Immigration Reform Loses; Everybody Wins

Why did the comprehensive immigration reform bill fail in the Senate yesterday? Moderate Dan Balz in WaPo blames it on the extremes of the two parties. Like Balz, Global Review is moderate on the issue of immigration: sympathetic to those who want to work in America; and a firm proponent of the rule of law.

I have another theory as to why the bill failed. Far from being a Pareto improvement, it actually would have made (almost) everyone worse off than under the status quo.

• Illegal immigrants would lose: either pay a fine or face increased risk of deportation.
• Legal immigrants would lose: guest workers could undercut wages.
• Businesses hiring illegals would lose: wages would be regulated, and the supply of labor would be responsive to the political climate, not market forces.
• Low-wage American workers might earn higher wages - but might earn lower wages as input costs increase. They would also face higher prices.
• High-wage and retired American workers would face higher prices and might see lower wages.
• American taxpayers would fund all the new enforcement.
• Hispanic Americans would be entrenched as an underclass for decades, like Turks and North Africans in Europe.
• American terms of trade would erode as our labor costs rose.

Winners, by contrast, would be outsourcing concerns and competing importers in Mexico, China, Canada, and elsewhere.

Taken together, this reform was comprehensively bad. Instead of addressing the social problem (an emerging Hispanic underclass) and the economic problem (an over-regulated unskilled labor market) it exacerbated both. We may be in the frying pan still, but it sure beats the fire!