An Immigration Market

A discussion on Andrew Nortons blog about immigration as well as recent discussions about the proposed Emission Trading System and the associate permits has inspired me to revisit the issue of immigration and some alternative ways in which we might administer it. I will assume for the sake of this discussion that there is no general political support for an open border policy, although in passing I will suggest that the free immigration agreement (FIA) we have with New Zealand seems to work pretty well.  

The current system of immigration may be summarised as including some key components.

1. You apply to immigrate to Australia.

2. You are assessed against some criteria which includes;

  • Health
  • Criminal Record
  • Job Skills
  • Family connection and other factors

3. If you pass the above stage your application is then queued until a slot within the immigration quota becomes available.

4. You accept the slot and become an Australian permanent resident. One who may after four years apply to become an Australian citizen.

This isn’t exactly how the system works but for the sake of this discussion I believe it is a reasonable simplification.  

Whilst this system caters for the public sector criteria on who should come to Australia it does not allow any input from the private job sector or from personal imperative beyond that which feeds into the public criteria via politics. An alternative which would allow some influence based on actual market demand, and which would cut out much of the queueing, would be to follow the example of the proposed ETS and to auction off the immigration slots rather than assigning candidates to queues and rationing the spots accordingly. Such an approach would also raise revenue which could contribute towards public sector infrastructure to accomodate the new Australian residents. In practice the the annual immigration quota might be sold in blocks via auction to immigration agencies who would then onsell them to private individuals with or without other services. With permit in hand the potential immigrant would then lodge an application to immigrate here and assuming they pass the public criteria they are immediately in. If they fail to satisfy the public criteria they could onsell the permit or in the case of immigration agencies they could reassign the permit to another immigrant. This would ensure that potential immigrants to Australia get a rather immediate answer and that the immigration department does not need to sit on a pile of applications as they queue for a slot. 

Such a modified approach would also allow those with specialist skills that are in high demand to displace less worthy candidates by outbidding them for a position. And employers that really need somebody with those skills may make agreements with such individuals to share the burden of the associated immigration fee. Humanitarian organisations might use the opening to buy passage for individuals that don’t qualify under the refugee program. And perhaps some people might buy passage for friends.

Of course given this introduction of an immigration market it would arguably become reasonably to drop the skills component from the public criteria and let the market sort out which skills are most needed. I suspect that a market based approach would be far more effective in getting it right, especially in regards to niche skills. And I suspect the existance of a legitamate immigration market may go some way towards reducing the size of the black market.

Of course putting a price on immigration by auctioning off the quota lends itself to a further refinement which is to switch from fixing the immigration number and lettting the market set the price, to fixing the price of immigration and letting the market determine the quantity. The pros and cons of this would entail arguments not that different to comparisons between an ETS and a carbon tax. Either approach in my view would be an improvement over our current rationed quota system.

Of course we could still work towards the ideals of open immigration by signing additional bilateral or multilateral FIAs, such as the one with New Zealand.

note: most of this thinking is currently reflected in the LDP immigration policy.

note: minor gramatical changes have been made since I first posted this.

17 thoughts on “An Immigration Market

  1. I don’t think the system (in Australia) at the moment is filled with corruption however I think that most economic evidence suggests that using a price mechanism instead of a rationing mechanism would tend to reduce corruption not increase it. I don’t personally see much in the way of downside with this type of reform.

  2. So to begin with, how many libertarians out there support quotas on immigration?
    Surely most readers don’t support quotas?

    I think quotas should be abolished and getting rid of quotas solves all the problems of trying to optimize selection processes. It would be cheaper and it also solves any corruption problems that may exist.

    Of course I do believe immigrants should be screened for crim records and serious contagious diseases and this process would (like anything else) need a small level of ongoing optimization.

  3. I think a problem with your suggestion is that it doesn’t deal with the humanitarian component of immigration, such as refugees (the most expensive in terms of cost to people already in Australia). Any strategies for this group?
    As for open borders, I agree — the more countries we have them with, the better.

  4. Tim R – if you get rid of quotas then you essentially have an open immigration policy. I’d be okay with that however I don’t think most Australians would be, especially in the context of the politics over recent years. As such I think there is merit in looking at reform measures that might be politically achievable within that context. Adding a price mechanism to immigration quotas, or replacing the quotas with an immigration tariff, would offer an improvement. It allows for a price signal to reflect the demand for immigration to Australia relative to the artificial scarcity that immigration policy creates. It would add a vital piece of information to the policy debate which is currently hidden.

