Workers & Economic Inequality

  • Browse by Topic:
  • Search Within Topic:

Immigration, Jobs, and the American Economy

September 28, 2004 POST BY: Greg Anrig TOPICS: Workers & Economic Inequality

President Bush’s proposal in January 2004 to reform the U.S. immigration system reignited a debate that had been dormant in the aftermath of the September 11 terrorist attacks. Virtually everyone agrees that today’s system, which has allowed an estimated 10 million foreigners to remain in the United States illegally, [1] is deeply flawed. But beyond that narrow consensus, debate rages. The central dispute is between those who believe that fixing the problems will require some new policy for enabling those already here illegally to become part of the mainstream, versus those who oppose any form of forgiveness for individuals who violated the law. Secondary disagreements focus on the extent to which legal immigration should be encouraged, on who should receive preference for admission into the United States, and on how to repair the severe flaws in the ways in which the system is administered.

Today, as in the past, much of the debate over immigration reform is steeped in competing claims about the economic impact of legal and illegal immigrants. To what extent do immigrants take jobs from Americans? How much, if at all, do they reduce the wages of natives? Do they cost the Treasury more through the support they receive from public safety net programs than they contribute in taxes? To what degree does the work they perform contribute to the overall economy?

Advocates on opposing sides of the immigration debate are well armed with statistics responding to such questions. Each side’s numbers in isolation can seem entirely persuasive to a neutral reader. But when pitted against each other, the contradictory statistics can be utterly bewildering. The extensive research conducted about the economic impact of immigrants is complex—and much of it has shortcomings.

DO IMMIGRANTS REDUCE THE WAGES OF U.S. CITIZENS?

Since the 1990s, many academic studies have attempted to assess the extent to which immigration affects the earnings of U.S. workers. Although the findings of those studies vary widely—some discern no impact whatsoever while others conclude that immigration dramatically hurts natives—a consensus has begun to emerge that the truth lies somewhere in between. It appears increasingly likely that immigration has somewhat reduced the wages of native-born workers, with less-skilled and less-educated individuals experiencing the most significant declines.

The most extensive study of this subject released to date is an August 2003 report by Pia M. Orrenius and Madeline Zavodny, researchers at the Federal Reserve Banks of Dallas and Atlanta, respectively. [2] Their conclusions:

  • For service-related and professional workers, immigration has had little impact on wages. If anything, increases in the number of newly arriving immigrants actually have slightly positive effects.
     
  • For manual laborers, increases in the share of newly arrived immigrants have no statistically significant negative impact on wages; but increases in the share of immigrants who adjust their immigration status after they have been in the United States—for example, from student or tourist visas (which do not permit employment) to green cards—have a small negative effect.
     
  • The annual wages of low-skilled native workers are about 2.4 percent below where they would be otherwise as a result of the presence of immigrant workers.

Studies by Harvard economist George Borjas, an outspoken advocate of stronger immigration restrictions, have found much more substantial negative effects on the earnings of native workers. His research concluded that between 1980 and 2000, when immigration increased the labor supply of working men by 11 percent in the United States, that influx reduced the average annual wage of native workers by around 3.2 percent. The wage reductions varied significantly depending on the educational level of the worker: a decline of 8.9 percent for high school dropouts, 4.9 percent for college graduates, 2.6 percent for high school graduates, and little change for workers with some college.[3] (Borjas conducted a follow-up study using similar methodology that concluded that immigration reduced the average annual earnings of native-born men by an estimated $1,700, or 4 percent; among natives without a high school education, the wage reduction was 7.4 percent.) [4]

A number of studies conducted in the early to mid-1990s, which contrasted earnings levels in different locations rather than looking at national data, generally detected little or no impact on the wages of native workers. [5]Methodological shortcomings of most of those studies, however, have led most academics to conclude that their results may be somewhat misleading. [6]

So, on balance, most economists concur that immigration has reduced the wages of native workers with relatively little education and few skills. But for the remainder of the U.S. workforce, the impact has not been significant. [7]

DO IMMIGRANTS COST THE GOVERNMENT MORE THAN THEY CONTRIBUTE IN TAXES?

