Immigrants in the U.S. Economy: A Host Country Perspective

Immigrants in the U.S. Economy: Immigrants in the U.S. Economy: A Host Country PerspectiveA Host Country Perspective

Pia Orrenius, Ph.D.Pia Orrenius, Ph.D.

Federal Reserve Bank of DallasFederal Reserve Bank of Dallas

Disclaimer: The views expressed herein are those of the presenter; they do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.

Sam Houston State UniversityHuntsville, Texas

April 12, 2008

OverviewOverview

ImmigrationImmigration Population, labor force growthPopulation, labor force growth

Changing characteristics of foreign bornChanging characteristics of foreign born

Reasons for coming: Cyclical, regional effectsReasons for coming: Cyclical, regional effects

U.S. workersU.S. workers

TaxpayersTaxpayers

PolicyPolicy

U.S. Immigrants:U.S. Immigrants:How many are there? How many are there?

The foreign-born population isThe foreign-born population islarger than ever beforelarger than ever before

Source: Census Bureau

0

5

10

15

20

25

30

35

40

1850 1870 1890 1910 1930 1950 1970 1990 20060

2

4

6

8

10

12

14

16Millions Percent

Number

And foreign-born share of And foreign-born share of population headed to historic peakpopulation headed to historic peak

Source: Census Bureau

0

5

10

15

20

25

30

35

40

1850 1870 1890 1910 1930 1950 1970 1990 20060

2

4

6

8

10

12

14

16Millions Percent

Percent of total population

Number

U.S. Immigrants:U.S. Immigrants:What do they do? What do they do?

0 20 40 60 80 100

Total

Percent

Foreign-born share of employment growth substantial

2003-2006 Source: BLS

0 20 40 60 80 100

Legal

Protective service

Total

Healthcare support

Construction and extraction

Computer and mathematical

Architecture and engineering

Percent

Foreign-born share of employment growth by selected occupations

2003-2006 Source: BLS

U.S. Immigration: U.S. Immigration: How has it changed?How has it changed?

Increasingly bimodal education distribution Increasingly bimodal education distribution of foreign-born workersof foreign-born workers

0

5

10

15

20

25

30

35

0 to 11 Years 12 Years(High School

Grads)

13 to 15Years

16 Years(CollegeGrads)

Master,Professional

Degree

Doctorate

19802004

Percent

Source: Ottaviano & Peri, 2005

Illegal inflows rival legalIllegal inflows rival legal

Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)

0

200

400

600

800

1000

1200

1400

1600

1990 1992 1994 1996 1998 2000 2002 2004

Legal PermLegal TempUndoc

Thousands

Three out of ten foreign-born Three out of ten foreign-born are undocumentedare undocumented

Legal permanent residents

32%

Undocumented immigrants30%

Naturalized citizens35%

Legal temporary residents

3%

Source: Pew Hispanic Center (2005)

U.S. Immigrants: U.S. Immigrants: Why do they come?Why do they come?

Why do they come?Why do they come?

Economic conditionsEconomic conditions DestinationDestination OriginOrigin

Family reunification Family reunification

Social or political conditionsSocial or political conditions WarWar PersecutionPersecution

Real-time migration, U.S. and Real-time migration, U.S. and Mexican business cycles Mexican business cycles

0

20

40

60

80

100

120

140

160

180

200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Thousands, SA

Source: CBP, Department of Homeland Security

Migrant apprehensions

Apprehensions a function of labor demandApprehensions a function of labor demand(Detrended employment, apprehensions lagged 6m)(Detrended employment, apprehensions lagged 6m)

0

20

40

60

80

100

120

140

160

180

200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007-1500

-1000

-500

0

500

1000

1500

Apprehensions

EmploymentThousands, SA Thousands, SA

Source: BLS, DHS

Among Mexican immigrants, Among Mexican immigrants, illegals more mobile than legalsillegals more mobile than legals

0

5

10

15

20

25

State-to-State International

LegalIllegal

Percent

Source: Bean et al, 2007

U.S. Immigrants: U.S. Immigrants: Where do they go?Where do they go?

