How market-based visas meet political needs

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Princeton Policy Advisors advocates for a market-based approach to solve illegal immigration across the US southwest border.

In this post, we consider some of the related analytical tools.

Bills pertaining to immigration struggle to find sufficient political support in Congress to pass into legislation. The prospects for such support can be assessed ex-ante using stakeholder analysis , historically taught in public policy schools like my alma mater, Columbia University's School of International and Public Affairs.

In the business world, everything ultimately boils down to a single objective function, some version of return on equity. In the world of politics, we have three separate objective functions which align with the major ideologies. Egalitarians would like everyone to be equal, even if all are poor. Classical liberals (libertarians) want maximum scope for the individual (which is not conceptually dissimilar from ROE in practice). And conservatives want to maximize the benefit to the group and its members. These objectives cannot be reconciled mathematically, which is why politics is so...political.

For any given policy, usually two ideologies are for and one against; or two against and one for. For example, Medicaid can be justified in egalitarian terms as taking from the rich to uplift the sick and poor; or it can be justified in conservative terms as fulfilling our duty to take care of society's weaker members. The egalitarian approach is bottom up, and the conservative approach is top down, but either can lead to essentially the same policy. (And that's how Republicans become big spenders, by the way.)

In addition to the three ideological groups, stakeholder analysis also considers economic interests, in this case, Hispanics, businesses and unions. Hispanics want legal status, market access, and to maximize take home pay. Businesses want ample, low cost labor. Unions want to protect US workers by limiting foreign competition. As a practical matter, Hispanics can be lumped with Democrats, business with classical liberals (libertarians) and unions perhaps fit best with social conservatives today.

With respect to illegal immigration, each of the stakeholders has a list of specific goals they would like to achieve. Our version of this criteria list by stakeholder group can been seen below.

Checklist.png

Any policy proposal -- including HR 5038, the various Goodlatte bills, a universal immigration bill like the ‘Strengthening America’s Workforce Act’, or market-based visas -- can be assessed using this list.

Ideal's Proposal

For example, Ideal Immigration advocates for a universal immigration policy which lets in as many immigrants as businesses care to hire at a visa price of $2,500 / year. On the chart below, we can assess the prospects for this proposal by each stakeholder’s specific criteria.

Ideal.png

Such a proposal largely serves libertarian and business interests. Conservatives, however, will flatly reject any unlimited immigration proposal. Thus, at a minimum, both houses of Congress and the White House must be held by Democrats for unlimited immigration to pass. But the situation is much worse than this. The Ideal proposal was largely embodied in a draft bill entitled the 'Strengthening America's Workforce Act' (SAWA). After this bill was sent around for comment, it picked up a clause which prevents undocumented immigrants from participating, ie, no amnesty. This implies businesses could import, say, legal, lower cost Asian labor to displace undocumented Hispanic workers in the US. This is a deal killer for Hispanics. And unions will reject the proposal because it opens the US labor market to unlimited foreign competition. Thus, our framework shows that Ideal's proposal is unlikely to garner material support on either left or right. It is a non-starter by a very large margin.

Market-based Visas

Market-based visas are predicated on the assumption that employers are entitled to hire employees; that we will never deport undocumented immigrants in material numbers; and that conservatives are entitled to limit guest workers to the lowest number which ends the black market in Hispanic labor.

As the chart below shows, MBVs achieve conservative goals with the exception of mass deportation and with the requirement to increase the migrant headcount by 500,000 to allow for the demand effects of legalization. Businesses have to accept that they will have to provide pay and working conditions at levels comparable to those for unskilled US labor -- but employers can access more workers faster as compensation. Democrats and Hispanics receive legal status for seven million undocumented Hispanics and on demand access for migrant labor, subject to visas numbers set to conservative preferences and the resulting market price for a visa. Everyone has to make a concession, but these are the necessary steps associated with lifting a prohibition. After a one-time adjustment is absorbed, the system should work reasonably well for most stakeholders.

MBV.png

Thus, MBVs can meet the requirements of all the major stakeholder groups with one material concession from each.

This is a political oddity. Legislation is ordinarily a partisan affair. Nevertheless, those who care to look -- and we have -- will quickly find that black markets arising from prohibitions — including the prohibition in migrant labor — generate such incredibly bad side effects that it is in fact possible to make policy which is Pareto optimal for all. By Pareto optimal, we mean better than current policy or any likely alternative which could be passed in the next, say, five years. In the case of illegal immigration, MBVs provide each and all ideological and economic interest groups a Pareto optimal solution. Ending prohibitions is the equivalent of ceasing to hit yourself on the head with a hammer: not that much of an achievement in terms of insight or technique, but boy, you feel a lot better afterwards. Strange as it may seem, fixing illegal immigration is conceptually trivial, and, on paper at least, achievable with all the major stakeholders participating in the process.


This post originally appeared on Princeton Policy Advisors. Reprinted with permission.


About The Author

Steven Kopits heads Princeton Policy Advisors. For most of his career, Mr. Kopits served as a strategic management consultant and investment banker in Hungary and the United States. His work has focused primarily on the private sector, with some sector consulting for the governments of Hungary, Norway, the United Kingdom and the United States. He developed expertise in the management of black market issues working in Hungary after the fall of communism there. While in Hungary, Mr. Kopits served, among others, as a Director of Financial Advisory Services at Deloitte & Touche, and later as Managing Director of T-Venture Hungary, Deutsche Telekom's corporate venture arm. He also served on the boards of several companies, both public and private. In the US, Mr. Kopits served as an investment banker at Dahlman Rose & Co., and then as Managing Director for Douglas Westwood Ltd., a UK-based consultancy specializing in the energy sector. He holds an undergraduate degree from Haverford College, an MBA in Finance and Accounting, and a Masters specializing in International Economics from the School of International and Public Affairs at Columbia University. He writes frequently on policy topics for a variety of publications, including Foreign Policy and The National Interest, and is a regular contributor to CNBC and The Hill, for whom he writes principally on topics related to illegal immigration.


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