New research explores the scope for managing migration using a government-regulated competitive market for work permits. Michael Lokshin and Martin Ravallion propose that host-country workers should be granted the legal option to rent out the ‘work permits’ that effectively come with citizenship for a period of their choice, while foreign workers can purchase taxable time-bound work permits.

The proposed market would be anonymous, with no need for personalised matchings of those on its two sides. The market could either have one price or be differentiated by occupation or region. There would probably be some losers, but potentially large gains, especially through enhanced social protection in host countries.

Using its power to tax work permits, the host country could achieve any desired floor to labour earnings. The market could also provide a new instrument for implementing industrial and regional development policies.

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Martin Ravallion explains how the market might work:

When we return fully to in-person work, I don’t doubt that some of us will be thinking: ‘staying home was not so bad for a while, if only I had some money coming in’. There is a large pot of money in the world not being used much now that could help. I refer to the huge losses from restrictions on international economic migration – what Michael Clemens at the Center for Global Development in Washington DC calls ‘trillion-dollar bills on the sidewalk’.

Consider Tania (in Washington DC) and Diego (in Mexico). Sometime after the pandemic, Tania will have returned to her job as a receptionist at a gym in DC. She wants to be a personal trainer, which would pay better and give her more flexibility in balancing her work and family demands. She welcomed the extra time with her family during the lockdown, but with no money coming in, she had to get back to work soon. She just can’t afford to stop working.

At the same time, in Mexico City, Diego is struggling to find a job that rewards his training as a mechanical engineer. He dreams of coming to the United States for a period to work for a company that values his skills.

Foreigners like Diego who want to work in the United States must obtain an official work permit. In contrast, as an American citizen, Tania has the right to accept any job offer in the United States. Her ‘citizenship work permit’ is a valuable asset, but she does not have the freedom to cash it in.

Tania and Diego are stylised characters, representing many people in the world with similar concerns. There is a way to make them both better off.

Creating a market in work permits would benefit both Tania and Diego. Given Diego’s earning power in the United States, he would gladly purchase a work permit at a price that would cover Tania’s current wage. Tania could use this to retrain and spend more time with her children.

There are many other examples. If you lost your job in a company town, perhaps due to automation, you could rent out your work permit for a period to cope with the unemployment, while retraining and/or migrating. Or as a young person who has reached school leaving age but without good job prospects, you might choose to rent out your work permit to help finance extra schooling. Or you might use it to help raise your children in a critical period or to provide home care for a loved one in need. It could also help you deal with the onset of a serious illness or disability.

Side-by-side with such cases of people who would be happy to rent out their citizenship work permit, there are foreigners keen to purchase time-bound work permits for the United States. Given the prevailing restrictions on international migration, there is plenty of global demand for temporary work permits for accessing high-wage labour markets like the United States.

That is why the work permits held by citizens in high-wage economies are so valuable. The right to lease it would provide citizens with a new form of social protection, which would be especially helpful for low-wage workers.

Indeed, it would guarantee a minimum level of earnings in the host countries – a self-financing minimum income that would reduce poverty and inequality more efficiently than a universal basic income. It would also be a far more efficient means of managing international migration than the messy and uncertain process we have today.

How would this work? My recent paper with Michael Lokshin, ‘A Market for Work Permits,’ outlines the idea in more detail, and discusses options for implementation.

Participants in the new market would go to a website that auctions the offers, so as to set the price for all to see. The market is anonymous: Tania and Diego need never meet, or even know about each other. The website finds the price that balances total demand for work permits to the total supply (both measured in units of labour time). Of course, citizens would be free either to take up or reject an offer for their work permit.

In a follow-up paper, ‘Mexicans Would Happily Pay for a Basic Income for US Citizens’, Lokshin and I provide calculations for the hypothetical scenario in which US citizens are allowed to rent out their work permits to Mexicans. We show how this policy can (within limits) attain any desired basic income for US citizens. The policy also boosts GDP substantially and appreciably reduces poverty in the United States.

The need to enforce migration laws would remain. Introducing this market would probably help by making illegal immigration a less attractive option for many immigrants, especially those with large wage gains from migrating. Human traffickers and middlemen would have a harder time competing with a well-designed and well-run market for work permits.

There can be good reasons for governments to restrict personal freedoms, but what is the case for this specific freedom, given all these potential benefits? One might argue that the work permit is an ‘inalienable right’ of citizenship, or ‘deep social protection’, recognising that mistakes happen and circumstances change in unanticipated ways.

But treating the ownership of a citizen’s work permit as irrevocable does not preclude allowing the use-right to be marketable for some desired period. The use-right returns to the citizen at the end of that period, and the citizen can buy it back at any time. This arrangement can achieve the welfare gains from creating a market for work permits, while still respecting the rights of citizenship.

The legal foundation for this new market is to grant the freedom to rent out the work permits that come with citizenship. There is no good reason why this freedom is currently absent. And there is clearly a demand for it.

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‘A Market for Work Permits’

Authors:

Michael Lokshin (The World Bank)

Martin Ravallion (Georgetown University)