If You Support Free Trade, Why Not Free Immigration?

Abstract

Immigration increases the income of native capital more than it reduces the income of native labor, although the transfer of income from labor to capital is a much bigger effect. Free trade often does this too. Even aside from possible negative externalities and public finance costs to natives, however, immigration is different because if the aggregate production function has diminishing returns to private capital and labor the conclusion of increased overall income can easily be reversed. Such a production function is plausible because public capital — government capital and social capital — is unpriced and fixed, with immigrant labor receiving a portion of its benefit. Thus, even aside from fiscal effects and social externalities, whether the total income of natives rises or falls with immigration is open to doubt.