Immigration Policy: A Proposal

By George Borjas March 2001

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George J. Borjas is the Pforzheimer Professor of Public Policy at the John F. Kennedy School of Government, Harvard University; and a Research Associate at the National Bureau of Economic Research.

Any proposed immigration policy must address and answer two distinct questions: How many immigrants should the United States admit? And which types of persons should be awarded the scarce entry visas? Because many more persons will want to enter the United States than there will be visas available, only a few visa applicants will be admitted, and those lucky few will share certain characteristics that the United States deems desirable in some form. Therefore, it is useful to think of immigration policy as a formula that gives points to applicants on the basis of various characteristics, and that sets a passing grade to limit the number of entrants.

To a large extent, the point system that has regulated entry into the United States since 1965 uses a formula that has only one variable, indicating whether the visa applicant has a family member already residing in the United States. In very rough terms, an applicant who has a relative in the country gets one hundred points, passes the test, and is admitted. An applicant who does not gets zero points, fails the test, and cannot migrate legally. In addition, the post — 1965 policy does not set strict restrictions on the number of immigrants. Instead, the number of visas allocated to particular groups (such as the ones granted to close relatives of U.S. citizens) expands with demand.

The debate over immigration policy reform is a debate over the type of point system that the United States should adopt. Before engaging in such a debate, however, one must first determine what it is that the United States is trying to accomplish through its immigration policy. Different assumptions of what constitutes the "national interest" will inevitably lead to different proposals for the point system that the country should adopt. In this article, I delineate the implications of a very simple definition of the national interest: suppose that the United States wishes to pursue an immigration policy that maximizes the economic well-being of its native population.

My conjecture that immigration policy should serve the economic needs of the native population is certainly debatable. Nevertheless, this approach provides a good starting point for organizing one’s thoughts about the type of immigration policy that the United States should pursue. And, more importantly, economic factors have always played an important role in the immigration debate, have helped to frame the debate, and have been used to justify many policy reforms.

Suppose then that the goal of immigration policy is to maximize the economic well-being of the "native" population, where the native population includes all persons currently residing in the United States. And suppose that native economic well-being depends both on per-capita income and on the distribution of income in the country. In other words, immigration should make natives wealthier, but should not increase the income disparity among persons already in the country. What type of immigration policy would the United States then pursue?

The extensive empirical literature that examines the economic impact of immigration on the United States provides a straightforward answer to the question of which types of immigrants the country should admit. In particular, the evidence suggests that the national interest — as I have defined it — would best be served by admitting immigrants who are relatively skilled. The admission of skilled immigrants would generate the largest increase in the per-capita income of the native population. In addition, skilled immigrants would earn more, pay higher taxes, and require fewer social services than less-skilled immigrants. Put differently, there is little doubt that skilled immigration would lead to the largest increase in the size of the economic pie accruing to natives. In addition, the admission of skilled workers would narrow — rather than widen — the extent of income inequality in the United States. In short, the twin economic goals of a larger economic pie and a more equitable splitting of the pie are attained by the same policy action: admitting skilled immigrants.

How can the United States select skilled persons from the pool of visa applicants? In the past few decades, Australia, Canada, and New Zealand have all instituted point systems that reward certain socioeconomic traits in the admissions formula. Canada, for example, grants points on the basis of the visa applicant’s age, occupation, proficiency with either the English or the French language, work experience, and family links with Canadian residents.

Despite their inherent arbitrariness, these skill-based point systems perform a useful function: they select those immigrants who best serve the national interest. By restricting the entry of persons who are "too old" or "too unskilled" or "doing the wrong kind of job," the point system attempts to match immigrant skills with labor market needs and reduces the fiscal burden that immigration would place on the host country’s system of social assistance.

A point system has many imperfections. Government bureaucrats must decide which characteristics will enter the admissions formula, which occupations are the ones that are most beneficial, which age groups are to be favored, how many points to grant each desired characteristic, and so on. The point system also emphasizes easily observable characteristics in the admissions formula — such as age, education, experience, and occupation. These characteristics help determine our economic opportunities, but they are not the only things that matter. Because the point system must inevitably rely on characteristics that are easy to measure, it misses those intangibles that are often the main determinants of what makes some workers successful and some not.

