The Welfare State vs . the Common Labor Market : Which to Dismantle ?

Migration by low-income workers limits the ability of a country to redistribute income, since more generous income supplements attract additional workers into the country, reducing wages and raising the cost of the program. This paper studies the role of immigration controls, which allow the government to raise the real incomes of existing immigrants without causing additional immigration. Paradoxically, immigration controls may lead to higher equilibrium levels of immigration in a common labor market, and those low-income individuals left behind in the source countries may be better off. Simply stated, a host country benefits more from immigrants when they are not impoverished, and immigration controls enable the country to eliminate impoverishment. Thus, the country is willing to increase the number of immigrants that it allows within its borders. After obtaining this insight from the basic model, the paper discusses some extensions and qualifications.