Legend

United States

FB_Pop

0 - 99

100 - 199

200 - 299

300 - 434

Growth in the foreign-born population 1990-2006

Percent

Source: Census, ACS

0 - 99

100- 199

200- 299

300- 434

FB growth + GSP +

FB growth + GSP -

FB growth – GSP +

FB growth – GSP -

Legend

United States

FB_Pop

Source: Census, ACS, BEA

State GDP growth drives foreign-State GDP growth drives foreign-born population growthborn population growth

U.S. immigration:U.S. immigration:How are natives How are natives affected? affected?

Effects of immigration on nativesEffects of immigration on natives

Immigration has effects similar to tradeImmigration has effects similar to trade GDP rises, GDP per capita risesGDP rises, GDP per capita rises

Who benefits?Who benefits? ImmigrantsImmigrants

Bulk of GDP increase goes to themBulk of GDP increase goes to them

Natives get $30 to $60 billionNatives get $30 to $60 billion ConsumersConsumers

Prices of certain goods and services fallPrices of certain goods and services fall Capitalists (investors, producers, homeowners)Capitalists (investors, producers, homeowners)

Effects of immigration on Effects of immigration on nativesnatives

Who loses?Who loses? Wage effectsWage effects

Low-skilled native workersLow-skilled native workers

Prior immigrantsPrior immigrants Fiscal effectsFiscal effects

Certain taxpayersCertain taxpayers

300

400

500

600

700

800

900

1000

1100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

BA degree & higher$/week

Some college, Associate degree

Less than high school diploma

Source: BLS

Wages of less-skilled workers Wages of less-skilled workers in long-run stagnationin long-run stagnation

Real median weekly earnings by education level

High school diploma, no college

300

400

500

600

700

800

900

1000

1100

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

BA degree & higher$/week

Some college, Associate degree

Less than high school diploma

Source: BLS

Wages of less-skilled workers Wages of less-skilled workers in long-run stagnationin long-run stagnation

Real median weekly earnings by education level

High school diploma, no college

Wage Effects of ImmigrationWage Effects of Immigration

Models with large adverse effects (Borjas Models with large adverse effects (Borjas 2003)2003) Assume perfect substitutability, no change in Assume perfect substitutability, no change in

capitalcapital 3% drop in native earnings on average3% drop in native earnings on average 9% drop for natives who are low-skilled9% drop for natives who are low-skilled

Other models (Ottaviano & Peri 2006)Other models (Ottaviano & Peri 2006) Allow imperfect substitutability, change in KAllow imperfect substitutability, change in K

Native-born labor force change, Native-born labor force change, by educationby education

-1787

-655

3231

7428

-3000 -1000 1000 3000 5000 7000 9000

Less than highschool

High school grad

Some college

College grad

Native

Source: 1996-2006; BLS, Haver AnalyticsThousands

Native and foreign-born labor Native and foreign-born labor force change, by educationforce change, by education

-1787

-655

3231

7428

2151

1983

1020

2904

-3000 -1000 1000 3000 5000 7000 9000

Less than highschool

High school grad

Some college

College grad

Foreign-born

Native

Source: 1996-2006; BLS, Haver AnalyticsThousands

Wage Effects of ImmigrationWage Effects of Immigration

Models with large adverse effects (Borjas Models with large adverse effects (Borjas 2003)2003) Assume perfect substitutability;no change in KAssume perfect substitutability;no change in K 3% drop in native earnings on average3% drop in native earnings on average 9% drop for natives who are low-skilled9% drop for natives who are low-skilled

Other models (Ottaviano & Peri 2006)Other models (Ottaviano & Peri 2006) Allow imperfect substitutability, change in KAllow imperfect substitutability, change in K 2% rise in native earnings on average2% rise in native earnings on average 1% drop for low-skilled natives1% drop for low-skilled natives Big declines for prior immigrantsBig declines for prior immigrants

Fiscal impact of immigrationFiscal impact of immigration

Fiscal impactFiscal impact Tax contributions minus transfer payments and cost of Tax contributions minus transfer payments and cost of

public services received, expressed in net present value public services received, expressed in net present value

