If You Support Free Trade, Why Not Free Immigration?

21 Pages Posted: 19 Sep 2016

See all articles by Eric Bennett Rasmusen

Eric Bennett Rasmusen

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: September 2, 2016

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.

Keywords: Immigration, Labor Demand Elasticity, Public Capital, Government Capital, Social Capital, Cobb-Douglas Production, External Diseconomies of Scale

JEL Classification: F20, F22, E23, H54

Suggested Citation

Rasmusen, Eric Bennett, If You Support Free Trade, Why Not Free Immigration? (September 2, 2016). Kelley School of Business Research Paper No. 16-66. Available at SSRN: https://ssrn.com/abstract=2840260 or http://dx.doi.org/10.2139/ssrn.2840260

Eric Bennett Rasmusen (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

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