“Korkat ur ett nationalekonomiskt perspektiv”?

Long-time readers know that I find immigration a dull and unuplifting topic to write about. However the level of discourse forces me to write more about it than I would prefer.Today the Swedish Center-Party proposed a policy of completely open borders, including a vision to increase Sweden’s population from around 9 million to 40 million. Unrestricted immigration is a radical and irreversible policy, which no welfare state in human history has ever adopted. This is one social experiment you have to think through before attempting.Free immigration de facto means free immigration of unskilled workers from developing countries (the overwhelming majority of the world’s population). Sweden already has virtually free immigration for high-skilled workers who Swedish firms want to hire. Not that many high-skilled workers have migrated, perhaps due to Sweden’s high tax rates. The people who on the margin would migrate to Sweden if the borders are opened are unskilled and medium-skilled workers.

A few years ago Sweden opened up for work-migration. Though the role-model was mainly Canada, the designers of the Swedish system did not appreciate that the key to gains from migration was being selective. Under the Swedish system anyone can migrate, as long as they are paid union wages. Results were predictably disappointing:

“The hope of the new legislation was to attract qualified people from outside the EU to come to Sweden. But four years after the amendment is the most typical labor migrant is still a Thai berry pickers.…It is low-skilled occupations, such as cleaners and kitchen staff, who have attracted most labor migrants”The Center-Party is operating based on the economically unsophisticated view that as long as people come to a country and “work”, there are significant gains for that country. Merely “working“ is increasingly viewed semi-religiously, as some sort of heroic feat associated with massive gains for Sweden.Open borders enthusiasts often believe that economic research has proven that migration is ipso facto beneficial for the economy as long as the migrants “work”. This is incorrect. Working is a minimum, not a sufficient condition for contributing to the economy. According to standard economics, just having more people come to your country and work does not automatically lead to significant gains. Other criteria that have to be fulfilled, more specifically having sufficiently high income to be a net contributor to the public sector. Jan Ekberg summarizes the effects of immigration on the host economy:

“Immigration may affect the income of the native population in many ways. There may be market effects, an impact on relative factor prices and on employment opportunities for natives. Those native groups which are substitutes for the immigrant labour force may lose out from immigration, while those native groups which are complementary may benefit. However, studies from many countries show that these effects have probably been small.”:

Harvard professor George Borjas estimated the effect for the United States in the mid-1990s: “The standard economic model of the labor market suggests that the net gain from immigration is small. The net gain, which I call the immigration surplus, is only about $7 billion”.

High-skilled immigrants contribute to the economy by producing knowledge spillovers and by paying more into the system than they take out. There is however no evidence for the magical view of the Center-Party that low-skilled, low-wage workers are somehow important drivers of modern economic growth.  Sweden currently has problems creating jobs for the unskilled workers we already have, since there is low demand for unskilled workers in a knowledge-based economy. This is not just abstract economics, it is also common sense.The primary economic effect of immigration on the Swedish economy operates through our large welfare state. The American National Research Council calculated that each low-skilled immigrant on average costs the U.S around $130.000 in today’s dollars, or around 1.2 million Swedish kronor. Jan Ekbergcalculated that in 2006, Sweden’s 0.9 million immigrants on average paid around 50 billion Swedish kronor less in taxes than they got back in benefits.For two reasons, even this underestimates the cost of open borders. Ekberg lumps together immigrants from Europe with those from outside of Europe. More importantly, he doesn’t estimate the distribution of “offentliga tjänster”. Half the Swedish public sector consists of transfer payments such as unemployment insurance while the other half consists of public services such as healthcare. Ekberg didn’t have data on the distribution of public sector services, so the only thing he did was to age-adjust and assume that immigrants use these services as much as the native born:

“När det gäller offentlig konsumtion har vi inga faktiska uppgifter för invandrarbefolkningen. Istället får deras användning av åldersberoende offentliga konsumtionen i huvudsak beräknas med ledning av deras ålderssammansättning”

Other sources indicate that immigrants in fact use more public sector services, perhaps because immigrants are poorer. Since data exists on the distribution of public services (e.g. FASIT), it is a mystery to me that no economists have estimated the fiscal impact of immigration in a more complete way.

In any case, if one million (mixed skilled/unskilled) immigrants cost Sweden 50 billion kronor annually, how much will 30 million additional unskilled immigrants cost? The Center-Party is proposing open borders without having evaluated this, which is not exactly adult policy making.

Ankersjö comments on that not wanting immigrants: “It’s stupid from an economics perspective. It is based on an argument that those who come here are a cost. If you allow them to work, they are rather an asset.”

Once more we see the silly theory that as long as someone works, they host country economy gains, regardless of the wage rate.

The purpose of the welfare state is not merely to transfer wealth from those who work to those who don’t. It is also to transfer wealth from high-income workers to low-income workers. Low-income workers pay far less in taxes than average but receive as much or more in government benefits. Therefore increasing the proportion of low-income workers risks leading to losses for the Swedish public sector, even if they work.

It is true that immigrants tend to have a more favorable age profile, and cost less in terms of schooling than natives. (though immigrants too eventually age and receive pensions, and tend to need some years of school and language training as well). However these gains is not infinitely large, and are not sufficient to compensate the tendency of low income earners to pay less in taxes than they get back in benefits.

