Chapter 6: The Economic Impact of Immigration David Coates



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The Immigration Surplus
Finally this: any negative impact of immigration on wages, employment and welfare has to be set in the context of the growth of GDP associated with immigrant-enhanced labor supply, the strengthening of US competitiveness through the use of imported skilled labor, the positive impact of even unskilled immigrant workers on the prices of the goods and services they help to produce, and the associated increase in demand generated by the wages paid to undocumented immigrant workers themselves. There is plenty of anecdotal evidence of the positive contribution made by even undocumented workers to local demand levels: anecdotal evidence of boosted demand, and anecdotal evidence of fall in demand when illegal immigration is squeezed out of an area by tighter policing.57 And we now have a string of general reports – from the 1997 report of the National Research Council to the 2006 report of the Council of Economic Advisers to the President – all arguing that the long-term benefits arising from legal immigration outweigh the immediate costs associated with the new arrivals.

This cost-benefit analysis is never easy to do. Nor is it easy to complete without controversy. It is not easy to do because it requires that the effect of immigration be isolated from the impact of a host of other factors shaping income and employment, and because results vary with the length of the time frame used. The calculations are invariably controversial, because even where the aggregate numbers balance each other out they still obscure the different fates of winners and losers. Certainly, critics of large-scale unskilled immigration – legal or otherwise – regularly point to the significant degree of income redistribution associated with the very modest overall gain for the economy: a movement of wealth “away from native workers who compete with immigrant labor to those who use immigrant services.”58 Nevertheless, the 1997 NRC report estimated that immigration does generate a net surplus – an excess of benefits over costs. They calculated possibly a $1-10 billion gain in an $8 trillion economy in 1996.59 That year, George Borjas estimated the surplus at $7 billion – a net positive but, to his mind, far too small to justify the cost to the losers.60 More recently, the Council of Economic Advisers to the President estimated the surplus as larger: 0.28% of GDP, or roughly $37 billion per year. “On average,” they wrote, “US natives benefit from immigration. Immigrants tend to complement (not substitute for) natives, raising natives’ productivity and income.”61 Not everyone agrees. Some dispute the methodology (and hence the findings) of reports of this kind.62 Some see benefit only in immigration by skilled workers.63 Some deny even that.64 There are even minority voices arguing that “on balance, current mass immigration contributes essentially nothing to native-born Americans in aggregate”65: but overall the general consensus among professional economists does seem to be that immigration yields a modest economic surplus overall – one accruing to American consumers, businesses and GDP through the arrival here of a predominantly young overseas labor force imbued with a strong work ethic. As Gordon Hanson has recently written:



Of course, the aggregate economic consequences of immigration policy do not account for other important considerations, including the impact of immigration on national security, civil rights, or political life….[but] it is critical not to lose sight of the fact that illegal immigration has a clear economic logic. It provides US businesses with the types of workers they want, when they want them, and where they want them. If policy reform succeeds in making US illegal immigrants more like legal immigrants, in terms of their skills, timing of arrival, and occupational mobility, it is likely to lower rather than raise national welfare. In their efforts to gain control over illegal immigration, Congress and the administration need to be cautious that the economic costs do not outstrip the putative benefits. 66
The full policy implications of these findings will be the subject of Chapter 14, but already at least this much is clear: the impact of illegal immigration on the wages and job security of unskilled workers already here (including on the wages of earlier waves of unskilled immigrants) is real but limited. The poverty of those workers is palpable; but it rests in the rewards that flow to unskilled labor in general. It is not caused by immigration as such. Undocumented workers and the poverty wages they attract at most compound a reality that is already here: such that repatriating all of them, were it possible, would certainly alter the demographics of the American poor, but it would not remove their existence. If the removal of poverty wages is our concern – as it genuinely ought to be – it is the wages that will have to be removed by public policy, not the people struggling to survive upon them.



1 See S. Haber, ed., How Latin America Fell Behind (Stanford: Stanford University Press, 1997)


2 Francis Fukuyama, “Immigration and Family Values,” in Nicolaus Mills, Arguing Immigration (New York, Simon and Schuster, 1994), 166; Robert Samuelson, “Importing poverty,” Washington Post, September 5, 2007.


3 Jeffery S. Passel, Background Briefing Prepared for Task Force on Immigration and America’s Future (Washington, DC: Pew Hispanic Center, June 14, 2005), 22.


4 Abdurrahman Aydemir and George Borjas, A Comparative Analysis of the Labor Market Impact of International Migration: Mexico, Canada and the United States (Washington, DC: NBER Working Paper 12327, June 2006), 13.


5 See Zadia Feliciano, “The Skill and Economic Performance of Mexican Immigrants from 1910 to 1990,” Explorations in Economic History (2001), 386-409.


