TCS Daily

Give Me Your Tired, Your Poor, Your Remitters...

By Lawrence White - June 20, 2005 12:00 AM

Immigrant workers often send some of their earnings to family members back in the home country. Critics of immigration have begun expressing concerns about such remittances. At a seminar on immigration at the Institute of Economic Affairs in London last year, I heard one critic warn the audience solemnly that remittances by immigrant workers were "draining" X billion pounds per year from the UK economy. I raised my hand to ask the speaker why he thought remittances abroad were a problem for the domestic economy, any more than payments for imported goods. Was he embracing the mercantilist view that out-payments of money were impoverishing the UK or threatening to leave the country with too small a stock of money? He replied that evidently I hadn't heard him: he had said X billion pounds per year.

Hoover Institution historian Victor Davis Hanson provides a recent variant of the concern about remittances. He offers it first in a litany of worries about illegal immigration, one of the "illiberal aspects of millions of people coming to the US in violation of the law". But nothing in the mistaken view that "remittances are a drain" has any greater reference to remittances of illegal immigrants than of legal immigrants. Here is how Hanson states his case:

        "For starters, take remittances. Billions of dollars are sent annually back to 
        Mexico from its citizens who come to the United States -- one of the largest 
        sources of foreign exchange for the Mexican economy.

        "But that cash does not come out of thin air. If such transfers aid depressed 
        parts of Mexico, they also drain capital from struggling immigrant communities 
        here. Workers without high school diplomas who send back much of their 
        wages often cannot pay for their health care, education or housing here.

        "Entire towns in the American Southwest are deprived of critical revenues 
        that could be invested in infrastructure to alleviate the need for state and 
        federal intervention to ensure some parity with American citizens."

Just as in the UK case, the fact that US remittances to Mexico measure in the billions does not make them harmful.

Hanson's worry, contrary to that of the mercantilists, is not about the flows of money as such. It is about the real wealth being transferred: immigrant workers who send money back home supposedly "drain capital" from immigrant communities in the US and leave them impoverished.

Hanson's worry overlooks some very basic points. The first is that the money immigrant workers have to remit is money they have been paid in exchange for what their labor contributes to the economy's output. The cash indeed doesn't come out of thin air -- the workers have to help produce the goods that generate revenue for the firms that pay them. The real wealth they transfer is wealth that would not have existed but for their work. If a lettuce firm pays its immigrant Mexican lettuce pickers $1 million in the aggregate, that represents an additional $1 million in lettuce production that would not have been possible without the services of those pickers. (Economists call this the "marginal value product" theory of competitive wages.)

The second point: it's the workers' money. If sending funds to relatives in Mexico is how the lettuce-pickers want to spend their earnings, that's no skin off my or Hanson's or anyone else's nose. Hanson paints a picture of workers who keep too little to afford decent housing or health care for themselves. That too, is their choice. The poverty of immigrant workers becomes our concern only if the immigrant workers start to receive our tax dollars. But that is our choice. If Hanson were only saying that immigrants on the public dole are a burden to taxpayers, there would be no disagreeing with him.

But Hanson is saying more. He's saying that we native-born can't help ourselves from pitching in our tax dollars to alleviate the poverty of immigrant workers who remit too large a share of their earnings -- so let's not let them into the US to begin with. His is clearly not a recipe for doing the immigrant workers (or their families) a favor. It's obvious that the workers prefer the abstemious life that Hanson deplores -- after all, they struggled to get here so that they could pursue that life. Is it doing the taxpayers a favor to bar immigrants? Not by comparison to the option of making recent immigrants ineligible for public assistance. Hanson implicitly rejects that option as politically infeasible. In effect he counsels us to ignore the plight of poor Mexicans south of the border (who would like to work in the US), and to ignore the benefits we would gain from employing them, on the grounds that we are unable to get our tax-and-transfer machinery to ignore the (less dire) plight of some of the same Mexicans north of the border.

The third point: many immigrant workers come to the US largely to remit funds to their families back home. If the worker remittances were somehow blocked, those workers would not come to American towns to contribute to production in the first place. The "critical revenues" for local tax authorities would not exist in that case, either. Hanson is therefore simply wrong to suggest that in any real sense "entire towns in the American Southwest are deprived of critical revenues" by immigrant workers' remittances. Blocking immigration would in fact impoverish Southwestern towns that rely on immigrant labor. It is a recipe for leaving everyone in the American economy poorer.

The author is F. A. Hayek Professor of Economic History, University of Missouri - St. Louis.


TCS Daily Archives