    Conrad – I wouldn’t expect the above reform to replace the refugee program because the refugee program is the product of significant international treaties. I would expect them to operate in parallel. However given the restricted nature of the refugee program the suggested immigration market would at least provide an alternative avenue of entry for those that could find private benefactors willing to stump up the cash or who could find the cash themselves. At the margin this would alleviate some of the pressure on the official refugee program. Much more so if other nations followed such a policy lead.

  5. Agree with Tim R that libertarians should not support quotas but I do support them. Let me explain why.

    Following the free market logic why have a quota? Indeed the optimal value of the immigration quota is zero if you simply have free immigration entry. This is like a total liberalisation of labour markets where you have totally free entry. It is exactly analogous to the case for free trade – indeed a quota is exactly equivalent to a tariff if the value of a quota is auctioned so, if you like free trade, you will like having no quota.

    Indeed allowing for skill externalities (the fact that skilled people are typically paid less than the value of their social product because their skills can be imitated) you might not want to exclude skills as an entry criterion as you suggest but in fact subsidise these skills by paying bonuses to skilled migrants who come.

    There are, following the libertarian logic, gains from trade associated with the ability of incumbent Australian’s who own Australian assets to combine these assets with anyone they like. Wages will fall but gains to owners of other inputs will exceed any loss in wages so there are always net gains in this sense to free migration.

    Incidentally there was pretty much free immigration up to the end of the 19th century to the US, Australia and Canada.

    So what is wrong with this logic if anything? For a start we have a social security system so that there could be adverse selection of migrants who are sick or stupid. Second although there would be overall income gains wages in Australia would fall to Indian levels we free immigration. The distributional consequences of immigration provide a constraint on free migration. Finally, I think there are political constraints that stem from the fact that incumbents don’t want the racial and cultural composition of Australia to change too quickly.

    Thus we do want to constrain the level of immigration with something like a quota. But it is quota which reflects the factors considered above – ethnic/cultural balances, excluding those who will drain the social security coffers and so on. Of course you want to place an emphasis on skills to secure ‘skill externalities’ but the international market for skills is very competitive – if you auction it you will only get high bids from people you would not want anyway.

    You might want a category of immigration that reflects humanitarian concerns but this part of immigration policy has not worked well in Australia over the years.

  6. I agree with Tim R.

    Australians need to be aware of the benefits of immigration, like increased specialisation – Tian and Shan had an interesting paper in the AEHR in 1998 that said that immigration increased specilisation to the point where it made commodities that much cheaper it outweighed increased dmeand for residential land and actually made housing cheaper.

    That in itself says nothing about human or other capital that we get with new immigrants.

  7. “Second although there would be overall income gains wages in Australia would fall to Indian levels we free immigration.”

    Please quantify this statement. Why did Tian and Shan find that immigration creates jobs (with a restricted labour market) and makes commodities so cheap the overall effect is cheaper housing?

  8. Rory, I agree with Terje. This would be the antithesis of a corruptible process. Why would you bribe some official when all you have to do is pay the standard fee to get in? The health and criminal checks would be no different from what already exist.

    Tim, as with Ron Paul and Tom Tancredo, not all libertarians or neo libertarians are for an open door policy. And on a more practical level, it would be an absolute guaranteed vote loser to declare that the (literal) millions of destitute from African and other third world areas would be cordially invited to simply enter.

    Conrad, how doesn’t it deal with the humanitarian component? The empathy we feel for the refugees et al is strictly a subjective feeling. Australians feel differently for people in different circumstances and, yes, from different demographics. Is it not their right to choose who should come into the country according to their own beliefs and values? How can bureaucrats or pollies codify this into one black letter law set of regulations / legislation? Talk about potential for corruption and / or bias. Would not the ideal system be that Australians who actually care for the destitute would fund one of a range of immigration support foundations who would then choose applicants to sponsor according to their own criteria of eligibility? Humanitarian immigration would then direct reflect how Australians actually feel about the issue.

    Terje, A very good idea, however I would have thought that fixing the quota and allowing the market to set the price would be superior to the alternative you mentioned. You can’t go that wrong in setting a number for immigration but you can always make the price too high or too low with resulting problems.

  9. I appreciate that you’ve simplified how our systems works for the purpose of discussion. However, I think a few points need to be made about aspects of our current system, some of which relate to the model you’ve put forward:

    1 We do have an open door immigration arrangement with New Zealand – and I agree it works very well and to the benefit of both countries. However, while people from NZ can work and live here indefinitely (as long as they don’t get convicted of a serious crime), they are not entitled to Medicare, Newstart, pensions, HECS etc, unless they successfully apply for permanent residency in the same way as people from any other country. So it’s a qualified open door.