Research into this subject reveals a consensus: over time, immigrants and their descendants collectively provide more to the federal government in taxes than they receive in benefits. For example, a report by the National Academy of Sciences found that a typical immigrant and his or her descendants will pay an estimated $80,000 (in 1996 dollars) more in taxes than they will receive in combined local, state, and federal benefits over their lifetimes. [8]

Perhaps the myth that immigrants are costly to American taxpayers stems from the fact that, at the state and local level, immigrants use more in services than they pay in local taxes (this is true for the vast majority of native citizens as well). The National Academy of Sciences study found that the average immigrant imposes a net lifetime fiscal cost on state and local governments of $25,000, attributable to their use of schools, roads, and so on. Those with very low levels of education and skill cost states and localities the most, particularly in health care outlays for emergency room and other hospital services. However, most of the taxes that immigrants pay, including Social Security contributions, go to the federal government, and these payments are well in excess of federal benefits received. [9] On balance, immigrants pay substantially more than they receive from all levels of government combined. [10]

Of particular importance is the value of immigration to the future financial strength of the Social Security and Medicare systems. In the absence of immigration, the U.S. workforce is projected to grow very slowly—much more slowly than the size of the retired population as the Baby Boom generation reaches its golden years. Because immigrants add to the supply of younger workers who contribute payroll taxes that finance the Social Security and Medicare system, they are an important reason why forecasts show that the programs will be able to pay benefits in full until 2042 for Social Security and 2019 for Medicare’s hospital insurance program. [11] The projections of Social Security’s trustees show that higher levels of immigration in the future will improve the long-term financial condition of Social Security, while lower levels will have the opposite effect. The higher fertility levels of immigrants also slows the rate at which the average age of the overall population will rise, keeping more people on the contribution side of the equation.

One major source of controversy is the extent to which legal immigrants benefit from government safety-net programs in comparison to native citizens. Because the share of immigrants with incomes below the poverty line is somewhat higher than the poverty rate for native citizens—16.1 percent versus 11.1 percent [12]—a larger percentage of immigrant families are eligible for benefits such as food stamps, Temporary Assistance for Needy Families (TANF), Supplemental Security Income, and Medicaid. Compared to low-income natives, however, low-income immigrants are less likely to receive most categories of public benefits. [13]

As Figure 1 shows, the growing economy at the end of the 1990s, combined with the enactment of welfare reform, reduced participation rates in safety net programs generally. Furthermore, low-income immigrants were less likely to receive TANF and food stamp benefits, but slightly more likely to participate in Medicaid.

Source: Michael Fix and Jeffrey Passel, “The Scope and Impact of Welfare Reform’s Immigrant Provisions,” Discussion Papers, The Urban Institute, January 2002.

When welfare reform (known as the Personal Responsibility and Work Opportunity Reconciliation Act) was originally enacted in 1996, it included a number of provisions that prevented legal immigrants from receiving most types of benefits. Some of those changes subsequently were rolled back, but only for immigrants who were already in the United States at the time the law was enacted. The vast majority of the more than 3 million legal immigrants who have come into the country since then are not eligible for Social Security, food stamps, or Medicaid unless and until they become naturalized citizens. A few states—including California, Maine, and Illinois—independently have extended some of those benefits to immigrants who arrived more recently. [14]

While low-income immigrants are more likely to be employed than low-income natives, the jobs they hold provide few benefits and tend to be unstable. Even research by Borjas, which often has been cited by proponents of noncitizen eligibility restrictions, documents a sharp rise in food insecurity (defined as cutting back on the size of meals or skipping meals involuntarily due to a lack of income) among legal immigrant families who arrived after the law’s enactment. [15]

HOW MUCH DO IMMIGRANTS CONTRIBUTE TO THE OVERALL ECONOMY?

A November/December 2003 report from the Federal Reserve Bank of Dallas states:

The pace of recent U.S. economic growth would have been impossible without immigration. Since 1990, immigrants have contributed to job growth in three main ways: They fill an increasing share of jobs overall, they take jobs in labor-scarce regions, and they fill the types of jobs that native workers often shun. The foreign-born make up only 11.3 percent of the U.S. population and 14 percent of the labor force. But amazingly, the flow of foreign-born is so large that immigrants currently account for a larger share of labor force growth than natives. [See Figure 2.] [16]

Source: Federal Reserve Bank of Dallas, “U.S. Immigration and Economic Growth: Putting Policy on Hold,” Southwest Economy Issue 6, November/December 2003, available online atwww.dallasfed.org/research/swe/2003/swe0306a.html 

(derived from data from the U.S. Census Bureau).

