Imagine There Are No Countries

“Imagine there’s no countries. It isn’t hard to do,” John Lennon once told us. Ignoring Lennon’s grammatical error, that is exactly what University of Wisconsin-Madison economist John Kennan tried to do in a new paper released this month by the National Bureau of Economic Research (NBER). Kennan modeled the world economy without immigration restrictions and found that free labor mobility could have a dramatically positive effect on global GDP.

“The estimated gains from removing immigration restrictions are huge,” he concluded, “more than $10,000 a year for a randomly selected worker from a less-developed country (including nonmigrants)… with a relatively small reduction in the real wage in developed countries, and even this effect disappears as the capital-labor ratio adjusts over time; indeed if immigration restrictions are relaxed gradually, allowing time for investment in physical capital to keep pace, there is no implied reduction in real wages.”

This rapid increase in worldwide wealth achievable at very little cost is due to productivity disparities for workers in different countries. Similarly skilled workers from different countries can have dramatically different levels of productivity. One paper (Clemens, Montenegro, and Pritchett (2005)) found, for example, that Mexican worker wages are 2.5 times less than those in the United States, which means their labor produces far less than the American worker with similar skills.

Therefore, simply allowing that Mexican to relocate, without any increase in education or skills, would dramatically increase his or her productivity. These wage differences have everything to do with America’s free market institutions and capital that has developed over time. Preventing from foreigners from accessing America’s capital and institutions results in massive inefficiencies, as workers produce far less than they would in the U.S. Higher production levels mean lower prices for American consumers, not to mention the rest of the world.

In 2008, Kym Anderson and Bjørn Lomborg studied the effects of increased worldwide immigration equal to a 3-percent rise in the labor forces of host countries and found similar results. They found that “the global net benefit of the increased flow of migrants for 25 years is between $13 trillion and $39 trillion.” They add that “the benefits are between 28 and 220 times higher than the costs.”

Much of the rest of the economic literature indicates similar consequences of freer migration. In 2011, Michael Clemens reviewed the economic research on worldwide migration and found “the estimated gains are often in the range of 50–150 percent of world GDP.” Moreover, he notes that the evidence “suggests that the emigration of less than 5 percent of the population of poor regions would bring global gains exceeding the gains from total elimination of all policy barriers to merchandise trade and all barriers to capital flows.”

In other words, although many economists focus on free trade as the source for international development, they should pay equal, if not greater, attention to international mobility. As Kennan’s paper concludes, “Economists are generally enthusiastic about free trade. But if free movement of goods is important, then surely free movement of people is even more important.”