Illegal Immigration and Economic Welfare (Contributions to Economics)

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The increase in housing construction has increased the demand for higher-skilled construction workers such as contractors, electricians, and plumbers and increased the demand for manufactured goods such as air conditioners and appliances. In some cases, immigrant labor has complemented native-born laborers by allowing them to move into the labor force.

For example, immigration has provided families with access to low-cost child care. This has allowed more native-born women to enter the workforce. In the modern economy, high-skilled immigrants complement high-skilled native-born workers by filling positions in the fast-growing science, technology, engineering, and math STEM fields; they make up about 45 percent of medical scientists and 37 percent of computer programmers.

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For example, Bill Gates has stated in congressional testimony that Microsoft hires four additional employees to support each high-skilled worker hired on a temporary work H-1B visa. Highly educated immigrants receive patents at twice the rate of highly educated native-born workers. Immigrants also tend to be more entrepreneurial; research indicates they are about 30 percent more likely to start a business than non-immigrants.

Low-skilled and high-skilled immigrants also differ in how they influence the U.

The United States has a progressive income tax, which means that those with higher incomes pay a greater percentage of their incomes in taxes. Low-skilled workers typically earn low wages and as such do not pay much in taxes, but they benefit from taxpayer-supported education services, medical services, income subsidies, and other means-tested asset- or income-dependent benefit programs. This results in low-skilled low-income immigrant workers creating a net fiscal drain.

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  • Such programs function as a taxpayer subsidy to firms that hire low-skilled workers and their customers. The firms, their customers through lower prices , and the immigrants are better off, while taxpayers bear the cost of providing the benefit programs. High-skilled immigrant workers are likely to earn higher incomes—and therefore pay higher income taxes—and qualify for fewer means-tested benefits. As a result, high-skilled immigrants are more likely to generate a fiscal surplus. Their situation is not unlike that of their native-born counterparts with comparable skills. In , slightly more than 1 million immigrants were admitted to the United States legally, and the net inflow of illegal immigrants was at least , However, noneconomists draw a sharp distinction between these two groups: Most are supportive of legal immigrants but very critical of illegal immigrants.

    The Gallup poll mentioned earlier also reported 88 percent of Americans worry at least a little about illegal immigration, and 93 percent report that controlling the U. This research argues that a policy of deportation would have a negative effect on the employment opportunities of native-born workers, whereas a policy of legalization would increase job opportunities.

    Immigration creates economic winners and losers. Winners include i employers who benefit from lower labor costs, ii consumers who benefit from lower prices for goods and services, and iii complementary workers who benefit from increased job opportunities and higher wages. The losers are i substitutable workers who compete for the same jobs as immigrant workers in both low-skilled and high-skilled professions and earn depressed wages as a result and ii taxpayers who pay higher taxes to support means-tested benefit programs.

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    There are many noneconomic factors involved in the issue of immigration; but, in terms of simply weighing the economic costs and benefits of admitting additional workers, immigration is a net benefit. How Immigration Works for America. South-Western Cengage Learning, , p. Much low-skilled work would likely be done offshore if immigrant labor were not available. When immigrant labor is available, transportation costs make offshore options unattractive. Recent research suggests that immigrant labor is a more suitable substitute for offshore labor than native labor.

    See Ottaviano, Gianmarco I. National Bureau of Economic Research, November ; http: The number of illegal immigrants varies from year to year and is very sensitive to changes in economic conditions between the United States and the source countries. National Bureau of Economic Research, February ; http: The views expressed are those of the author s and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System. Productive inputs that are used jointly with other inputs in the production process. Programs in which eligibility depends on the level of one's current income or assets.

    A negative side effect that results when the production or consumption of a good or service affects the welfare of people who are not the parties directly involved in a market exchange. Productive inputs that can be used in place of each other. Stay current with brief essays, scholarly articles, data news, and other information about the economy from the Research Division of the St. The Economics of Immigration In many ways, the arguments about the economics of immigration are similar to those about the economics of international trade.

    Federal Budget Low-skilled and high-skilled immigrants also differ in how they influence the U. This situation is also important because the last 13 years have seen the arrival of nearly 16 million new immigrants of all ages, to This is a clear indication that large-scale immigration does not necessarily result in large-scale job growth. Some may reasonably wonder how things look in different quarters.

    Impact on Aggregate Size of Economy

    The most recent data available is the first quarter for The best first quarter of any year for natives was the first quarter of , right before the recession began. Comparing that quarter to the first quarter of shows a net increase in the number of natives working of 3. The results in Figure 1 mean that all of the employment growth for natives to was lost during the Great Recession.