Because about a third of immigrants have not finished high school, as compared with 13 percent of native workers, they disproportionately fill low-skill, blue-collar jobs. [17] Figure 3 shows the portion of employment growth in each job category attributed to foreign-born workers from 1996 to 2000. Immigrants accounted for as much as half the growth in categories such as administrative support and services. The more than sixfold increase in the laborer category means that as immigrants entered these occupations, native workers exited. [18]

Source: Abraham T. Mosisa, “The Role of Foreign-born Workers in the U.S. Economy," Monthly Labor Review, May 2002, pp. 4–14

Forecasts by the Bureau of Labor Statistics estimate that between 2000 and 2010, more than 33 million new job openings that require only little or moderate training will be created in the United States (see Table 1). That constitutes 58 percent of all projected new jobs over that period. Most of that work is in restaurants, construction, retail, trucking, hospital care, and other areas where immigrants already established themselves. [19] In manual labor jobs, about 1.1 million new lower-skilled immigrants have become employed since 1994 as the native-born population attracted to such jobs has declined from 9 million to 7.6 million. [20] Moreover, a study by the National Association of Manufacturers and Deloitte Touche Tohmatsu concluded that immigration will be the primary source for filling anticipated shortages in skilled labor over the next twenty years. [21]

Source: Daniel E. Hecker, “Occupational Employment Projections to 2010,” Monthly Labor Review, November 2001, pp. 57–84.

Immigration rates decline when the economy slows and rise when it grows more rapidly. As a result, immigration helps to decrease inflationary wage and price pressures when the economy heats up, reducing the need to raise interest rates. Figure 4 shows the number of monthly apprehensions of individuals attempting to enter the United States illegally across the southwest border. Those numbers declined significantly early in 2001, when the U.S. economy fell into a recession.

Figure 4. Illegal Immigration Responds to Growth Slowdown and September 11:
Monthly Apprehensions along Southwest Border (Thousands, seasonally adjusted)

Note: Shaded area denotes 2001 recession.

Source: Federal Reserve Bank of Dallas, “U.S. Immigration and Economic Growth: Putting Policy on Hold,” Southwest Economy Issue 6, November/December 2003, available online atwww.dallasfed.org/research/swe/2003/swe0306a.html, derived from data from the Department of Homeland Security, Office of Immigration Statistics.

CONCLUSION

The high level of illegal immigration in and of itself constitutes a fundamental failure of public policy. Leaving aside the emotional political arguments that characterize the debate over immigration reform, repairing the system is a complex challenge with no easy answers. To the extent that the incomes of low-skilled native workers may be reduced because of immigration, a wide range of policy options are available to help them, including tax reductions, subsidies, wage supports, training, job placement, the earned income tax credit, and relocation programs. In addition, the federal government could do more to relieve the states and localities of the financial burdens associated with immigration.

From an economic standpoint, the evidence seems clear that draconian measures such as massive deportations or major reductions in legal immigration levels would be counterproductive to the United States and its citizens. However, a great deal more can and should be done to help offset the costs to native workers, especially those with low skills, that the inclusion of foreign-born workers imposes on them.

Written by Greg Anrig, Jr., Century Foundation Vice President for Programs, and Tova Andrea Wang, Century Foundation Senior Program Officer and Democracy Fellow. 2004

NOTES

[1] Estimate by Jeffrey Passel, the Urban Institute, as of February 2004. See transcript of “Crossing Borders: The Impact of Immigration,” First Tuesday roundtable series, Urban Institute, Washington, D.C., February 3, 2004, available online at www.urban.org/urlprint.cfm?ID=8722.

[2] Pia M. Orrenius and Madeline Zavodny, “Does Immigration Affect Wages? A Look at Occupational-Level Evidence,” Federal Reserve Bank of Dallas Research Department, Working Paper 0302, August 2003.

[3] George J. Borjas, “The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market,” Quarterly Journal of Economics, November 2003, pp. 1335–74.

[4] George J. Borjas, “Increasing the Supply of Labor Through Immigration: Measuring the Impact on Native-born Workers,” Center for Immigration Studies, Washington, D.C., May 2004.

