U.S. Immigration Policy Must Change (from the Carnegie Endowment)

A phenomenal, well reasoned discussion of the need for immigration reform:

U.S. Immigration Policy Must Change
William Shaw International Economic Bulletin, June 2010

Illegal low-skilled immigration is a heartrending problem: workers whose very presence violates the law are deeply woven into the fabric of American society and the performance of essential tasks. Any constructive proposal to deal with the issue must balance re-establishing the rule of law with safeguarding prosperity and civil liberties. With many political leaders paralyzed by this difficult compromise, xenophobes and bigots gain public attention with simplistic policies—including the recent Arizona law—that are likely to exacerbate the adverse impacts of illegal immigration. Policy makers must recognize the benefits derived from low-skilled immigration while reducing illegal immigration. In making these difficult policy trade-offs, they must, at a minimum, reject those proposals that would make the situation worse.
Low-Skilled Immigration Largely Benefits the U.S. Economy

Any approach to sensible policies should begin by distinguishing between low-skilled immigration and illegal immigration. The effects of the two differ in important ways.

Low-skilled immigrants benefit the U.S. economy:

* Productivity: They increase the productivity of skilled workers and the stock of machines and buildings by carrying out essential tasks, and they further increase the productivity of American workers, including working parents, by freeing up their time. They also enable the productive use of agricultural land that would be unprofitable to exploit in the absence of immigration.

* Services Costs: They reduce the cost of services, thereby increasing the purchasing power of U.S. consumers.

The two most common concerns over low-skilled immigration—that it burdens government finances and decreases native wages—are of limited importance. The impact of low-skilled immigration on the federal budget is small, although some state and local governments do face a greater fiscal burden.1 Similarly, while low-skilled immigration does benefit skilled workers and owners of capital and can hurt low-skilled workers, most studies find that the impact is small, particularly over the long term. Evidence suggests that even the sharp rise in low-skilled immigration over the past 20 years has had a surprisingly small impact on the wages of native, low-skilled workers.2 This is for two principal reasons: low-skilled immigration attracts investment in industries that use low-skilled labor, thus increasing demand for these workers;3 and the rising educational levels of the workforce means that few native workers compete directly with low-skilled immigrants.4,5
Illegal Immigration’s Many Costs

It is possible to have legal low-skilled immigration; the benefits of low-skilled immigration need not come with the costs of illegal immigration, which are significant.

There are perhaps 12 million illegal immigrants in the United States, and the number of undocumented workers is probably more than 8 million. Some 60 percent of illegal immigrants live in six states, where their share of the population is about 6 percent on average, compared to less than 3 percent in the rest of the United States.

Like low-skilled immigration in general, illegal immigration generates economic benefits for native Americans. However, illegal immigration also imposes significant costs:

* Legal System: Perhaps the most serious cost of illegal immigration concerns the quality of our society rather than economics. Illegal immigrants are often hesitant to cooperate with law enforcement, which increases their own vulnerability and makes it difficult for the police to obtain necessary information. The failure to enforce immigration laws erodes respect for the legal system, encouraging vigilantism and violence against ethnic minorities. The presence of large numbers of people who live outside the law’s protection and have little long-term stake in the country erodes the social contract and impedes the cooperation required to establish safe and vibrant communities. And some efforts to address illegal immigration threaten the civil liberties that Americans view as their birthright.

* Working Conditions: Undocumented workers are limited in their ability to organize to protect their rights, which may erode working conditions for American workers in general through competition (though some employers benefit from this).

* Wage Competition: Undocumented status can intensify wage competition because some illegal immigrants (and their employers) do not pay taxes on wages. Moreover, their vulnerable position may cause illegal immigrants to accept lower wages6—again, some employers and U.S. households benefit from this.

* Budget: Illegal immigration may have a positive impact on the federal budget, as some undocumented workers do pay taxes but don’t enjoy the same access to services as natives.7 However, illegal immigrants can impose a fiscal burden on states and municipalities, which are required to provide some services to all residents, regardless of their immigration status.8

Policy Must Change

Recognizing the economic value of low-skilled immigration and the large economic and social costs of illegal immigration provides a useful guide to policies:

* Upgrade Skills: Concerns over low, or declining, low-skilled wage rates should be addressed by providing training and education (perhaps financed through taxes on firms or richer workers who benefit from low-skilled immigration), rather than through hopes of a radical reduction in the number of low-skilled immigrants.

* Regularize Illegal Immigrants: The number of illegal immigrants should be reduced by regularizing their status, thus improving their welfare and that of American households in general.9 Depending on the take-up of regularization programs, there may be scope for increasing low-skilled immigration.