In 2003, a detailed study of the lifetime static redistribution effects of the welfare state was conducted by the Swedish state. It found that more than 60% of the Swedish population – those in the lowest 3 income quintiles – on average got more out of the welfare state than they paid in. This despite the fact that most people in the lower 2/3 of the income distribution work (obviously).

“En individ ur den högsta livsinkomstkvintilen gör över livet i genomsnitt en nettoförlust på ca 3,3 mkr mot den offentliga sektorn och en individ ur den lägsta kvintilen I genomsnitt en nettovinst på ca 2,5 mkr.”

This illustrates that “working” does not guarantee that you are a net-contributer to the public sector. You generally have to workand have sufficiently high income. If you work but have low income, you can still cost the welfare state more than you pay in taxes for all the services you use. Once again, this is not voodoo-economics, its common sense.Center-Party spokesperson Per Ankarsjö said that “there is a large need for labor in certain types of jobs which Swedes do not want”. This statement is not compatible with standard economics.If there is a job which people do not want, you raise wages until they do. Firms have no problem getting people to go work in unpleasant jobs such as underground mines; they just have to pay them enough. If the employer cannot afford to pay workers enough to take the job, that’s the market’s way of telling society the job is not worth doing. For this reason we no longer have lots of shoe-shiners in the streets, though if we recreate enough poverty we would.

There are already more than one million working age adults in Sweden who lack jobs, including several hundred thousand immigrants. Indeed the majority of non-European immigrants without college degrees are currently not employed. If creating jobs is so easy and if there is a huge demand for jobs only immigrants do, why isn’t the Center-Party prioritizing providing currently unemployed immigrants with jobs before taking in the next 30 million?

According to Aftonbladet Ankarsjö “stresses that the new, generous immigration policies must be combined with a new labor policy. Crucial elements are proposals on flexible labor market rules regulating firing and lower wages for those who are new to the labor market.”

The theory is that current (and future) problems are fixed if Sweden abolishes its labor protection laws. Let’s evaluate this hypothesis. The OECD has data which allows for the employment as the share of the 15-65 population for immigrants and natives to be calculated. As a comparison the employment rate of native born Swedes without college degrees is 71%. Here are some employment rates for non-European immigrants without college degrees:

Netherlands: 55%
Australia: 50%
U.K: 50%
Denmark: 47%
Sweden: 46%
New Zeeland: 44%

Other than Sweden, these are countries lacking LAS and strict labor protection laws. As you can see they have not been able to provide high employment to low and medium skilled non-European immigrants either. This is pretty conclusive evidence that abolishing LAS (while helping at the margin) will not fix the employment problem for unskilled immigrants.

How about going further, such as crushing the unions, dramatically cutting welfare services and creating a low-wage sector in Sweden? Will that fix the labor market problem of unskilled immigrants?

No, it will not. Sure, you can probably raise employment by doing this. But employment in low-paying jobs does not solve the fundamental problem, which is low productivity and low earnings. Having a low-wage proletariat is simply another (somewhat less costly) manifestation of the the underlying problem of low productivity. As a rule, countries do not become richer by having more poor people.

Any honest economists will tell you that the Swedish welfare system will collapse under the weight of 30 million unskilled immigrants. Of course deep down a lot of Center-Party ideologues know this. The reason they are pushing for open borders is that for them, open borders is a moral compulsion. They do not believe that Swedish citizens have the right not to share their wealth with others.

The Center-Party states that migrating to Sweden and even asking to be economically supported by Sweden is a “fundamental human right”. They state “Vi ser det som en grundläggande mänsklig rättighet att söka sig en fristad och en försörjning…utanför landets gränser”. Per Ankersjö states that open borders “is a natural consequence for those who believe in equal rights and equal value of humanity”.

The indisutable rule in every civilized society is that everyone has equal human value (“människovärde”), or human dignity (the exact translation of “alla människors lika värde” is tricky, for the benefit of foreign readers I have  now substituted “dignity” for “value” below).

But what does this mean, exactly? We have not interpreted this as everyone having an equal right to – for instance- each others private property. Even the left agrees that a poor Swede cannot force a rich Swede to share their home, despite equal human dignity and equal human rights.

Classical liberals and libertarians interpret equal right as negative rights. When we say that all humans have a right to live without oppression, that means you cannot oppress others. It does not mean you have an obligation to invade Syria, North Korea and all other dictatorships and free them from oppression. Such an obligation would violate your own right to freedom and property.

When the Center-Party writes that is a fundamental human right to seek “försörjning” in Sweden, they are saying that Sweden has an obligation to support every poor person in the world who requests it. This is not supported by classical liberalism, since imposing this obligation on Sweden violates the rights of Sweden to freedom, property and sovereignty.

All humans have the right to the pursuit of happiness and to live free from hunger and poverty. However this does not mean Swedes are obliged to give 90% of their GDP in foreign aid to Africa, despite the fact that this would reduce poverty.

We believe all humans have equal human dignity, but we only give 1% of GDP in foreign aid. All humans have equal human dignity, but you are not obligated to buy toys for your neighbors children. All humans have equal human dignity, yet Sweden only provides free healthcare for its own population, not the entire planet.

This is because equal human worth is not interpreted (by non-communists) as the right to take what others have produced in the form of private or collective property. Equal human rights are negative rights against opression and coersion, not a positive obligations on others to fix your problem. Thus everyone has equal human rights, but that hardly means everyone has the right to come live in the country created by and owned by Swedes and be supported by them.

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