Free Markets Need Free People - WSJ.com

04/11/2007 08:37 AM

April 10, 2007

COMMENTARYFree Markets Need Free People
By GORDON H. HANSON
April 10, 2007; Page A19

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If there is one point of consensus in the fraught politics of immigration, itis that illegal immigration is bad. Yesterday, President Bush voiced his
support for tough enforcement at the U.S.-Mexico border and called on
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the country. Last week, Rep. Tom Tancredo (R., Colo.) entered thepresidential race, promising to make resentment of illegal immigrants amajor campaign issue. And yet, from a purely economic perspective, illegal immigration is arguably
preferable to legal immigration. Because Congress and the president refuse to see this, further reform
this year could make a bad situation worse.
Illegal immigration is persistent because it has a strong economic rationale. Low-skilled workers are
increasingly scarce in the U.S. while they are still abundant in Mexico, Central America and elsewhere.
As the Bush administration has said repeatedly, impeding illegal immigration, without creating otheravenues for legal entry, would conflict with market forces that push labor from low-wage countries tothe high-wage U.S. labor market.

The acceptance of these market pressures is behind proposals for a large-scale expansion of temporary
legal immigration. But simply handing out more temporary visas won't be enough to staunch illegal
immigration, because the illegal route is for the moment vastly more efficient than the cumbersome
legal system. Illegal immigration responds to economic signals in ways that legal immigration does not.
Illegal migrants tend to arrive in larger numbers when the U.S. economy is booming and move toregions where job growth is strong. Legal immigration, in contrast, is subject to bureaucratic delays,
which tend to disassociate legal inflows from U.S. labor-market conditions. The lengthy visa application
process requires employers to plan their hiring far in advance. Once here, guest workers cannot easily
move between jobs, limiting their benefit to the U.S. economy.
An expanded guest-worker program, with highly regulated inflows of temporary, low-skilled foreignlabor, would be unlikely to attract much interest from U.S. employers; a cumbersome legal channel
would rather give them an incentive to continue hiring illegals. Were new legislation to combine
stronger border and interior enforcement with an unattractive guest-worker program, it would be pitting
policy reform against itself. Stronger enforcement would deter illegal immigration; a cumbersome guest
worker program would encourage it. Only one of these components would be likely to survive in thelong run.

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Free Markets Need Free People - WSJ.com

04/11/2007 08:37 AM

Rather than merely expanding the number of temporary visas, Congress should redesign temporary
immigration from the ground up. Successful reform would have to mimic current beneficial aspects ofillegal immigration. Employers would have to be able to hire the types of workers they desire, when
they desire. One way to achieve this would be for the Department of Homeland Security to sanction thecreation of global temp agencies, in which U.S. employers posted ads for jobs and foreign workers
applied to fill them.
Matching foreign workers to U.S. employers efficiently would require flexibility in the number of guest
workers admitted -- and one way to make the number of visas sensitive to market signals would be toauction the right to hire a guest worker to U.S. employers. The auction price for visas that clears themarket would reflect the supply of and demand for foreign guest workers. An increase in the auction
price signals the need to expand the number of visas; a decline in the price indicates that the number ofvisas could be reduced.
Perhaps the most important provision of any new visa program would be to allow guest workers tomove between jobs in the United States. Without mobility between employers, guest workers would
lack the attractiveness of illegal laborers. They would also be exposed to abuse by unscrupulous bosses.
One way to facilitate mobility for guest workers would be to allow existing visa holders to apply for
new job postings, along with prospective guest workers abroad. Guest workers could move between
industries and regions of the country as economic conditions change.
Making immigration more responsive to the market would not be easy to implement, either
administratively or politically. However, absent a boldly redesigned guest-worker program, temporary
legal immigrants would be unlikely to displace illegal labor. In the Immigration Reform and Control Actof 1986, Congress voted to increase enforcement against the hiring of illegals without creating amechanism for the continued inflow of legal, low-skilled labor. Under steady pressure from business,the government ultimately gutted or redirected IRCA's major enforcement provisions. The end result
was that illegal labor has continued to find a way into the country.
As Congress again wrestles with immigration reform, one would hope that it will pay heed to thefailures of the past by creating a framework that allows for the dynamic participation of legal immigrant
workers in the U.S. economy. Otherwise, the U.S. is likely to find itself with even larger illegal
populations in the very near future.
Mr. Hanson is director of the Center on Pacific Economies at the University of California, SanDiego. This op-ed is adapted from a new study published by the Council on Foreign Relations(www.cfr.org/illegal_immigration 1 ).
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