![Supporters of immigration reform say it will spur growth and raise living standards. Opponents disagree. Who's right? [Credit: ABCNews.go.com]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2013/06/Immigration-photo-from-ABC-News.jpg)
Supporters of immigration reform say it will spur growth and raise living standards. Opponents disagree. Who’s right? [Credit: ABCNews.go.com]
Not exactly.
The Congressional Budget Office’s assessment of the near-term economic impact of the immigration reform bill that the Senate is expected to pass this week or next is more nuanced than that. The report confounded the bill’s critics by saying that it would reduce the federal deficit over the next two decades, but its assessment of the bill’s economic impact was mixed.
Before reading on, you should know that this post won’t take a position one way or the other on the immigration reform measure. The bill raises complicated and divisive issues that provoke emotional appeals and hyperbole from both sides. So if you’re looking for a throw-‘em-out-and-seal-the-border screed or an appeal to offer free coffee and donuts to people who cross our border, you’ll have to look elsewhere.
Anybody left?
If so, let’s start with the law’s critics. The Federation for American Immigration Reform (FAIR) says that immigration reform will hurt American workers and degrade their working conditions:
“Immigration contributes to an already-existing surplus of low-skilled workers, increasing job competition and driving down wages and conditions to the detriment of American workers. The presence of a large illegal workforce perpetuates a vicious cycle as degraded work conditions discourage Americans from seeking these jobs and make employers more dependent on an illegal foreign workforce. America’s massive low-skill labor force and illegal alien population allow employers to offer low pay and deplorable conditions.”
FAIR’s position is reminiscent of that taken in the past by organized labor. They see immigration as a zero-sum game: a job given to a foreign-born worker is a job taken from a worker born here. The field is tilted toward a “large illegal workforce” because they are willing to accept lower salaries than US citizens. So they capture the lion’s share of low-skill jobs, driving down wages, benefits and workplace quality.
Such a stagnant approach to the economy strikes me as distorted. Labor increases economic output regardless of where the worker was born. Moreover, the argument is premised on the idea that all foreign-born workers are here illegally. People who are here illegally understandably will accept lower wages and poorer working conditions in exchange for evading authorities and escaping deportation. One way to eliminate this shadow economy is through massive deportation, a practical impossibility even if it were desirable. The other is through massive legalization. A worker who doesn’t have to worry about being apprehended by the authorities will likely demand the same wages and benefits as other American citizens with comparable skills. So FAIR’s contention ends up being an argument in favor of the sort of immigration reform that it opposes.
The Heritage Foundation also opposes the Senate bill. They issued a comprehensive and controversial report on the bill’s fiscal effects, estimating that the bill’s net cost to the federal government would be $6.3 trillion on net over the next half century. (Keith Hennessey, with whom I worked both when we were Senate staffers and later as White House aides, has posted an astute analysis of the report; Heritage’s rejoinder is here; Keith’s response is here.) But even while maintaining that the bill would place new burdens on the federal treasury and the taxpayers who underwrite it, the report acknowledges toward the end that newly legalized workers would lead to GDP growth (as opposed to per capita GDP growth).
“While it is true that unlawful immigrants enlarge GDP by roughly 2 percent, the problem with this argument is that the immigrants themselves capture most of the gain from expanded production in their own wages. Metaphorically, while unlawful immigrants make the American economic pie larger, they themselves consume most of the slice that their labor adds. The central issue in the debate over the costs and benefits of unlawful immigration is not whether such immigration makes U.S. GDP larger (clearly, it does), but whether unlawful immigration raises the post-tax income of the average non-immigrant American.”
Heritage, unlike FAIR, concedes that the labor of immigrants enlarges the economic pie, but asserts that they consume pretty much the entire new slice. That strikes me as odd. People who earn more money tend to spend it and their spending benefits others. A newly-legalized worker might use her wages to buy a newer car or furniture or clothes for her children. All of that benefits her and her family, of course, but it also benefits the merchants she patronizes. To argue that her higher wages and the associated increase in economic output benefits her alone with little benefit to others seems untenable. [I’ll deal with the bill’s effect on overall living standards later in this post.]
If critics of immigration reform dismiss or understate its economic benefits, its supporters overstate them. Washington Post blogger Ezra Klein exudes excessive enthusiasm when he asks us to:
“Consider a few facts about immigrants in the American economy: About a 10th of the U.S. population is foreign-born. More than a quarter of U.S. technology and engineering businesses started from 1995 to 2005 had a foreign-born owner. In Silicon Valley, half of all tech startups had a foreign-born founder. One-quarter of all U.S.-based Nobel laureates of the past 50 years were foreign born. Right now, about half of the PhDs working in science and technology are foreign born.”
Immigrants are disproportionately represented among the ranks of entrepreneurs and brainiacs, he says, and illustrates with the chart to the left. So letting more in will produce economic growth through the creation of new businesses, jobs and innovations that will increase productivity and overall economic output.
Diana Furchtgott-Roth of the Manhattan Institute similarly enthused:
“Immigrants increase economic efficiency by reducing labor shortages in low- and high-skilled markets because their educational backgrounds fill holes in the native-born labor market. However, the share of immigrants in the U.S. workforce has declined since its 1991 peak. Increased immigration would expand the American work-force, and encourage more business start-ups. Businesses ranging from Apple Corporation to apple growers would be able to find the workers they need in America.”
