Immigration and its effect on economic freedom: an empirical approach.

• Author: Murphy, Ryan H.
• Position: Essay

Many concerns regarding immigration have arisen over time. The typical worry is that immigrants will displace native workers and fail to create new demand and jobs. That concern and other economic concerns about immigrants, however, have failed to hold up when assessed empirically. But a new argument has arisen: many commentators, pundits, and respected economists have suggested that immigrants today differ critically with respect to how they think about economic policy. In particular, immigration to countries like the United States could undermine economic institutions and diminish economic growth (Collier 2013, Borjas 2015, Jones 2016).

Immigrants and Economic Freedom

This article focuses on two potential channels through which immigration could affect a country's institutions. First, there is the idea that the opinions held by immigrants are representative of the average opinions held by people in the societies that they come from and that their opinions may not be consistent with the institutions of their adopted country. Collier (2013), Borjas (2015), and Jones (2016) have made this argument with regard to immigrants coming into the United States, but they do not present any actual direct empirical evidence supporting their specific claims about immigrants. There is a straightforward rebuttal of their argument, however. Immigrants self-select for their destination countries and they normally choose countries whose institutions they admire and wish to support. In other words, there is no good reason for researchers to assume that the opinions held by immigrants are representative of the average opinions held by people in the societies that they come from.

The second argument is that immigrants may cause the welfare state to swell in size. Milton Friedman, in an often-repeated quotation, argued that immigration and the welfare state are fundamentally incompatible, and that huge influxes of immigrants would cause the welfare state to spiral out of control. Friedman's case is actually much more ambiguous than it may appear (Nowrasteh 2015, The Economist 2016). (1)

Setting aside the intricacies of immigrants' lifetime impact on various welfare and entitlement programs, there is a parallel argument as to why immigrants may reduce the size of the welfare state (Nowrasteh 2015). Ironically, the underlying reason for this is made clear by the rhetoric of those making the former argument. There is a significant amount of academic literature on "fractionalization"--that is, formal measures of diversity along ethnic, racial, and even linguistic dimensions. Voting populations are much less willing to use governments to transfer money to other residents when there are clearly demarcated lines, such as ethnicity, that differentiate individuals within a society. This unwillingness of voters can help explain differences in the size of welfare states when comparing the United States and Europe (Alesina and Glaeser 2004), as well as differences in spending on public goods, both between nations (Easterly and Levine 1997) and among U.S. states (Alesina, Baqir, and Easterly 1999).

In sum, immigrants could import ideas contrary to those of their destination countries, or they could self-select for their desire to strengthen those institutions. They could increase per capita usage of...