Making a Market in Immigration

Gary Becker, Nobel laureate and professor at the University of Chicago has proposed a potential solution to the problem of illegal immigration, see article . He thinks the key is in market mechanisms, arguing that immigration is a problem due to the absence of a price to match supply and demand.

His suggestion was an allocation of visas, by which governments would either sell the right to migration at a price that would match the desired number of migrants, or by auctioning off a predetermined number of visas. (Think of it as what we learn in environmental economics 101 with pollution permits). Governments could also adjust the price yearly in order to maintain control over the desired number of immigrants with respect to changing labour-market conditions.

A price for immigrations would mean that those with the highest willingness to pay (or highest value) would get the ability to migrate. Not only are the migrants better off by paying this (large) fee, but the receiving country benefits as well. Immigrants with the highest value, would gain the most economic benefit from migrating, presumably those whose wages would increase the most. The innovative engineer for example. But what about those who would potentially be worse off, if they were opposed to immigration in the first place? As with all solutions in microeconomics to these welfare problems, we learn that these people must be made just as well off (if not better), say by compensating them with raised revenues from fees collected by migrants.


The article gives some simple math:

Charging $50,000 for the right to immigrate would net America $50 billion if it let in 1m immigrants, roughly as many as it currently admits legally.

For those who are talented and unable to pay, My Becker proposes a sort of “student-loan” repayment system under which they may borrow from the government or potential employers. The former does not do much at first to reduce budget deficits. The latter has been tried before, in the 19th century and was called indentured servitude.

Abhijit Banerjee of the Massachusetts Institute of Technology thinks the system of “indenture” would still have problems, claiming that the immigrant would receive a lower wage than if he were a local. But that doesn’t sound quite right to us, and sadly we have been absorbed in Alchien and Demsetz, Shapiro Stiglitz and Wellitz for a few months now.

The case for anti-shirking suggests that it is possible to get higher wages in team production with monitoring, not lower ones. Also it is possible that the marginal product of the new immigrant is higher than the locals, and in team production would thus increase overall productivity.

A last thought? The richer countries can try to help the poorer ones develop economically, as that would reduce the number of immigrants into who want to work elsewhere.

Gary’s website can be found here:


Production, Information Costs, and Economic Organization, Armen A. Alchian and Harold Demsetz, The American Economic Review, Vol. 62, No. 5 (Dec., 1972), pp. 777-795

Equilibrium Unemployment as a Worker Discipline Device, Carl Shapiro and Joseph E. Stiglitz, American Economic Review, Vol 74 No 3 (Jun 1984) pp 433-444

Supervision, Loss of Control, and the Optimum Size of the Firm, Guillermo A. Calvo and Stanislaw Wellisz, The Journal of Political Economy, Vol. 86, No. 5 (Oct., 1978), pp. 943-952