IMMIGRATION
Introduction & Statistics
Immigration is a contentious issue in the United States currently, and particularly in California. Why all the fuss? In the last few decades we have seen rising numbers of immigrants, both legal and illegal. The massive inflow of immigrants, especially hispanics, has had profound impacts on our economic, social, and political systems. California recently passed Proposition 187 which essentially eliminated access to social services for most illegal immigrants. We will look at some of the facts of immigration and analyze immigrants' impact on the economy.
The chart below shows immigrant flows and the percentage of the population that is foreign-born for each decade from the 1880s to the present.
Decade Immigrant Flow Percentage of
(000s) Population that is
Foreign-born
1880s 5246.6 14.7
1890s 3687.6 13.6
1900s 8795.4 14.6
1910s 5735.8 13.2
1920s 4107.2 11.6
1930s 528.4 8.8
1940s 1035 6.9
1950s 2515.5 5.4
1960s 3321.7 4.7
1970s 4493.3 6.2
1980s 7338.1 7.9
Source: Borjas, George J., Journal of Economic Literature, Dec. 1994, p. 1668.
Relative to historic trends, immigration is not that high but it has dramatically increased in recent years. Nearly 900,000 persons are being legally admitted annually. Estimates are that illegal immigration add another 200,000 to 300,000 people per year. 43 percent of all illegal aliens live in California. In California, 21.7 percent of the population is foreign-born, illegal immigrants make-up 4.7 percent.
Recent Immigration Reforms
Three major reforms have been implemented since the mid 1960s. These are:
1965 Amendments to the Immigration and Nationality Act: Repealed national origins restrictions which restricted immigration visas according to the ethnic composition of the 1920 US population. Before 1920 the United States had a very high rate of immigration. The 1965 amendment essentially returned immigration policy to the pre 1920 policy.
1986 Immigration Reform and Control Act (IRCA): Gave amnesty to 3 million illegal aliens and introduced employer sanctions. In particular, employers who hired illegal aliens could be fined and prosecuted.
1990 Immigration Act: Permitted the entry of 150,000 more legal immigrants annually
Where Do Legal Immigrants Come From?
The data listed below are for the 1980s. Mexico dominates the list. By continent, America provides nearly half the immigrants to the United States with Asia coming in second with one-third.
| Country | Percent | Continent | Percent |
|---|---|---|---|
| Mexico | 22.6 | America | 49.3 |
| Phillipines | 7.5 | Asia | 37.3 |
| China | 4.7 | Europe | 10.4 |
| Korea | 4.5 | Africa | 2.4 |
| Vietnam | 3.8 | ||
| India | 3.4 | ||
| Dom. Republic | 3.4 |
How Have Immigrants Fared in the US?
The table below provides statistics on education, wages, and public assistance to immigrants for the last 25 years.
Group 1970 1980 1990 Natives: Education (years) 11.5 12.7 13.2 Percent on Pub. 6.0 7.9 7.4 Assistance All Immigrants: Education (years) 10.7 11.7 11.6 Wage Differential w/ +0.9 -9.2 -15.2 native Percent on Pub. 5.9 8.7 9.1 Assistance Recent Immigrants (<5yrs): Education (years) 11.1 11.8 11.9 Wage Differential w/ -16.6 -27.6 -31.7 native Percent on Pub. 5.5 8.3 8.3 Assistance
Source: Borjas, George J., Journal of Economic Perspectives, Spring 1995, p. 4.
Some trends show up. First, the education gap has increased over time. This has happened even though education levels of immigrants has increased. Second, recent immigrants have not fared nearly as well in employment as previous ones. The wage gap has widened significantly and it decreases but does not disappear with time spent in the US. Third, the percentage on public assistance has risen and the percentage increases with time spent in the US.
A Cost-Benefit Analysis of Immigration
It is useful to do a cost-benefit analysis regarding the impact of immigration on the United States economy. Remember, however, that such an analysis only tells us if our current immigration policy is efficient. It does not tell us whether or not our policy if fair, nor what the U.S. policy should be.The "Costs" of Immigration
The costs to the US for immigration generally fall into two categories: 1) direct expenditures incurred to support the immigrants, and 2) displacement costs incurred by native citizens.- Direct expenditures
- Displacement Costs
Direct expenditures consist of (among other things) increases in AFDC and food stamps, SSI, health costs, and prison costs. In 1970 immigrants headed 6.8 percent of all households, paid 6.3 percent of all taxes, and received 6.7 percent of all welfare benefits, a rough wash. In 1980, immigrants headed 7.6 percent of all households, paid 7.0 percent of all taxes, and received 9.1 percent of all welfare benefits. In 1990, immigrants headed 8.4 percent of all households, paid 8.3 percent in taxes, and received 13.1 percent of all welfare benefits. So the level of welfare benefits relative to taxes paid has increased. Immigrants, then, receive proportionately more in welfare benefits than their share of the population. Since the majority of welfare benefits are paid at the county and state level, native citizens in states with high levels of immigration (such as California) paid more taxes to provide the higher level of welfare benefits.
