Immigration restrictions are arguably the largest distortion in the world economy and the most costly to the world's poor. Yet, these restrictions seem firmly in place due to fears in rich countries that immigration would exacerbate inequality among natives, fiscally drain the welfare state, and change native culture. Many "new rich" countries are creating a new form of immigration that we argue may help overcome these obstacles. Foreign private household workers, primarily female, constitute more than 6% of the labor force in Bahrain, Kuwait, Hong Kong, Singapore, and Saudi Arabia, and about 1% in Taiwan, Greece, and Israel. Providing temporary visas for these workers can potentially allow high-skilled native women to enter the market labor force. This increased labor supply by native high-skilled workers can increase the wages of lowskilled natives and provide a fiscal benefit by correcting distortions toward home production created by income taxes. Calibration suggests welfare gains to natives from a Hong Kong style program may be equivalent to those from a 2.0% increase in income. However, multicultural societies with a norm of extending citizenship to long-term residents may find this type of migration inconsistent with ethical norms. Programs with temporary, non-renewable visas may be more acceptable in these countries.
Introduction
Migration restrictions are arguably the most important distortion in the world economy and the most harmful to the world's poor. Klein and Ventura (2004), for example, estimate that the removal of immigration restrictions in OECD countries could increase world output by up to 172%.2 Yet despite occasional calls for freer mobility (perhaps most notably from Mexico's President Fox) the elimination of immigration restrictions is not under consideration in rich countries. High-income countries limit migration due to concerns that immigration of low-skilled workers would (1) exacerbate inequality among natives, (2) create a burden on the welfare state, (3) change native culture and increase crime.
In this context, it seems worth examining a new form of immigration that is becoming widespread in countries that have become prosperous recently, from Saudi Arabia to Hong Kong to Greece. In this new type of immigration, foreigners, women in particular, are employed as private household workers either on temporary visas or under the table.