Immigration Laws and Economic Protectionism

In a recent policy analysis for the Cato Institute, Alex Nowrasteh has set out a compelling case against the Arizona immigration law (SB 1070), portions of which were overturned in the United States Supreme Court in Arizona v. United States on the grounds that they were inconsistent with federal law, which therefore preempted their use. The analysis given in the Arizona case was of a decidedly textual nature, in which the Court sought to determine the extent of conflict between the state law and the federal statute, such that the former had to yield to the latter.

As Nowrasteh makes clear, the Arizona statute should be regarded as unwise even if it is not preempted by federal law. The simple case against SB 1070 is that it contains several key provisions of unquestioned constitutional validity whose consistent enforcement disrupts the economic operation of the statute by preventing gainful exchanges between aliens from outside the United States and persons within the state. Critical on that list is Arizona’s E-Verify, an employee verification system that puts on employers the heavy burden of verifying the legal status of those whom it hires. Multiple breaches of this statute could easily result in the loss of a business license, which leads firms, as Nowrasteh notes, to refuse to hire aliens, to do so underground, or to leave the state altogether, all of which raise the cost of doing business in ways that hurt Arizona residents along with local citizens.

It seems impossible to deny that the effects Nowrasteh points out exist, given the huge demand for services from immigrant labor that will go unsatisfied if these individuals are barred from entering the United States or excluded from it. In fact, the economic losses are even greater than those pointed out in this simple observation because illegal immigrants also require goods and services in the United States, and this element of demand is also removed to the extent that immigrants are sent home. The first order effect of the ban on immigration is thus to shrink the size of the local economy.

The situation with immigration is, of course, more complicated than this simple economic calculus suggests, because the introduction of immigrants into the United States also has profound political consequences. Immigrants can demand public services, and with the passage of time they can also become citizens, which could easily transform the political balance of power in the United States (as it has already started to do).

 The question comes down to how best to square the economic plusses with the asserted political minuses. On this score, it is clear that much of the force against immigration stems from a protectionist impulse to keep out individuals who might compete with American labor, even at the upper end of the market under our convoluted H-1B Visa. That protectionist impulse creates a bureaucratic nightmare, which can induce American firms to invest and develop their business overseas to gain access to that labor pool. It is also doubly unwise because it is possible to admit foreigners into this country with long–term visas without the promise of citizenship. That approach too could be self-defeating, because in many ways we should try to recruit skilled immigrants into the United States by imitating the Canadian policy that has scored such notable benefits.

All and all, there has to be a better way to balance the economic and political considerations than is done today. There can be many honest disagreements about how this is best done, but there can be no principled defense of a fortress-America immigration policy that rests so heavily on overtly protectionist policies.