    The net gain for immigrants to was 4. This may not seem so disconcerting, until one considers that natives account for 62 percent of the growth in the to year-old population from to So even at the peak of the last expansion in , a disproportionate share of job growth went to immigrants relative to their share of population growth. There is a standard way of calculating the benefit from immigration, also referred to the as the immigrant surplus, that goes to the existing population. The figures in the first bullets of this executive summary are from a new paper by George Borjas.

    Below I will explain how those figures are calculated. A study by National Research Counsel NRC , 13 authored by many of the top economists in the field, summarizes the formula for calculating the benefit see pp. Borjas's most recent paper on the subject. The immigrant share of the labor force is well known, and is currently 15 percent.

    The size of the elasticity is a contentious issue. The NAS study assumed an elasticity of. This means that each 1 percent increase in supply of labor caused by immigration reduces wages by 0. Put a different way, if immigration increased the supply of workers by 10 percent, it would reduce the wages of American workers by 3 percent. Putting the values into the formula produces the following estimate:.

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    Thus the net gain from immigration is 0. Expressed as decimal it is. Three important points emerge from this analysis. First, the net effect of immigration on the existing population is positive overall, thought not for all workers. Second, the benefits are trivial relative to the size of the economy, less than one-quarter of 1 percent of GDP. Third, the benefit is dependent on the size of the wage losses suffered by the existing population of workers.

    Or put a different way, the bigger the wage loss, the bigger the net benefit. Those who contend that immigration has no impact on the wages of immigrants are also arguing, sometimes without realizing it, that there is no economic benefit from immigration. The same model can be used to estimate the wage losses suffered American workers. This is not trivial.

    There is nothing particularly controversial about this estimate and its stems from the same basic economic formula as the one above. Think of it this way: If the elasticity is. Thus the total wage loss must run into the hundreds of billions of dollars. If we are to accept the benefit that the model implies from immigration, then we must also accept the wage losses that the model implies. The money that would have gone to workers as wages if there had been no immigration does not vanish into thin air.

    It is retained by owners of capital as higher profits or passed on to consumers in the form of lower prices. The fact that business owners lobby so hard to keep immigration levels high is an indication that much of the lost wages are likely retained by them. Also, workers who face little or no competition from immigrants will not suffer a wage loss.

    In fact, demand for their labor may increase and their incomes rise as a result. For example, if you are an attorney or a journalist at an English-language news outlet in the United States you face very little competition from immigrants. In contrast, if you are a nanny, maid, bus boy, cook, meat packer, or construction laborer, the negative wage impact is likely to be large because immigration has increased the supply of workers in these sectors quite a bit. But overall the gain to some workers, businesses, and consumers is still slightly larger than the loss suffered by the losers; hence the tiny net benefit reported above.

    Jobs Americans Don't Do? To begin with, some may feel that there is no job competition between immigrants and native-born workers. But a recent analysis of all civilian occupations shows that only six are majority immigrant legal and illegal. These six occupations account for 1 percent of the total U. Moreover, native-born Americans still comprise 46 percent of workers even in these occupations. There are 67 occupations in which 25 percent or more of workers are immigrants legal and illegal.

    In these high-immigrant occupations, there are still The idea that there are jobs that only immigrants do is simply incorrect. Attempts to measure the actual labor market effects of recent immigration empirically have often come to contrary and conflicting conclusions. Studies done in the s and early s, which compared cities with different proportions of immigrants, are now widely criticized because they are based on the assumption that the labor market effects of immigration are confined to only those cities where immigrants reside.

    The Fiscal and Economic Impact of Immigration on the United States

    The interconnected nature of the nation's economy makes comparisons across cities of labor market outcomes based on the share of the population that is immigrant very difficult. The movement of people, goods, services, and capital defuses the impact of immigration, undermining the cross-city approach. Moreover, the immigrants themselves generally settle in areas of high employment growth making comparisons all the more difficult. National Approach Wage Impact. In order to overcome the problems of cross-city comparisons, researchers over the last decade have begun to divide workers by education and age and compare the impact of immigration across these education and age groups.

    This finding is consistent with the 3 percent elasticity discussed above and is consistent with what economic theory would predict. Further support for the findings using this approach can be found from a recent study in other countries using the same approach.