Estimates of tax payer burden range from an annual surplus of $27 billion to a deficit of $40 billion depending on the assumptions made. A "reasonable" estimate of tax accounting provided by Borjas shows that immigrants received $23.8 billion in government entitlement and paid $85.4 billion in taxes. This statistic seems to suggest at first glance that immigrants are more than paying their way for welfare benefits. However, as Borjas points out, on average only 8.9 percent of taxes goes towards entitlement programs. Thus, only $7.6 billion (85.4 x 8.9 percent) of immigrant taxes went on average to entitlements. This results in a $16.2 billion fiscal burden on native taxpayers. Therefore, it is likely that immigrants impose a net burden on native taxpayers on the order of $16 billion annually.
Displacement costs occur when immigration either reduces
the wages of native citizens or results in native citizens being
laid off or forced to move from the area. The various estimates
conclude that the elasticity of the native wage with respect to
the number of immigrants is at most -0.1. This implies
that a city with 10% more immigration than another will have wages
that are 1 percent lower. In other words, a $10.00 per
hour wage will fall to $9.90.
Following the methodology of Borjas (The New Economics of Immigration" in The Atlantic Monthly, November 1996) we can compute the loss of native wages at the aggregate level. Workers' share of GDP is about 70 percent, and natives make up 90 percent of the population. Therefore, native workers take home about 63 percent of GDP in wages and salaries. If the number of workers in the US has increased by 10 percent due to immigration, then native wages and salaries fall by 1 percent to 62.37 percent of GDP. In a $7 trillion economy, this works out to just over $44 billion. In an economy the size of the U.S., this effect is small.
The same result is found for unemployment. The great majority of studies conclude that immigrants rarely force a native worker out of a job. The effects are statistically insignificant.
In sum, direct expenditures result in a net loss of $16 billion, and loss of native wages add another $44 billion for a total cost from immigration of $60 billion.
The Benefits from Immigration
Benefits from immigration include increases in economic welfare, increase in cultural diversity, and increases in the standard of living of immigrants.- Gains in economic welfare. We argued earlier that a 10 percent rise in immigration lowers native wages by up to 1 percent, or possibly $44 billion per year. However, these wage reductions don't just disappear. To the extent that immigrants provide low-cost labor, either more income accrues to the employers, or cost reductions are passed on to the consumer. Therefore, the host economy benefits by an equal amount that native workers lose from the cheap labor of the immigrants. In other words, the $44 billion is simply redistributed to other people in the economy, and the net effect washes out. But the gains from the low wages go beyond the $44 billion from lower wages. The goods produced by immigrant workers also generate additional profits for employers because they are able to sell more of their products at the lower price. Borjas estimates this gain to be $7 billion per year.
- Increase in cultural diversity. This aspect of life is difficult to quantify but consumers benefit at a minimum by the increase in product diversity (for example, ethnic restaurants, cultural centers in cities, and so on). However, diversity also leads to costs including more crime, ethnic violence, and so on. Since these aspects are so difficult to quantify, we will take the easy way out and simply assume that the positive and negative aspects of diversity cancel each other out.
- Increases in standard of living of immigrants. Most immigrants' quality of life must increase or else immigrants would not stay and new ones would not keep coming. This benefit though is not internalized by the host country. Therefore, it is not appropriate to include this in the cost-benefit analysis that we are doing.
Since we are only summing the economic welfare benefits, the economy gains $44 billion is lower costs and/or prices from immigrant labor, and gains $7 billion more on top of that by generating more profits for employers. Thus the total benefits to immigration are on the order of $51 billion annually.
Conclusion
The cost-benefit analysis suggests that the costs ($60 billion) outweigh the benefits ($51 billion) by $9 billion annually. Therefore, current immigration policy is not as efficient as it could be, though the inefficiency is small.What do we make of all this? First, immigration (legal and illegal) has become more costly in recent times because the number of immigrants has increased, and the relative skills of immigrants have decreased. Therefore, the economic burden of immigration has surely increased in the last two decades. Second, the "stealing of natives' jobs" is mostly a myth and simply does not happen on a large scale.
An important distinction must be made again between efficiency and equity. We have tentatively concluded that the costs of immigration outweigh the benefits by $9 billion annually. From an efficiency point of view, the solution is to reduce the number of immigrants until the benefits equal the costs. Another possibility is to only admit the more educated, wealthier immigrants. This is what some countries such as Canada has done. This lead to a more "efficient" immigration policy. But is such a policy fair?
From an equity point of view, even if the costs of immigration outweigh the benefits, this tells us nothing about what type of immigration policy the United States should have. There are strong moral arguments for allowing immigrants into the US given our history. After all we are a nation of immigrants. Moreover, immigration to the United States has improved the lives of most that have arrived here. Do we have the right to shut that opportunity off to those who live in poorer countries? Most of our ancestors took advantage of that opportunity. Why can't others?
Finally, though the tax payer burden of supporting immigration may be $16 billion annually, this is about one percent of yearly federal tax revenue. Therefore, while immigration may certainly contribute to federal budget deficits, they are not the major source of the fiscal deficits in the US.
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