[5] See, for example, Joseph C. Altonji and David Card, “The Effects of Immigation on the Labor Market Outcomes of Less-skilled Natives,” Immigration, Trade, and the Labor Market, ed. John M. Abowd and Richard B. Freeman (Chicago: University of Chicago Press, 1991), pp. 201–234; Kristin F. Butcher and David Card, “Immigration and Wages: Evidence from the 1980s,” American Economic Review 81 (May 1991): 292–296; Robert J. LaLonde and Robert H. Topel, “Labor Market Adjustments to Increased Immigration,” Immigration, Trade and the Labor Market, pp. 167-199.

[6] The two main criticisms of studies comparing different locations are (1) if native workers in locations with a high number of immigrants move elsewhere, wage levels may remain unaffected in that region but genuine costs imposed on those who leave would not be measured (nor would possible negative impacts on incomes beyond the examined locations); and (2) if immigrants are drawn primarily to regions with relatively strong economies, the research results would be skewed because a factor unrelated to immigration—local economic prosperity—might have influenced the results. Several studies found evidence that those concerns are legitimate.

[7] Foreign-born workers illegally in the United States are not “immigrants.” Most studies focus on individuals here legally, including green card holders and naturalized citizens; a smaller number of reports attempt to incorporate estimates of illegal immigrants to assess their impact.

[8] National Research Council, The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, ed. James P. Smith and Barry Edmonston (Washington, D.C.: National Academies Press, 1997), p. 337.

[9] Ibid.

[10] Ibid.

[11] Social Security and Medicare Boards of Trustees, “Status of the Social and Medicare Programs,” March 2004, available online at www.ssa.gov/OACT/TRSUM/trsummary.html.

[12] “Table 1.11 Poverty Status of the Population by Sex, Age, and Citizenship Status: March 2002,” U.S. Census Bureau, Current Population Survey, March 2002, available online atwww.census.gov/population/socdemo/foreign/ppl-162/tab01-11.pdf.

[13] Michael Fix and Jeffrey Passel, “The Scope and Impact of Welfare Reform’s Immigrant Provisions,” Discussion Papers, The Urban Institute, January 2002.

[14] Wendy Zimmerman and Karen C. Tumlin, “Patchwork Policies: State Assistance for Immigrants under Welfare Reform,” Urban Institute, April 1999, p. 83.

[15] George K. Borjas, Food Insecurity and Public Assistance, National Bureau for Economic Research, Cambridge, Mass., September 2002.

[16] Federal Reserve Bank of Dallas, “U.S. Immigration and Economic Growth: Putting Policy on Hold,” Southwest Economy Issue 6, November available online at www.dallasfed.org/research/swe/2003/swe0306a.html.

[17] Ibid

[18] Ibid

[19] Daniel E. Hecker, “Occupational Employment Projections to 2010,” Monthly Labor Review, November 2001.

[20] “Summary of Findings,” The American Workplace: Building America’s Workforce for the 21st Century (Washington, D.C.: Employment Policy Foundation, 2001).

[21] The National Association of Manufacturers, the Manufacturing Institute, and Deloitte Touche Tohmatsu, “Keeping America Competitive: How a Talent Shortage Threatens U.S. Manufacturing,” New York, N.Y., April 21, 200., p. iii.

 

Workers & Economic Inequality

Workers & Economic Inequality

In recent decades, and especially since 2000, the richest Americans have enjoyed soaring income and wealth while the rest of the population's living standards have stagnated. The Century Foundation was one of the first institutions to raise serious concerns about these trends and propose ideas for improving economic conditions for all Americans- not just the fortunate few.

Browse by Topic

Stay Informed

Sign up for our mailing list and stay up-to-date on the latest happenings at The Century Foundation

Sign up Today

Contact Us

Send us an email or get directions to The Century Foundation’s offices.

Contact Us

TCF Bookstore

The TCF Bookstore is a curated collection of books and magazines that backup the mission of our organization.

Visit Our Bookstore

Upcoming Events

View All Upcoming Events

Contact:

New York City Office:
One Whitehall St., Fifteenth Floor
NY, NY 10004
DC Office:
1333 H Street, NW, 10th Floor
Washington, DC 20005

Social:
  • Our RSS Feed
  • Find us on Twitter
  • Find us on Facebook

All Content Copyright © 2014 The Century Foundation