6 Charles Hirschman, “Immigration and the American Century,” Demography, (vol. 42, no. 4, 2005), 599.


7 Daniel Griswold, Comprehensive Immigration Reform: Finally getting It Right (Washington, DC: Cato Institute, Free Trade Bulletin, No. 29, May 16, 2007), 1.


8 Jeffrey S Passel and D’Vera Cohn, US Population Projections 2005-2050 (Washington, DC: Pew Hispanic Centre, February 11 2008), 2.


9 The general case is well put in Philippe Legrain, Immigrants: Your Country Needs Them (Princeton: Princeton University Press, 2006), 61-88.


10 For the parallel crisis in the long-term care industry, see Robyn Stone with Joshua Wiener, Who Will Care for Us? (Washington, DC: Urban Institute, 2001), 5, 21-2.


11 Jeffrey S. Passel, The Size and Characteristics of the Unauthorized Migrant Population in the US, (Washington, DC: Pew Hispanic Center, Research Report, March 7, 2006), 9


12 Cited in Immigration’s Economic Impact (Washington, DC: Council of Economic Advisers, Executive Office of the President, June 20, 2007), 2.


13 Passel, Size and Characteristics, 3.


14 Retail salespersons, food preparation, including fast food, cashiers, janitors and cleaners, waiters and waitresses, nursing aides, receptionists, security guards, office clerks, teaching assistants, home help aides, truck drivers, landscapers and groundskeepers. (Bureau of Labor Statistics, Monthly Labor Review, November 2007, Table 3.)


15 See Arlene Dohn and Lynn Schniper, “Occupational Employment Projections to 2016,” Monthly Labor Review, (November 2007), 86-7, 102.


16 Griswold, Comprehensive Immigration Reform, 2.


17 George Borjas, The New Economics of Immigration; Affluent Americans Gain, Poor Americans Lose, originally in Atlantic Monthly (November 1996), reproduced in Anthony Messina and Gallya Lahav, eds., The Immigration Reader (Boulder: Lynne Reiner, 2006), 320.


18 George Borjas, Heaven’s Door: Immigration Policy and the American Economy (Princeton: Princeton University Press, 1999), 83, 94.


19 George Borjas, Increasing the Supply of Labor Through Immigration: Measuring the Impact on Native-born Workers (Washington, DC: Center for Immigration Studies, Backgrounder, May 2004), 1


20 Julie Murray, Jeanne Batalova and Michael Fix, The Impact of Immigration on Native Workers: A Fresh Look at the Evidence (Washington, DC: Migration Policy Institute, Insight, No. 18, July 2006), 4.


21 David Card, Is the New Immigration Really so Bad? (NBER Working Paper No. 11547, August 2005), 1.


22 Gianmarco Ottaviano and Giovanni Peri, Rethinking the Gains from Immigration: Theory and Evidence from the US (NBER Working Paper 11672, September 2005), 4.


23 George Borjas, Jeoffrey Grogger and Gordon Hanson, Imperfect Substitution between Immigrants and Natives: A reappraisal (NBER Working Paper 13887, March 2008), 1.


24 Rachel M. Friedberg and Jennifer Hunt, “The Impact of Immigrants on Host Country Wages, Employment and Growth,” Journal of Economic Perspectives (Spring 1995), 28.


25 Gianmarco I.P. Ottaviano and Giovanni Peri, Rethinking the Impact of immigration on Wages (NBER Working Paper 12497, August 2006), 21.


26 One in nine black men aged 20-34 is now in jail. The figure for African-American men aged 18+ is one in 15. The equivalent figure for white men 18+ is one in 106. (Washington, DC: Pew Center for the States, One in 100: Behind Bars in America 2008, February 2008), 6.


27 Steven Camarota, The Impact of Immigration on American Workers (Testimony to the US House of Representatives Committee on the Judiciary, October 30, 2003), 4.


28 George Borjas, Jeffrey Grogger & Gordon Hanson, Immigration and African-American Employment Opportunities: The Response of Wages, Employment and Incarceration to Labor Supply Shocks (NBER Working Paper 12518, September 2006), 4.


29 George Borjas, The Labor Market Impact of High-Skill Immigration (NBER Working Paper 11217, March 2005), 1.


30 Jeanne Batalova, Skilled Immigrant and Native Workers in the United States: The Economic Competition Debate and Beyond (New York: LFB Scholarly Publishing, 2006), 7.


31 “The reduction in earnings occurs regardless of whether the immigrants are legal or illegal, permanent or temporary. It is the presence of additional workers that reduces wages, not their legal status.” Borjas, Increasing the Supply, 1.


