied to the following ideas: that immigrants consume more public services than they pay in taxes, thus becoming fiscal burdens; that, as new workers, they slow down wage growth or outright reduce them; that because they come from different cultural backgrounds, they could undermine the quality of our institutions; that they commit more crime; and that they increase housing costs. For some of these claims, I have disputed their validity. For others, I have questioned their scale or emphasized their conditional nature. However, I will ignore all issues of validity here. I will accept these concerns “as is”.
The problem with existing policy proposals to deal with these concerns — such as reducing the number of immigrants admitted each year or tightening the conditions associated with a stay — is that they are blunt instruments. They essentially cut both the costs and the benefits simultaneously. We need a different policy: one that preserves the benefits while cutting the costs.
That policy is to get rid of all government agencies and regulations dealing with immigration and replace them with an entry price for resident status. That idea was that of the late Nobel laureate in economics, Gary Becker.
By paying to enter, immigrants immediately show commitment and become net contributors. This is, essentially, a “wall around the welfare state”. The revenue from entry fees could be used to offset taxes or compensate those who might be adversely affected, easing social tensions. In the process, it answers concerns regarding the fiscal cost of immigration and allows for compensation of those who might be adversely affected.
It creates a natural selection mechanism: only those truly committed to building a life in the host country would choose to pay the price. Those concerned with the claim of “cultural compatibility” reason on holistic grounds — that groups matter. But within each group are countless individuals who, by any reasonable standard, could be entirely compatible. The price mechanism creates self-selection: those willing to pay are those who believe they are compatible, regardless of cultural background. All concerns over cultural compatibility vanish. And with them, the need for bureaucratic selection tools disappears — along with the armies of public sector workers required to administer them. They can be dismissed, reducing the size of government and cutting taxes.
Selling only resident status distinguishes citizenship from residency as it entails that the right to vote will not be obtained. Those who — following the cultural compatibility argument — worry about institutional degradation need no longer worry. At the same time, the purchase of residency status can come with clear stipulations, such as immediate expulsion upon being found guilty of a crime. This also minimizes concerns about crime by raising the cost of committing it — even criminals respond to incentives.
The system can be made to work for everyone, and very easily. Different types of entry rights could be sold: one at a lower price for shorter stays (e.g., college students), and others at higher prices for longer or permanent residency. The United States has temporary foreign worker programs, student visas, permanent residency, and citizenship. An entry price builds on these distinctions but streamlines them through pricing and self-selection, rather than opaque points systems or quotas.
As with student loans, financing mechanisms could help less wealthy but motivated individuals immigrate. Firms could pay the fee directly for workers, and humanitarian groups could raise funds to purchase residency permits for refugees. Educational foundations could fund scholarships that cover a student’s entry costs. Immigrants could also agree to repay the fee through an annual income surtax, with expulsion as a penalty for non-compliance. The infrastructure to manage this system already exists as the Internal Revenue Service (IRS) could administer income-surtax repayments or an initial lump sum payment at ports or airports. Permits could be resold to others, offering flexibility for those who later change their mind. Only in cases of criminal conduct would a permit be forfeited as part of the penalty. Strict background checks — such as screening for war criminals — would still apply.
Overall, this system would be more transparent and fairer, opening the door to those genuinely motivated to integrate and contribute. And here is a dirty secret: we already do some of what I just proposed. We ask immigrants to pay thousands of dollars in legal fees, medical examination fees, consulting fees, and spend hundreds of hours buried in paperwork. Make them pay upfront a single and unified amount that can be used to finance government services.
In the end, there’s no need for bureaucrats, no need for piles of regulations dictating what kinds of work immigrants can do, and no need for endless red tape. Just a single-entry price — paid once at the gates, and that’s it.
We keep the benefits — global poverty reduction and faster economic growth — and cut the costs. That policy, while imperfect, is light-years ahead of the confused, bureaucratic, and frustrating mess that is the average immigration system in Western countries today — systems that satisfy no one and leave us poorer than we could be.