    Economists have focused more on wages than employment. Several studies have attempted to measure the impact of immigration on the employment patterns of immigrants to see if it crowds natives out of the labor market. In an extensive study of California, the Rand Corporation estimated that between , and , natives in California were either unemployed or withdrew from the labor force because of immigration from to Two recent studies have even concluded that immigration not only reduces the employment of less-educated black men, it also increases crime and incarceration among that population.

    Economic impact of illegal immigrants in the United States - Wikipedia

    Other research has found that immigration adversely impacts the employment of the younger worker. Research by Christopher Smith, an economist at the Federal Reserve, has found that immigration has played a significant role in reducing employment for teenagers. In the modern American economy, those with relatively little education immigrant or native earn modest wages on average, and by design they make modest tax contributions. Because of their relatively low incomes, the less educated, or their dependent children, are often eligible for welfare and other means-tested programs.

    As a result, the less educated use more in services than they pay in taxes. This is true for less-educated natives, less-educated legal immigrants, and less-educated illegal immigrants. There is simply no question about this basic fact. The relationship between educational attainment and net fiscal impact is the key to understanding the fiscal impact of immigrants, legal or illegal.

    Figure 2 at the end of the report makes clear why less-educated immigrants are a net fiscal drain on average. Households headed by immigrants with a high school education or less have high rates of welfare use and relatively low income tax liability. Figure 3 shows that less-educated natives also have high rates of welfare use and low income tax liability.

    This is an indication that it is education levels, not being an immigrant per se that creates the costs. In the case of illegal immigrants, the vast majority of adults have modest levels of education, averaging only 10 years of schooling. This fact is the primary reason they are a net fiscal drain, not their legal status. It must also be understood that use of welfare and work often go together.

    Of immigrant-headed households using welfare in , 86 percent had at least one worker during the year. The non-cash welfare system is specifically designed to help low-income workers, especially those with children. There are also a number of other programs in addition to welfare that provide assistance to low-income workers, such as the Earned Income Tax Credit and the cash portion of the Additional Child Tax Credit.

    There is no better predictor of one's income, tax payments, or use of public services in modern America than one's education level. The vast majority of immigrants come as adults, and it should come as no surprise that the education they bring with them is a key determinant of their net fiscal impact. Advocates of amnesty and allowing in large numbers of less-educated immigrants have three main responses to the above analysis.

    First they argue that less-educated immigrants are no worse in terms of their net fiscal impact than less-educated natives. Second, they argue that examining households overstates the costs because it includes the U. Third, they argue that less-educated immigrants, and immigrants generally, create large economic benefits that offset the fiscal costs they create.

    As will be discussed below, none of these arguments holds much water. But this observation is largely irrelevant to the immigration debate. What matters is the actual fiscal impact of immigrants, not whether that impact is similar to similarly educated natives. Immigration is supposed to benefit the country. As a sovereign country we have a right to select well-educated immigrants if we think that makes sense for our country. We also have a right to enforce our laws against illegal immigration. In contrast, less-educated natives are here and it is their birthright to remain. Their low income or high use of welfare is certainly a concern.

    But common sense suggests that we do not want to add to this problem by ill-conceived immigration policy. Put simply, the fiscal drain created by less-educated natives does not in any way justify allowing into the country less-educated immigrants. Of course, there may be other arguments to allowing in less-educated immigrants. They argue that the costs for education, welfare, and other programs that benefit children should not be counted because these children are not immigrants.

    More than 80 percent of children in immigrant households are U. Of course such an argument ignores the fact that the children would not be here but for their parents having been allowed into the country. Further the critics argue that someday the children will grow to adulthood and pay back these costs. This may or may not turn out to be true, but it does not change the very real costs created in the present.

    Economic impact of illegal immigrants in the United States

    The NRC study cited above did individual level analysis, excluding U. In other words, even without the children, there was still a significant net fiscal drain from less-educated immigrants. Second, it is not clear that an individual rather than a household-level fiscal analysis makes sense. At the very least it is difficult to do individual-level analysis accurately because tax liability and eligibility for means-tested programs are based on the income and number of dependents in a household. Although the Cato Institute today is critical of the idea of doing household-level analysis, the late Julian Simon, who was a scholar at the Cato Institute and helped shape the institute views on immigration, thought that individual level analysis did not make sense.

    In a article Simon was clear that to evaluate the fiscal impact of immigration one had to examine both the immigrant and the family "he brings or acquires. This is very similar to a household-level analysis. As Simon himself observed, the household "in most cases" is "identical with the family.