32 David Card, “Immigration Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration,” Journal of Labor Economics, 19, 1, 2001, 1


33 Tito Boeri, Gordon Hanson & Barry McCormick, eds., Immigration Policy and the Welfare System (Oxford: Oxford University Press, 2002), 192.


34 Gordon Hanson, The Economic Logic of Illegal Immigration, CRS No. 26 (Washington, DC: Council on Foreign Relations, March 2007), 5.


35 Ron Haskins, Immigration: Wages, Education and Mobility (Washington, DC: The Brookings Institution, 2007), 5.


36 Bureau of Labor, News, 2.


37 Steven Camarota, A Jobless Recovery: Immigrant Gains and Native Losses (Washington, DC: Center for Immigration Studies, Backgrounder, October 2004), 1


38 Steven Camarota, “Immigrant Employment Gains and Native losses”, in Carol M. Swain, (ed), Debating Immigration (New York: Cambridge University Press, 2007), 155.


39 David Jaeger, Replacing the Undocumented Work Force (Washington, DC: Center for American Progress, March 2006), 1.


40 Rakesh Kochhar, Growth in the Foreign Born Workforce and Employment of the Native Born (Washington, DC: Pew Hispanic Center, 2006), 1.


41 Borjas, Grogger, and Hannson, Immigration and African-American, 4.


42 David Card, Immigrant Flows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration, (NBER Working Paper No 5927, February 1997), 35.


43 Steven Camarota, Dropping Out (Washington, DC: Center for Immigration Studies, Backgrounder, March 2006), 21.


44 Financial Times, October 30, 2007. The Bank of Mexico reported unemployment among US-based Americans rising from 5.4% in the first quarter of 2007 to 8.2% in the first quarter of 2008; and remittances down 2.4% over the same period. The fall in remittances reportedly reflecting more than rising unemployment. It was also thought to be a response to rising US fuel and food costs, tighter border controls, and increased savings to meet fines or immigration bonds. (Financial Times, June 4 2008).


45 For medical usage, see Dana Goldman et al, Immigrants and the Cost of Medical Care, (DataWatch, November/December 2006), 1700. In their study, the undocumented were 12% of the non-elderly, but accounted for only 6% of the spending. For incarceration rates, see Ruben Rumbaut & Walter Ewing, The Myth of Immigrant Criminality and the Paradox of Assimilation (Washington, DC: Immigration Policy Center Special Report, Spring 2007),


46 Angela Kelley, The Economic Impact of Immigration, (Washington, DC: Immigration Policy Center, 2008), 1.


47 Steven Camarota, Back Where we Started, (Washington, DC: Center for Immigration Studies, Backgrounder, March 2003), 1


48 Council of Economic Advisers, Immigration’s Economic Impact, 5.


49 The Heritage Foundation dissents on this. Its researchers estimate the fiscal deficit of each unskilled household over its lifetime at $1.2 trillion! This calculation does not include any off-setting savings from later generations.


50 Kelley, Economic Impact, 1.


51 Passel, Size and Characteristics, 2.


52 Boeri,Welfare System, 241.


53 Kelley, Economic Impact, 2.


54 Kelley, Economic Impact, 2.


55 Julie L. Myers, quoted in the Washington Post, September 13, 2007.


56 Rajeev Goyle and David A. Jagger, Deporting the Undocumented: A Cost Assessment (Washington, DC: Center for American Progress, July 2005), 1.


57 Ken Belson & Jill Capuzzo, “Towns Rethink Laws Against Illegal Immigrants,” New York Times, September 26, 2007; Julia Preston, “Short on Labor, Farmers in US Shift to Mexico,” New York Times, September 5, 2007.


58 George Borjas, New Economics, 323.


59 James P. Smith and Barry Edmonston (editors), The New Americans (Washington, DC: National Research Council, 1997), 152.


60 George Borjas, New Economics, 323.


61 Council of Economic Advisers, Immigration’s Economic Impact, 1-2.


62 See, for example, Donald R. Davis and David E. Weinstein, United States Technological Superiority and the Losses from Migration (Washington, DC: Backgrounder, Center for Immigration Studies, February 2005)


63 See for example, George Borjas, “Immigration Policy and Human Capital,” in Harry H. Hozer and Demetra Smith Nightingale, eds., Reshaping the American Workforce in a Changing Economy, (Washington, DC: Urban Institute Press, 2007), 195-200.


64 See for example Roy Beck, The Case Against Immigration (New York: W. W. Norton, 1996)


65 Peter Brimelow, “Economics of Immigration and the Course of the Debate,” in Carol M. Swain, Debating Immigration (New York: Cambridge Uniersity Press, July 2007), 158.


66 Hanson, Economic Logic, 4-5.


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