* Enforce Immigration Policy: Measures to improve the enforcement of immigration laws should avoid exacerbating the social cost of illegal immigration by attempting to arrest individual immigrants, which degrades our civil liberties, increases the vulnerability of immigrant communities, and reduces their willingness to cooperate with the police. Instead, illegal immigration should be reduced by compelling large employers to check documents, as well as imposing significant fines for violations and devising efficient but minimally-obtrusive schemes for policing these efforts.

The Arizona Law is Misguided

Arizona’s recent law—which imposes jail sentences on illegal immigrants (while entering the United States illegally and harboring illegal immigrants is a federal crime, residing illegally in the United States is generally treated as a civil offense) and requires that police check immigration documents—will be damaging and counterproductive.

Though concern over illegal immigration in Arizona is doubtless the result of the high share of illegal immigrants in the state’s population (the highest in the United States), the new law is unlikely to have much impact on the level of illegal immigration, as many immigrants take much greater risks than police harassment or even jail terms to travel to the United States.10 These measures could, however, substantially reduce immigrants’ willingness to cooperate with the police and subject the native Hispanic population to document checks that would further inflame ethnic tensions. Since about 30 percent of Arizona’s population is Hispanic, the potential for social conflict is great.

Arizona's recent law will be damaging and counterproductive.

Nevertheless, this law highlights how the failure of federal policy increases the potential for ill-conceived state decisions, perhaps giving impetus to more sensible solutions at the national level.

The proposal to reinterpret the fourteenth amendment to exclude children of illegal immigrants from citizenship is another dead end. Refusing to educate or provide health care to children who could become long-term members of American society would be stupid and brutal, as would be deporting children or adults who grew up in the United States to foreign countries that they have never seen. In addition, such measures would have only a limited impact on the level of illegal immigration, since wage differentials are sufficient incentive for migration.

Illegal immigration is inevitably a difficult and divisive issue, given its distributional implications and the infections of racism and xenophobia. At a minimum, we should reject policies that would make a bad situation worse.

William Shaw is a visiting scholar in Carnegie’s International Economics Program.

1. Most studies find that tax revenues from both legal and illegal immigrants exceed the cost of services provided to them. For a more somber view of the budgetary implications of illegal immigrants, most of whom are low-skilled, see Camarota (2004).

2. See Card (2005) for a summary of the literature from the dominant view that the impact of low-skilled immigration on the wages of native low-skilled workers is small, and Borjas (2003) for the higher estimates of this effect.

3. For example, Ottaviano and Peri (2008) find that the least-educated native workers suffered a loss of only 1.1 percent of real wages due to immigration over 1990–2004, lower than the estimates from Borjas (2003) because they account for increased investment in response to immigration.

4. Only about 8 percent of native Americans in ages 25–64 lack a high school diploma, while many low-skilled immigrants have little schooling and speak little English. The supply of low-skilled native workers is further reduced by those who are unsuited or unwilling to work, for example due to drug addiction.

5. It is possible that a sharp reduction in low-skilled immigration could assist low-skilled native workers by improving incentives for businesses and the government to invest in education, training, and rehabilitation, but it would also encourage automation, which would limit the increased demand for low-skilled workers.

6. Controlling for observable skills, legalization through the 1986 Immigration Reform and Control Act raised wages by 6 percent compared to wage levels if workers had remained undocumented. (Kossoudji and Cobb-Clark 2002). Legalization also improved incentives for learning skills that further boosted wages. Rivera-Batiz (1999) finds that observable characteristics accounted for less than half of the substantial difference between the wages of legal and illegal immigrants. However, Duncan and Trejo (2009) conclude that labor market skills are much more important than legal status in determining immigrants’ wages.

7. Estimates of the share of illegal immigrants that pay federal, state, and local taxes range between 50 and 75 percent (CBO 2007). Illegal immigrants are not eligible for most federal safety net programs. And some illegal immigrants pay into social security (they provided fake social security numbers as proof of citizenship to employers) but will never collect benefits.

8. For example, the Supreme Court has determined that children cannot be excluded from public education due to their immigration status. There are about 2 million school-age children who are unauthorized immigrants, and 3 million school-age children are U.S. citizens born to illegal immigrants (Urban Institute 2006). Together, these groups constitute about 9 percent of school-age children. Other unavoidable costs from illegal immigrants include emergency health care (since 59 percent of adult illegal immigrants lack health insurance—Passel 2009) and law enforcement.

9. Dixon and Rimmer (2009) find that legalization coupled with a tax on visas could generate $180 billion in welfare gains for U.S. households. As part of ongoing research that is still subject to revision, Aguiar and Walmsley (forthcoming) estimate that legalization of undocumented Mexican workers in the United States coupled with effective border controls would raise U.S. GDP by 0.17 percent.

10. For example, since the tightening of border security in 1994, an estimated 5,600 people have died in the wasteland that straddles part of the U.S./Mexican border (Jiminez 2009).