Quantcast
Connect with us

Trump and Fiorina ignore their own business lessons when it comes to immigration

Published

on

Two of the top GOP presidential contenders each claim professional creds that trump political experience (pun intended).

Trump’s empire, according to him, has a net worth of US$10 billion and is the only line on his CV that counts. “If you can run a huge business, you can run a country,” he seems to be saying.

Carly Fiorina seems to be claiming the same thing as she touts her experience as the CEO of Hewlett-Packard (though some might add “into the ground” to that first phrase).

ADVERTISEMENT

Both of these candidates (and every other Republican candidate) has an opinion on how to curb/reduce/eliminate undocumented immigrants. Given the business experience of the top candidates, their strategies for handling the issue are puzzling. “Let’s build a higher wall – and have Mexico pay for it.” “Let’s eliminate birth-right citizenship.” “Let’s use technology to rid the US of undocumented immigrants.”

These policies fail to meet the standards of Business 101 because they ignore the cost-benefit equation of immigration. Here’s how.

What’s the equation?

If a business owner, business strategist or chief operations officer is able to understand the marginal costs of an action relative to its marginal benefits, she or he can make better decisions. That is, the company should build the next unit only if, all things being equal, the marginal benefit exceeds the marginal cost.

Trump likely does such economic analyses all the time (or hires others to do it). He knows well that a core tenet of economics and finance is that capital earns a return and thus should be allocated to earn the highest one possible.

We see this play out in the market all the time. The owner of an acre of land will use it to maximize revenue, by building a skyscraper instead of a one-story convenience store or constructing condos rather than office space.

ADVERTISEMENT

Although the example above regards physical capital, these same decisions are made with human capital. For example, The Donald commands $100,000 or more to deliver a speech. So what’s the best use of his time? He hires a bunch of economists and finance gurus to run the numbers on prospective deals while he spends more time talking because he receives a higher return for public appearances (and continues to increase the value of his “brand”).

The numbers in the equation

Let’s imagine another Donald. Not the real estate mogul we know, but rather his Mexican namesake, a construction worker, who wasn’t born into wealth and power.

The average monthly salary for construction laborers in Mexico is the equivalent of $235. The average monthly wage for a construction worker in the US is $2,499. This comparison is lopsided for any number of professions, from university professors ($827 v $5,747) to police officers ($670 v $4,734), according to federal statistical data from both countries.

ADVERTISEMENT

The Mexican Donald interested in emigrating north asks the following question: “Is it worth it for me to cross the border into the US?” He assumes the benefit is higher wages – approximately $2,264 more per month. But what are the costs?

We start counting the costs by assuming that we are talking about sneaking across the US border, since the odds of securing a legal way across are relatively slim.

ADVERTISEMENT

The costs of immigrating can be divided among those that are explicit, implicit and tied to opportunity. The explicit costs include, for example, hiring a truck to transport you from one location to another, while the implicit costs include the disconnection from community or family when moving from an originating location to a new destination. Opportunity costs include any lost wages incurred while the move is taking place or lost productivity as a result of being in a new market or having skill sets that do not immediately translate into productive work.

An undocumented Mexican Donald, sneaking across the border into California or New Mexico, for example, will have the direct costs of a “coyote” (guide) and other direct costs associated with trekking from one country to another (food, clothing, shelter, transportation and identification), and indirect costs associated with removal from one community and insertion into another, and, of course, the costs associated with the possibility of assault, sexual assault or murder.

 

ADVERTISEMENT

These costs (found here) can vary from several hundred to multiple thousands of dollars. A quick smuggle from Tijuana, for example, might cost $500, while a trek from Southern Mexico might run upwards of $10,000.

The table at right illustrates these costs for a Mexican immigrant from a town/area within 500 miles of the US border requiring five days and nights to get to the border and a five-day stay at a stash house once across the border.

The cost-benefit analysis

In order for someone to migrate from Mexico to the US, he or she must identify that the stream of benefits (wages) net of all the costs (direct and indirect) is greater than the benefits of staying in place.

In the scenario suggested, we have a construction worker who will have a wage differential of approximately $2,264 per month and would clear about $280 a month after living expenses. This immigrant will make the move as long as he has a strong belief that he will be staying in the US for at least a year or two.

ADVERTISEMENT

And, if he thinks he will stay for five years, he has a positive net present value of $12,712, assuming he saves that $280 every month during the first year and increases savings by 3% each subsequent year. The net present value, as you might recall, is a calculation that converts future benefits into present benefits (a good description is here). Considering that the wage for this person is $235 per month in Mexico, even if he were able to save $100 per month it would have taken 127 months, or nearly 10.5 years to accumulate the same amount of money. Under these assumptions, the cost-benefit analysis suggests the person should come to the US.

