Income Per Natural and the Immigration Debate

by Reihan Salam

One of the greatest intellectual contributions the economists Lant Pritchett and Michael Clemens have made to the study of migration is the concept of “income per natural.” Rather than compare countries only by GDP per capita, Pritchett and Clemens, both of whom are advocates of freeing global labor mobility as a poverty alleviation strategy, they propose comparing the incomes of individuals born in a given society, or income per natural. So rather than divide all measured economic activity in Guyana by the number of people residing in Guyana, they propose measuring the mean annual income of persons born in Guyana, whether they live in Guyana or Canada or Brazil: 

If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent. The authors also show that poverty estimates are different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural.

Recently, Matt Yglesias explored the implications of income per natural for the U.S. immigration debate:

The foreign-born population in the United States is poorer than the native-born population. If all those people evaporated tomorrow, the average income of the remaining people would fall but per capita income would rise due to compositional effects. We would also have “more equality” since a disproportionate share of the poorest people would have vanished, and the incomes of capital owners would fall more than the incomes of wage earners. But again, very few actual people would be made better off this way. The better way to get the poverty-reducing effects of eliminating the immigrants is to simply count income per natural instead. The average income of people born in Mexico is higher than the average income of people residing in Mexico, because many of the people born in Mexico now live in the United States. Conversely, the average income of people born in the United States is higher than the average income of people residing in the United States, because many of the people residing in the United States were born in Mexico. [Emphasis added]

One of the reasons we rely on GDP and GDP per capita, however, is that it helps define the fiscal capacity of the state. If the main vehicle for social insurance provision and human capital investment were diaspora networks of naturals rather than traditional nation-states, this line of analysis would make a great deal of sense. Guyanese migrants to Canada would rely on social services and blended learning programs financed by taxes on all Guyanese naturals, thus raising the quality of life for Guyanese naturals in Guyana and around the world. (There is a case that remittance flows can be understood along these lines, but the transfers tend to be one way.) Canadian naturals wouldn’t need to be concerned about the cost of raising incomes among Guyanese naturals to Canadian natural levels, as (somehow) parallel standards of what constitutes a decent social minimum would co-exist in the same geographical space. Standards of living among Guyanese naturals might be somewhat lower than among Canadian naturals, and perhaps Guyanese naturals would congregate in neighborhoods with building codes and public safety measures that are better attuned to prevailing income levels. The trouble, of course, is that arrangements of this kind have gone out of fashion since the era of the Ottoman millet system, and would likely prove difficult to sustain. I don’t doubt that technological and cultural change might eventually move us in this direction – Neal Stephenson imagined just such a world in his science fiction novel The Diamond Age. But as long as we live in a world in which the nation-state remains the dominant institutional form, I think a focus on policies that keep GDP per capita high makes a lot of sense. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.