Paolo Pinotti discussion of: Immigrants' work permits

This interesting paper proposes a new mechanism for managing admission and permit rights to foreign immigrants. Such mechanism relies on anonymous matching of demand and supply of work permits by, respectively, immigrants and natives. This is the main innovation and the main advantage over previous proposals, as it would allow for greater flexibility and speed of adapting to muting conditions. At the same time, direct matching of demand and supply of permits requires the national government to relinquish sovereignty over admissions of foreign citizens in the country. Since the latter has been historically one of the main prerogatives of modern national states, political feasibility remains an open issue. Perhaps supranational authorities such as the European Union could incentivize national governments to adopt the new regime through economic subsidies or other benefits for participants. The second main advantage of decentralized exchange is that it allows domestic workers to sell their working permits when unemployed, which may certainly help spreading the benefits from migration to a wider constituency of workers. A potential concern is that the resulting unemployment insurance would be pro-cyclical, the price of working permits decreasing in periods of high unemployment. In addition, at the global level, we would have foreign workers from poorer countries buying working permits from domestic workers in native countries, which resembles a regressive transfer scheme. However, to the extent that buyers and sellers enter voluntarily the trade and the alternative is no permit at all, the new mechanism is welfare improving.