Changing the calculation

So how do Trump’s and other Republicans’ policies change the calculation? Building higher walls (or electric fences? per Fiorina’s technology push) and removing naturalized citizen status might increase the costs of immigrating.

Obviously, higher walls are harder to climb. But, given that crossing deserts brings a slow miserable death to a number of these immigrants (and others will suffocate in the back of cargo trucks or be murdered by smugglers), a few more feet to climb is probably going to deter only a small number of potential immigrants.

Repealing the 14th amendment, which provides US citizenship to anyone born here, might decrease the stream of benefits. This benefit was not included in the analysis above. If I had included this, the stream of benefits would outweigh the costs by even more, though it would be difficult to put a value on what it’s worth to a Mexican mother or father.

ADVERTISEMENT

However, the data reveal that the number of foreign-born Mexican women giving birth in the last 12 months (presumably within the US) is only 7% of all foreign-born women Mexican immigrants. Removing this “benefit” directly affect only 400,000 of more than 11.3 million foreign-born Mexican immigrants in the US. That is, it is a benefit that doesn’t affect a huge share of the immigrant population at large.

So what if Trump wanted to change the calculation?

If these “business” candidates for president want to reduce or eliminate undocumented immigrants, they have to tackle this problem from the benefit side.

The benefits used in the calculation assume that the immigrant will have a 100% chance of landing a job at the going wage. But that’s not the case in Arizona, which requires businesses to use E-verify, a system in which businesses electronically verify that the documentation presented by a potential employee has matching information between the name and the social security number (securing proof of eligibility to work). That’s a big hurdle that gives an undocumented immigrants a much smaller chance at landing a job.

Whether it’s a good policy or not, if more states adopted systems like E-verify, the cost-benefit calculation for immigrants from Latin America would look decidedly grimmer for the immigrant. If the chances of finding a job become very small, it would become much harder to justify making the treacherous trek (the costs would out weight the benefits).

All the same, like the value of giving your child US citizenship, it’s hard to put a price tag on the benefits of achieving the “American Dream.” This suggests that no matter what policy Trump or others pursue to increase the cost of immigration, it will be hard pressed to work as long as the US remains the proverbial “land of opportunity.”

ADVERTISEMENT

The Conversation

By Thomas More Smith, Associate Professor in the Practice of Finance, Emory University

This article was originally published on The Conversation. Read the original article.

ADVERTISEMENT

Report typos and corrections to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

Breaking Banner

Trump’s next 100 days will dictate whether he can be re-elected or not — here’s why

Published

on

According to CNN pollster-in-residence Harry Enten, Donald Trump's next 100 days -- which could include an impeachment trial in the Senate -- will hold the key to whether he will remain president in 2020.

As Eten explains in a column for CNN, "His [Trump's] approval rating has been consistently low during his first term. Yet his supporters could always point out that approval ratings before an election year have not historically been correlated with reelection success. But by mid-March of an election year, approval ratings, though, become more predictive. Presidents with low approval ratings in mid-March of an election year tend to lose, while those with strong approval ratings tend to win in blowouts and those with middling approval ratings usually win by small margins."

Continue Reading

Breaking Banner

After Trump: No free pass for Republicans — they own this nightmare

Published

on

With the impeachment inquiry leveling up this month as public hearings begin, and with an election that might actually be the end of Donald Trump now less than a year away, the campaign to let Trump's Republican allies — even the most villainous offenders — move on and pretend this never happened is already underway.

This article first appeared in Salon.

Sadly, the clearest articulation of the let-bygones-be-bygones mentality has come from a Democrat — unsurprisingly, former Vice President Joe Biden.Biden, who is still, somehow, the frontrunner in Democratic primary polling, spoke at a chi-chi fundraiser on Wednesday, and dropped this pearl of wisdom: "With Donald Trump out of the way, you’re going to see a number of my Republican colleagues have an epiphany."

Continue Reading
 

Elections 2016

As climate crisis-fueled fires rage, fears grow of an ‘uninhabitable’ California

Published

on

As activist Bill McKibben put it, "We've simply got to slow down the climate crisis."

With wildfires raging across California on Wednesday—and with portions of the state living under an unprecedented "Extreme Red Flag Warning" issued by the National Weather Service due to the severe conditions—some climate experts are openly wondering if this kind of harrowing "new normal" brought on by the climate crisis could make vast regions of the country entirely uninhabitable.

Continue Reading