Immigration: Economic Effects on the Nation

Immigration is a rather sensitive topic in this country. The arguments made against it often have economic underpinnings, although one suspects these only serve to mask less noble motives. Recently two rather conservative, business-oriented magazines have come out with articles essentially demanding that immigration be encouraged—because of the economic benefits! The Economist published an article under the heading Let them come. Businessweeek carried an article by Charles Kenny which was titled Set Them Free in the paper edition. In the on-line version, the same article was more provocatively titled: How to be a Patriot: Hire an Illegal Immigrant.

Ian Goldin, Geoffrey Cameron, and Meera Balarajan have recently written an authoritative discussion of the topic: Exceptional People: How Migration Shaped Our World and Will Define Our Future. This book contains everything one might want to know about immigration—and much, much more. It is spare in style and is chock full of facts and figures, so it is a dense read. It is one of those books that “can be put down,” but it is well worth staying the course for those with interest in the topic. We will use this work as a basis for discussing the economic issues associated with immigration. We will use the term immigrant because the interest here is on the host country. Since every immigrant is also an emigrant, there is also an interesting story to be told about the economic effects on the source country. That will have to be saved for another day.

We are interested in immigration in developed countries such as the US. These economies have all evolved into forms that depend on two classes of work. The first consists of relatively well-paid jobs that are not hazardous and not too arduous. These are the positions preferred by the native workers. The second class of labor involves dirty, difficult, and perhaps dangerous work that is low-skilled and pays little. The natives try to avoid this work, leaving immigrants as the only option. The authors quote this very relevant example.

“In the early 1990s, the U.S. Department of Labor found that around 85 percent of the 670,000 farm workers in the United States were migrants, many of whom were undocumented.”

One must also keep in mind that immigrants feed both of these work classes. Most publicity is devoted to the low-skill immigrants who fill the low-paying positions. At the other end of the spectrum are the educated and skilled immigrants. These people are highly valued and the developed countries are beginning to compete for their services. Most enter the country legally under student or work visas.

The authors see the net economic effect of immigration as positive, even for the low-wage undocumented category. They quote macroeconomic studies to support that claim.

“A recent longitudinal study of OECD countries found that increased immigration is accompanied by commensurate increases in total employment and GDP growth.”

This is the means by which immigrants contribute.

“Low-skilled foreign workers often take jobs that are considered less desirable by natives, or they provide services—such as home care or child care—that release skilled workers into the labor market. Highly skilled migrants typically work in growing sectors of the economy, or in areas....that are short of native workers.”

“Between 1995 and 2005, 16 million jobs were created in the United States, and 9 million of them were filled by foreigners. During the same period, migrants made up as many as two-thirds of new employees in Western and Southern European countries.”

The demographics of developed countries generally include a native population that is decreasing, and at the same time getting older. This process requires a source of new workers, both to keep the economy moving, and to service the increased needs of the growing population of the aged.

The fact that many of the low-wage immigrants would be undocumented is of no great economic consequence.

“Paradoxically—given public concerns about the potential social burdens they bring—undocumented workers make significant contributions to the public purse. In the United States they have a higher rate of labor market participation than native workers or other migrants.

Often using fake social security cards to obtain work, the collected taxes end up as pure profit for the treasury.

“Between 1990 and 1998, the U.S. government accumulated more than $20 billion in unmatched social security contributions that will never be claimed as benefits. About two-thirds of undocumented migrants in the United States also pay income taxes through automatic deductions, and they pay sales and property taxes like everyone else. Afraid to reveal their status, these workers rarely claim welfare benefits and therefore make a substantial net contribution to public finance.”

The economic benefits accrued from skilled immigrants can be enormous.

“By 2000, migrants accounted for 47 percent of the U.S. workforce with a science or an engineering doctorate, and they constituted 67 percent of the growth in the U.S. science and engineering workforce between 1995 and 2006. In 2005, a migrant was at the helm of 52 percent of Silicon Valley start-ups, and a quarter of all U.S. technology and engineering firms founded between 1995 and 2005 had a migrant founder. In 2006, foreign nationals living in the United States were inventors or coinventors in 40 percent of all international patent applications filed by the U.S. government.”

The authors find that although the net benefits from immigration are definitely positive, there are also costs that are incurred. While the benefits are distributed and often not immediately identifiable, the costs are highly visible and they are not evenly distributed.

“To the extent that immigrants produce fiscal costs, they tend to be small, short-run, and local. In the United States and Europe, the fiscal impacts of migrants are +/- 1 percent of GDP. According to one economist, there is a ‘striking....degree of consensus’ among scholars that high-skilled migrants make a substantial fiscal contribution to their host economies and that low skilled migrants who settle permanently impose a minor cost on taxpayers.”

One has to assume that a low-wage, unskilled native worker also imposes a similar cost on taxpayers.

In recent years the US has attempted to make it harder for both highly-skilled and undocumented immigrants to enter the country. They have succeeded in limiting the skilled, and failed at limiting the undocumented. That doesn’t appear to be very effective policy.

Based on this information, it would appear that immigration concerns are way out of proportion to the issues involved. Perhaps our greatest concern should be that we are not producing enough natives who are willing to do the heavy academic lifting required to make contributions in the high-tech world in which we live.