US report says unfettered migration would more than double global wages
22 August 2012
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John Kennan, an economist from the University of Wisconsin, has built an economic model which suggests that wages in the developing world would more than double from an average of US$8,903 to an average of US$19,272 if all immigration controls were abolished. His model assumes that the majority of people would migrate to gain higher wages while a minority would stay where they were because they felt a strong attachment to their home surroundings.
The research will be published this month by the National Bureau of Economic Research (NBER), an economic think tank based in Cambridge, Massachusetts.
Abolishing all immigration controls worldwide would, the model predicts, effectively double the available labour supply. Kennan predicts that this, in turn, would result in a massive boom in economic growth. Workers from developing countries would move to the developed world where the wages were higher.
Kennan says that, at present, a Mexican worker is paid approximately two and a half times less than a US worker with the same skills. Consequently, if such a Mexican were to move to the US, he would earn two and a half times as much without having to undertake any additional training. The fact that Mexican labourers are prevented from making such a move results in massive inefficiencies. The Mexican economy is not made to work efficiently because labour is so cheap. Greater efficiency would result in lower prices for Americans and higher wages for Mexicans
Mr Kennan reasons that, if workers only move to increase their wages, then the free movement of labour cannot, logically, reduce wages. Free movement then, would see the wages of workers in the developing world increase too. Natives of some countries, such as Nigeria, would see still greater gains. Workers in developed countries would see 'a relatively small reduction in [their] real wage'. Kennan says that '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.'
Mr Kennan concludes by saying that '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.' The main obstruction to the instigation of such a plan, Kennan says, is that it would be politically unpopular in the developed world because those with the most to gain; workers from the developing world, would not be allowed to vote on the proposal.
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