The Negligible Economic Effect of Undocumented Immigration

This report from the Migration Policy Institute finds that unauthorized immigration has negligible impact on U.S. economy, despite the direct benefit to employers and unauthorized workers.

Illegal immigration's overall impact on the U.S. economy is negligible, despite clear benefits for employers and unauthorized immigrants and slightly depressed wages for low-skilled native workers, according to a report by a University of California, San Diego economist released today by the Migration Policy Institute (MPI).

The report, The Economics and Policy of Illegal Immigration in the United States, authored by UC-San Diego Professor of Economics Gordon Hanson, examines the effect of illegal immigration on the economy. The paper was commissioned to inform the work of MPI's Labor Markets Initiative, which is conducting a comprehensive, policy-focused review of the role of legal and illegal immigration in the labor market.

In the report, Hanson argues that the largest economic gains from illegal immigration flow to unauthorized workers, who see very substantial income gains after migrating. (A young urban male in Mexico who has completed nine years of education can earn 2.5 times as much annually in the United States, even after controlling for cost-of-living differences.)

U.S. employers also gain from lower labor costs and the ability to use their land, capital and technology more productively. Small losses are felt, however, by native-born low-skilled workers who compete with unauthorized immigrants.

"Illegal immigration produces a tiny net gain to the U.S. economy after subtracting U.S.-born workers' losses from U.S. employers' gains," said Hanson, who is Director of the Center on Pacific Economies at UC-San Diego. "And if we account for the small fiscal burden that unauthorized immigrants impose, the overall economic benefit is close enough to zero to be essentially a wash." But policy can help to convert illegal to legal flows, increasing the positive contribution that low-skilled workers could make to the U.S. economy.

Employers would be more likely to favor authorized workers, the report argues, if the legal low-skilled immigration system responded more effectively to their needs. Illegal immigration, which broadly tracks economic performance, provides a flexible mechanism for responding to labor market conditions in ways the current legal immigration system cannot. Legal flows for low-skilled workers are both very small and relatively unresponsive to economic conditions, with green cards almost entirely unavailable to low-skilled workers and the two main low-skilled temporary visa programs (H-2A and H-2B) varying little over the economic cycle. Only roughly 150,000 workers are in the United States legally at any one time on temporary low-skilled visas  -- a fraction compared to the 8.3 million unauthorized immigrants working in the United States.

Unauthorized immigrants provide a ready source of manpower in low-end sectors at a time when the share of low-skilled native-born individuals in the U.S. labor force has fallen dramatically. Over the last 50 years, the United States has raised the education level of its adult population dramatically, with half of U.S.-born working-age adults in 1960 lacking a high school diploma compared to just 8 percent now, the report notes.

A more constructive immigration policy, Hanson suggests, would aim to generate maximum productivity gains to the U.S. economy while limiting the fiscal cost and keeping enforcement spending contained. He recommends a policy redesign that provides sufficient legal channels, fluctuating with economic needs, for entry of low-skilled workers while maintaining reasonable immigration enforcement.

"The report offers an interesting reminder that notwithstanding all of the public focus and controversy surrounding illegal immigration, the fate of the U.S. economy is not riding on the country's policy toward unauthorized workers," said MPI Senior Vice President Michael Fix. "However, as policymakers contemplate immigration reform, they should be mindful of creating a system that provides the workers necessary for the U.S. economy in a legal fashion that flexibly tracks labor market needs."