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The Immigration Economy

Authors: David Scott Fitzgerald, Associate Director, Center for Comparative Immigration Studies, University of California, San Diego Heidi Shierholz, Economist, Economic Policy Institute Mark Krikorian, Executive Director, Center for Immigration Studies James Carafano, Director, Douglas and Sarah Allison Center for Foreign Policy Studies, Heritage Foundation
March 8, 2010

In his State of the Union address, President Obama promised to tackle comprehensive immigration reform in 2010. The administration--which has been focused on issues including healthcare and financial reform--is considering reviving this initiative before congressional midterm elections. Many American workers and lawmakers are concerned about the impact of immigration on jobs. American businesses also question whether curbing immigration, a major source of low-wage labor, will undermine the U.S. economic recovery.

In this roundup, the Center for Comparative Immigration Studies' David Fitzgerald argues the net benefit of expanding the path to immigrant legalization would be slightly higher economic growth and taxpayer revenues. Heidi Shierholtz of the Economic Policy Institute says immigration boosts wages for native-born workers and has little to do with the declining quality of U.S. jobs. Mark Krikorian of the Center for Immigration Studies notes that while expanded legalization would have little positive impact on the economy, it also would redistribute native-born wealth. More critical is James Carafano of the Heritage Foundation, whose biggest concerns with legalizing illegal immigrants are the associated costs and increased incentives it provides for more illegal border crossing. --Roya Wolverson, Staff Writer on Economics, CFR.org

David Scott Fitzgerald, Associate Director, Center for Comparative Immigration Studies, University of California, San Diego

So far, the Obama administration has generally followed President Bush's immigration policies by focusing on enforcement, such as making the employment eligibility verification system mandatory for employers with federal contracts and spending more on border and interior enforcement. Deportations increased from 188,000 in 2000 to 388,000 in 2009, and apprehensions of unauthorized migrants along the border fell from 1.8 million in 2000 to 556,000 in 2009. Although the poor economy is mostly driving the latter, the administration will argue that enforcement has been successful and it can now promote a second reform phase, which would likely involve mass legalization and a temporary worker program.

"Unauthorized immigrant labor is generally complementary to native-born labor. Unemployed auto workers in Michigan are not migrating to California to pick fruit."

The overall influence of unauthorized immigration on the U.S. economy is quite small, though it is signficant in sectors like agriculture, construction, and the hospitality sector, which rely on low-skilled labor. While unauthorized migration has a slighly depressive effect on the wages of unskilled native workers, only 8 percent of the total hours worked in the U.S. in 2007 were performed by people with less than a high school education. In fact, unauthorized immigrant labor is generally complementary to native-born labor. Unemployed auto workers in Michigan are not migrating to California to pick fruit.

How would a mass legalization program affect the U.S. economy? Legalized immigrants would be more likely to enter the formal economy, earn higher wages, and pay federal income tax and payroll taxes. On the other hand, newly legalized immigrants would become eligible for social welfare programs like unemployment insurance, Social Security, and Medicare. The larger tax base achieved by bringing this population into the formal economy and consequently increasing the economic mobility of both immigrants and their U.S.-born children would yield a slight net fiscal benefit and slightly higher economic growth.

Heidi Shierholz, Economist, Economic Policy Institute

Outside of the heated political debate over immigration, there is actually broad agreement among economists that immigration has a small but positive impact on the wages of native-born workers overall. Although new immigrant workers add to the labor supply, they also consume goods and services. This spending creates more jobs, so competition for employment is not a zero-sum game between immigrants and workers already in the United States.

The real debate among researchers is whether a large influx of a specific type of immigrant worker (say, workers with a par­ticular level of education or training) has the potential to have a negative impact on the wages of similar U.S.-born workers. Some research argues that immigrant competition is quite costly to certain groups of U.S.-born work­ers, while other research finds that native workers--even those who have levels of education and experience similar to new immigrants--may actually reap modest benefits from immigration.

"Other factors--like declining unionization, the erosion of the real value of the minimum wage, and unbalanced foreign trade--are the real culprits behind broad-based erosion of wages and job quality."