Despite these imperfections, the point system has one thing going for it: It works. The Canadian experience suggests that the United States could increase the skill level of its immigrant population by adopting a point system that relies on just a few socioeconomic characteristics — such as education (more points to more educated applicants), age (more points to applicants in their prime working years), and English proficiency (more points to applicants who can speak English). The formula could also award points to applicants who have a job offer prior to entry and to those who have relatives living in the United States. In other words, the adoption of a skills-based point system need not mean that family connections with U.S. residents will cease to matter in awarding entry visas. Rather, it would mean that family connections will no longer be the only things that matter. Finally, the exact weighting of these variables in the formula should change as economic conditions in the United States change. For example, if particular sectors of the economy are expanding greatly, the point system should be adjusted to favor the entry of workers who possess those urgently needed skills.

How many immigrants should the United States admit? Put differently, what should be the passing grade in this new-and-improved admissions formula? Even though the evidence on the economic impact of immigration provides a clear road map for thinking about the type of immigrant who should be admitted into the country, it provides few guidelines for coming up with the "magic number" of immigrants.

I have argued that skilled immigration serves the national interest by both increasing the size of the economic pie and by narrowing income inequality in the United States. As the United States admits more immigrants, however, it quickly encounters a policy dilemma: how much narrowing of the income distribution is in the national interest?

During the 1990s, the United States admitted just under 1 million legal immigrants per year. Suppose that the country adopts a point system that favors the entry of skilled workers. Are 1 million skilled immigrants "too many" or "too few"?

A flow of 1 million skilled workers per year would likely have a large impact on the economic opportunities of skilled workers already in the country. Suppose, for instance, that the United States enacted an immigration policy that admitted only college graduates. In two decades, this policy would add about 15 million skilled workers to the workforce — increasing the supply of college graduates by 50 percent. The huge increase in the number of college graduates would likely generate a sizable reduction in the wage of college graduates, which, in turn, would influence the college enrollment decisions of many native students. College enrollment rates would fall substantially — and the enrollment rates of disadvantaged native students would probably be most sensitive to the decline in the returns to college. These are the students, after all, who can least afford to attend college and who would quickly discover that the shrinking returns to a college education do not justify the cost.

It would be difficult to argue that such an outcome is in the national interest. Even though some narrowing of the wage gap between skilled and unskilled workers may be desirable, too large a narrowing is not. There is, therefore, some limit to the number of skilled immigrants who should be admitted. Choosing the correct number of skilled immigrants — that number where the nation gains from immigration and where the distributional impact can be handled within the existing political framework — is bound to be a painful process of trial and error. A good place to start might be to let in around 500,000 legal immigrants per year — roughly the number recommended by the Commission for Immigration Reform. This number also happens to be the average number of immigrants who entered the United States during the 1970s, a period of high immigration (relative to earlier decades) when the debate focused solely on the perceived problem of illegal immigration.

It also makes little sense to legislate a magic number that would be set in concrete, unresponsive to changing economic conditions in the United States. The size of the immigrant flow should contract when the economy is weak, and expand when the economy is strong.

Up to this point, the proposed point system has not addressed the issue of the national origin mix of the immigrant population. The national origin mix of immigrants may directly affect the economic well being of the native population in one important way. The available evidence suggests that socioeconomic differences among ethnic groups persist longer when the groups are isolated in ethnic enclaves. Although there is little direct quantitative evidence on the cost of ethnic isolation, many students of ethnic relations suspect that this cost is large. It seems prudent to conclude that the United States should pursue policies that discourage the balkanization of the American population into ethnic groups with competing interests and different cultures.

How can immigration policy influence the long-run dynamics of social mobility? The simplest way is to encourage diversity in the national origin mix of immigrants. As the size of a particular ethnic group increases, immigrants and their descendants find it more profitable to isolate themselves into enclaves and create parallel markets that coexist with the mainstream economy. For the most part, members of the ethnic group remain within the enclave, where they work, buy goods, and make most of their social and economic exchanges. The fact that the enclave provides many social and economic opportunities means that the immigrants have few incentives to learn the tools, including the language and cultural norms, of the mainstream economy. As a result, the native population gains little from the presence of these immigrants, and may lose much as the country becomes a collection of separate and distinct ethnic groups.

The cultural and economic hold of the ethnic enclave on its members could be greatly reduced by putting a limit in the number of visas that are granted to any particular national origin group. Immigrants living in relatively small enclaves would quickly learn that it pays to become integrated with the mainstream economy. The point system could encourage ethnic diversity — and faster assimilation — by limiting the number of visas granted to applicants from any given country to 5 percent of the total number available. Ironically, "diversity pays" in a sense that is at complete odds with what is typically implied by those who favor multiculturalism. Diversity pays because it ensures commonality!