With the Brexit vote behind us (in which immigration was a major issue) as well as the fact that immigration is a major topic in the U.S. presidential election, it is worth looking at the economic benefits and costs of the subject.

Economic theory and the ideology of free trade argues that the free flow of labor as a factor of production from one country to another will help lead to an economically efficient outcome. On the surface, it makes sense. A global labor pool that can move freely to where it is most rewarded (i.e. most productive) should, all things being equal (a key assumption in economic models), result in higher global output and a higher global standard of living. It should be mentioned that this free movement of people is but a subset of free flow of goods which would, in theory, allow countries to specialize in producing those products that they produce most efficiently and trade for those products that they do not. In short, higher global output=a higher standard of living. I myself have taught this theory in front of groups, and there is nothing wrong with it as a framework for thinking about general principles. In fact, it underpins the global economic paradigm that we are living under today, a paradigm that has seen increased living standards globally. Overall, it is hard to argue that this paradigm has been anything but successful.

However, the model underlying this paradigm which argues for the free movement of peoples largely assumes that people are the same. In other words, it ignores the costs associated with groups of people who think differently coming into close contact and economic competition with each other. The first problem present is that the newcomers present the natives with something that they didn’t have before, either skills or competition. If the newcomers are bringing skills that are lacking in the area (engineering, doctors, other technical skills), the immigrants may be welcomed (or not), but the benefits will become clear to most (when you are ill and your choice is between ‘no doctor’ and ‘Pakistani doctor’, you will probably go with the ‘Pakistani doctor’) and the country will likely be better off economically. However, if the immigrants are bringing competition, then they are not likely to be welcomed by the natives. The country may be better off on paper (higher GDP and a lower level of inflation due to reduced wage pressures), but there is going to be some resentment created and this is a cost.

One of the arguments put forward as an attempt to counter the resentment is that immigrants do work that the natives “won’t do”.  What isn’t much discussed is why natives “won’t do” the work. One possible reason is that wages in those industries have been pushed so low by immigrant competition that natives have better (i.e. higher paying) options to go to. Some studies have purported to show that in the U.S. that immigrants, don’t depress the overall wage picture, so it might not be that. However, it does seem difficult to believe that large immigration numbers, and the increased wage competition that it would bring, won’t have any downward pressure on wages. Another possible reason is that there are welfare benefits available to the natives and the difference between what they get on welfare and what they could earn in the workforce isn’t great enough to motivate the natives to get out of bed and go to work. For example, if I am getting $10/hr in welfare benefits or I could work at a job that pays $12/hr, is it worth my time to go through all the trouble for what effectively for me is a$2/hr job? Probably not. In any case, let’s get one thing clear: there are no jobs out there that natives “won’t do” if the wage is high enough. Whether or not immigrants are pushing the wages down from the “natives will do the job” range to the “natives won’t do the job” range depends on the industry and is an empirical question beyond the scope of this article. But the thought that they might be doing just isn’t an irrational thought produced only in the mind of a fevered racist.

The second cost of immigration, related to the first, is the feeling that your government isn’t standing up for you. In this case, the reality of what immigrants do or don’t do to wages, or whether they make a given country better off or worse off is really irrelevant. If the feeling is there, rational or not, it eats away at the legitimacy of the government. To the extent that immigration unsettles a portion of the native population, this is a cost. It may turn out to be a cost worth paying at a national level as immigration can bring in benefits to a country, but it is nonetheless a cost.

All governments need, at some level, at least tacit consent of the governed. Usually the population is much larger than the group of people actually governing, making overpowering brute force to control the population impractical over a long period of time. The fundamental legitimacy of all governments, whether tribal, democratic, communist, fascist, monarchy, or anything else, is the feeling that this ruling group is protecting the population from some danger. That danger could be an enemy force that would kill the population if it had the chance. The danger could be economic insecurity. Or it could be something else. The cohesion of society is dependent upon the perception that we are all in this together and the government, whatever faults or injustices that it commits, is at least willing and capable of protecting us from a greater harm.

When the governing class allows immigration to the point that a significant fraction of the population feels unsettled, threatened, and that their government isn’t standing up for them, the rulers lose legitimacy. From the point of view of those who have to compete with the newcomers for jobs (or having their wage bargaining position undercut by them), it appears that the government is siding with foreigners over them. At that point, these people start to wonder why they owe loyalty to a state that doesn’t stand up for them.  It is a fair question, and the resulting reduced social cohesion is an actual cost of immigration.

In conclusion, whether or not this becomes a problem for a state depends on a variety of factors (how much immigration, type of immigration (skilled labor/unskilled labor), the ability of the new immigrants to assimilate, whether or not they are a burden on the social system etc.). How these factors play out will also depend on the national culture, and how accepting it is of immigrants in general. This is not an argument against all immigration. But it is an argument against the idea that immigration is cost-free and always a net benefit to the host society. If handled properly, a country can be enriched and can benefit handsomely from it. On the other hand, if handled poorly, it can delegitimize a government and destabilize a society.