My own work incorporates recent advancements in the research methodology which account for, among other things, the fact that foreign-born workers already in the U.S.--whose skills (for example, language) more closely mirror those of new immigrants--are more likely than U.S.-born workers to compete directly for jobs with new immigrants. This work finds that immigration has slightly boosted relative weekly wages for native-born workers at all levels of education, including those with less than a high school education. Instead, any negative effects of new immigration are largely felt by those workers who are the most substitutable for new immigrants--earlier immigrants. And for these workers, the negative effects of immigration on wages are not trivial.

Americans are right to worry about the declining quality of jobs over the last few decades, but for native workers, immigration has had very little to do with it. Other factors--like declining unionization, the erosion of the real value of the minimum wage, and unbalanced foreign trade--are the real culprits behind broad-based erosion of wages and job quality. Nevertheless, immigration could have a much more beneficial impact on the U.S. economy--and its impact on foreign-born workers already here could be mitigated--with a comprehensive overhaul. We have little to fear, and much to gain, from developing a fairer, more rational immigration system.

Mark Krikorian, Executive Director, Center for Immigration Studies

There are two parts to the Obama administration's approach to immigration: the "comprehensive" reform they propose and the actual steps they've taken. The White House wish list on immigration is spelled out in the House immigration bill, HR 4321: legalization (i.e., amnesty) for most illegal immigrants and substantially increased legal immigration in exchange for promises of enforcement. By further increasing the supply of less-skilled legal workers (and preventing the return of illegal workers through amnesty), Obama's desired changes would help make the economy bigger, but not necessarily better.

"Large-scale immigration creates a very small economic gain for the native-born overall, but it comes from redistributing wealth from the poor, who are most likely to compete with immigrants, to the rest of society."

As research has repeatedly shown, large-scale immigration creates a very small economic gain for the native-born overall, but it comes from redistributing wealth from the poor, who are most likely to compete with immigrants, to the rest of society. (That small economic gain is also wiped out, and then some, by the extra social-service costs incurred by importing low-skilled workers into a modern society.)

But some of the actions over the past year have been beneficial. In an attempt to build credibility on enforcement--in order to make a more persuasive case for amnesty--the administration has undertaken at least two initiatives that help lower-skilled Americans and legal immigrants by making it harder for illegal aliens to find work. First is the continued spread of E-Verify, an online system that identifies authorized workers. It screened perhaps one out of four new hires last year and continues to spread with implementation of a new rule requiring its use by federal contractors. Second, in lieu of workplace raids the administration is auditing the personnel records of many employers. This has led to the firing (though not the arrest) of thousands of illegal workers, and their replacement by Americans and legal immigrants--something especially welcome during a period of severe unemployment.

James Carafano, Director, Douglas and Sarah Allison Center for Foreign Policy Studies, Heritage Foundation

It is the ultimate in "voodoo economics." Granting amnesty to millions who are unlawfully present in the United States (often euphemistically called "legalization") is being touted as a form of economic stimulus package. In fact, last April the Senate Judiciary Committee Subcommittee on Immigration, Border Security, and Citizenship held a hearing to trot out the idea. A bad idea the Obama administration supports.

"A general amnesty will generate more illegal border crossings and unlawful employment. just as it did the last time America tried the amnesty route in 1986."

The reality is that amnesty would be probably be a "wash" on the U.S. economy. Sure, there might be some modest benefits gained in recouping some taxes, imposing some penalties, and avoiding the cost of detention and holding immigration hearings. Those gains would likely wiped out by added financial burdens including the expenses of legalization. The fees and penalties associated with granting amnesty, for example, won't come close to covering all the cost the U.S. government would have to bear from conducting criminal checks to paying for English language classes. Likewise, a general amnesty will generate more illegal border crossings and unlawful employment, just as it did the last time America tried the amnesty route in 1986.

Immigrants and temporary workers from low-wage to high income are an important part of the U.S. economy. That said, folks on all sides of the debate would probably agree that our security and freedom, as well as our prosperity, would all be better off if that workforce was here legally as opposed to illegally. We need a system to get employers the employees they need to grow the economy and create more jobs. Amnesty, and bogus justifications for amnesty, is not the answer. What is needed is a sensible combination of border security, workplace and immigration enforcement, and effective temporary worker programs.

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