    2 Significant parts of our skilled and business migrant intake are driven in large part by market demand in particular skills. While the settings are regularly tweaked and estimates made about how many people will successfully apply under these settings, there is not actually a cap or quota in many of these areas.

    3 Gaining entry on long-term temporary visas such as skilled worker or student often provides an advantage in later efforts to obtain permanent residence. Both these categories are almost totally demand driven, and at least in part rely on people having sufficient funds to sustain themselves while they are here, pay for courses, health insurance, etc. So while there isn’t auctioning of visas in the strict sense, there are some market factors at work, albeit in a secondary sense.

    4 The aged parent visa includes a capacity for people to get in much quicker (such as within a year as opposed to 10-15 years) if they can afford to pay significantly more to cover potential health costs. (over $50 000 extra for a couple).

    5 Our humanitarian intake do not come here specifically as refugees, but rather have to be sponsored by an Australian resident (often a refugee seeking to reunite with the rest of their family here), who has to cover the cost of airfares for the people and provide an assurance of support (meaning they will be responsible for covering their costs of living and/or reimbursing any costs such as income support payments claimed in the first two years after arrival). Other agencies sometimes provide some of this assistance, but my point is that capacity to pay can still come into play, even in the humanitarian category.

    My final overarching point is that, whatever criteria we apply to our migration rules, the system as a whole is far too complicated, bureaucratic and (as a consequence) often inconsistent in how the rules are applied. This adds great expense, delay and inconvenience which has both a personal cost and an economic cost to Australia.

  10. Andrew,

    To your points;

    1. Yes I agree.
    2. When I said quota I did not mean quota as in an allocation for a specific skill but rather our overall quota for immigrants in a given year. Other than that possible misunderstanding I broadly agree.
    3. I’d prefer that market forces were more explicit rather than implicit but yes I agree.
    4. Didn’t know that but okay.
    5. Didn’t know that either but okay.

    In terms of a simple means of simplification we could keep all the existing entry programs and have a parallel one called the “paid entry visa” which is just three simple steps;

    a) pass a medical
    b) pass a criminal background check
    c) pay the going fee

    Would that achieve the simplification you envisage?

  11. Philip,

    My original inclination was to fix the quantity and float the price but I was ultimately persuaded that fixing the price and floating the quantity is a more pro-liberty position or otherwise better for other reasons. Firstly governments tend to set and forget rules and a set price will allow the quantity to grow so long as there is no notable political backlash and so long as inflation eats away at the fee. Secondly a fixed fee involves less paper shuffling and less middle men than a periodic auctioning of visas. A fixed fee is something people can more readily save up for. A fixed fee allows the quantity to adjust for cyclical factors so that when lots of domestic skills are unemployed and already abundant then the intersection of demand and the fixed fee will lower the supply of immigration slots.

    However either approach would in my view offer an improvement.


  12. Terje

    I quite like your idea of a ‘paid entry visa’. No doubt it would be criticised as people being able to pay to jump the queue, but in most existing categories it isn’t accurate to say there’s a queue, just a series of hurdles people have to get over. The restriction on accessing income support payments for a set period would also need to apply for that type of visa.

    In any case, many people are already having to go to lots of expense and unnecessary and inefficient activity.

    For example, people have been paying to do a hairdresser or chef training course in Australia because it gives them an advantage in applying for permanent residency, due to hairdressers and chef being listed as ‘occupations in demand’ – even though they have no intention to work in that area. It would be a lot easier if they could just pay the same money up front and get working in the area they want to work.

    I still think there is also plenty of scope to simplify some of the other existing categories.

  13. The ability to buy a visa should also apply to tourists. There are quite a few people nowadays who telecommute to work (eg Daytraders and the like) and can have a quite extended holiday over here without having to take a job.

    The working holiday visa works well for this purpose but you have to be under 30 to get it – and not all tourists are under 30.

  14. Andrew. Yes a restriction on going on the dole for a number of years would be required. We should be a haven for those who want to come here to offer skills or those who are escaping oppression (and thus would be prepared for any menial work once arrived), not those looking for generous welfare benefits.

    Yobbo. A simple answer to that would be to have all visas refundable. Pay the price for a normal permanent resident visa; come to Australia for a six month (or whatever time you wish) working holiday although declaring yourself as just another immigrant; then on returning to your home country apply to surrender your visa for a full refund. Australia doesn’t lose because you’ll probably be paying taxes while you’re here and we will have had your money interest free for the period.

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