It’s pretty clear how a change in our immigration law would benefit Apple Corporation and apple growers. Furchtgott-Roth notes that current law restricts the number of visas issued both to people with very high levels of education attainment and to people seeking temporary work on farms. The government issues only 85,000 each year to foreign students who complete advanced university education here in the U.S. This limitation on so-called “H‑1B” visas has cost the U.S. dearly, according to the Furchtgott-Roth. She cites the work of Arlene Holen, an economist and senior fellow at the Technology Policy Institute.
“Holen, using Congressional Budget Office methodology, has estimated that if no green card or H‑1B visa constraints had existed in the period 2003-07, an additional 182,000 foreign graduates in science and technology fields would have remained in the U.S. Their contribution to GDP would have been $14 billion in 2008, including $2.7 to $3.6 billion in tax payments. Three hundred thousand H‑1B visa holders would also have remained in the U.S. labor force, earning $23 billion in 2008 and generating $34—$47 billion in tax revenue over the next decade.”
Furchtgott-Roth presents a solid case for reforming immigration policy at the extremes: letting more unskilled workers find temporary jobs as apple-pickers and letting more highly educated workers get jobs at Apple. The problem, as this chart from its own report shows, is that most of the estimated 11 million people here illegally are somewhere between the two extremes:
Foreign-born workers already are overrepresented in jobs that require doctoral degrees in science and engineering and, at the other end, in jobs occupied by people who haven’t graduated high school. Relaxing or removing restrictions on special visas issued to such people will increase their share of jobs at both ends of the curve.
But the economic gain that Klein and the Furchtgott-Roth trumpet – the increases in new patents, new businesses and people with Ph.D.s in science and technology – would be almost entirely accomplished by people on the right side of the curve. Fixing that problem is simple: issue more H‑1B visas. Even some of the law’s most strident critics would go along with that. You don’t a need to grant legal status to an estimated 11 million people to keep more people with Ph.D.s in the U.S.
The truth is that the immigration bill is only tangentially concerned with economic growth. Doug Holtz-Eakin, who supports immigration reform, pinpoints a flaw in our current immigration policy that the bill would likely exacerbate.
“Immigration to the United States has primarily been concerned with family reunification. In 2010, 74 percent of our permanent immigrants were for purposes of family reunification, greater by far than any other OECD country. In this way, the U.S. remains an outlier when compared to the rest of developed economies, who since the 1980’s all promote reunification to a far lesser extent than we do…In 2010, the United States issued a mere 6.4 percent of visas for economic reasons, compared to the United Kingdom’s 33 percent.”
The Senate’s immigration bill would lead to even more immigration for the purpose of family reunification, something critics call chain immigration. I’m not saying that’s a bad thing. I’m saying that if the goal of immigration policy is economic growth, it would focus on attracting and keeping workers with the skill sets that Klein and Furchtgott-Roth talk about. When 6 percent of visas are issued for economic reasons and 74 percent for family unification, it should surprise no one that the economic benefit of immigration is small at best.
Holtz-Eakin, it’s worth noting, argues that population growth due to immigration will, in and of itself, raise our overall standard of living.
“More rapid overall population growth would generate more rapid GDP growth, which would in turn raise productivity growth. The latter raises GDP per capita, or the standard of living.”
In this, he seems somewhat at odds with the CBO, the agency he once headed. CBO’s assessment, in my view, arrives at a sensible place. Despite ABC News’ characterization, CBO said that:
“Relative to what would occur under current law, S. 744 would lower per capita GNP by 0.7 percent in 2023 and raise it by 0.2 percent in 2033, according to CBO’s central estimates. Per capita GNP would be less than 1 percent lower than under current law through 2031 because the increase in the population would be greater, proportionately, than the increase in output; after 2031, however, the opposite would be true.”
In contrast to Holtz-Eakin, CBO has concluded that the bill would produce a slight decline in our standard of living (as measured by per capita GNP) for most of the next two decades. Only after 2031 would the increase in population that Holtz-Eakin cites reverse the process and produce a slight improvement in living standards. Those effects, though not negligible, are small, in contrast both to the overly optimistic forecasts of the bill’s boosters and the overly pessimistic scenarios conjured by its haters.
It also seems consistent with our history. The U.S. experienced its greatest influx of immigrants (as measured in people granted permanent resident status on an annual basis as a percentage of population) in the early twentieth century. More than 1 million people obtained permanent legal resident status in 6 of the 10 years between 1905 and 1914. After 1914, the number of people gaining permanent resident status didn’t hit the 1 million mark again until 1989, when a wave of undocumented aliens was granted legal status under the last immigration reform bill. Newly naturalized immigrants peaked as a percentage of the U.S. population in 1910, when it reached 1.1 percent. We’ve not come close to that percentage since.
That generation and its children experienced the worst economic catastrophe in U.S. history: the Great Depression.
Immigration didn’t cause the Great Depression, but it couldn’t prevent it either. The fact is that immigration policy, whether welcoming or restrictive, doesn’t affect the economy all that much. Its consequences are difficult to measure and impossible to predict. Much larger forces – monetary and fiscal policy, our productive capacity, government regulation, the health of the financial sector, and innovation among them – will affect our economic well-being and living standards infinitely more than immigration policy.
The immigration bill won’t save our economy, but it won’t doom it either.