Tax contributions includeTax contributions include Payroll, income, sales, property taxesPayroll, income, sales, property taxes

Majority of illegal immigrants have payroll taxes withheldMajority of illegal immigrants have payroll taxes withheld

Public transfers and services includePublic transfers and services include Education, health care, welfare (EITC, TANF), police and Education, health care, welfare (EITC, TANF), police and

firefire

EstimatesEstimates Gold standard: National Research Council (1997)Gold standard: National Research Council (1997) Recent work: Robert Rector’s piece for HeritageRecent work: Robert Rector’s piece for Heritage

Household-level analysisHousehold-level analysis

NRC: Immigrants have positive fiscal impact NRC: Immigrants have positive fiscal impact when including their descendantswhen including their descendants

Level of Education

1996 Dollars, NPV

-50000

0

50000

100000

150000

200000

250000

Overall < High School High School > High School

Source: National Research Council, The New Americans (1997)

-100,000

-50,000

0

50,000

100,000

150,000

< High School High School > High School

Level of Education

NRC: But immigrants have a negative NRC: But immigrants have a negative fiscal impact in their lifetimefiscal impact in their lifetime

1996 Dollars, NPV

Source: National Research Council, The New Americans (1997)

U.S. immigration U.S. immigration policy: Where are we policy: Where are we headed?headed?

Walls on the Southern border not newWalls on the Southern border not new

Where is policy headed? Where is policy headed?

More interior enforcementMore interior enforcement No-match program, Real ID Act, worksite raids, No-match program, Real ID Act, worksite raids,

higher employer fineshigher employer fines E-verify: immigration status verificationE-verify: immigration status verification Local, state enforcement of immigration lawsLocal, state enforcement of immigration laws Local, state ordinances reg. illegal immigrantsLocal, state ordinances reg. illegal immigrants

0

500

1000

1500

2000

2500

3000

3500

4000

2002 2003 2004 2005 2006 2007

Criminal Arrests

AdministrativeArrests

Worksite enforcement jumps in ‘06, ‘07

No-match letter program: forthcoming safe No-match letter program: forthcoming safe harbor guidelines could have big impactharbor guidelines could have big impact

SSA sends no-match letters to employers with SSA sends no-match letters to employers with workers whose SS numbers don’t match namesworkers whose SS numbers don’t match namesUnder original proposed rules, employers have Under original proposed rules, employers have to fire workers within 90 daysto fire workers within 90 daysIf caught, employers assumed to have If caught, employers assumed to have ‘constructive knowledge’ and may face stiff ‘constructive knowledge’ and may face stiff penaltiespenaltiesIf implemented without comprehensive reforms, If implemented without comprehensive reforms, no-match could impact millions of workers & no-match could impact millions of workers & grow shadow economygrow shadow economy

Where do we go from here? Where do we go from here?

Implications of no-match, interior Implications of no-match, interior enforcemntenforcemnt Relative demand for illegal workers fallsRelative demand for illegal workers falls

Segmented labor marketsSegmented labor markets More employment off-the-books; Decline in tax receiptsMore employment off-the-books; Decline in tax receipts

Lower wages, worse working conditions for illegalsLower wages, worse working conditions for illegals Turnover, lost benefit coverageTurnover, lost benefit coverage Move from large to small employersMove from large to small employers

Greater inequality; slower assimilationGreater inequality; slower assimilation Reallocation of workers across states, localitiesReallocation of workers across states, localities Less illegal immigration, all other things sameLess illegal immigration, all other things same

ConclusionConclusionForeign-born important Foreign-born important role in economic role in economic growthgrowthBenefits of immigration Benefits of immigration extensiveextensiveLabor market impacts Labor market impacts limited; fiscal impact limited; fiscal impact sizablesizableCurrent policies & Current policies & unintended unintended consequencesconsequences

Where undocumented Where undocumented immigrants liveimmigrants live

Other57%

California17%

Florida6%

New York4%

Georgia3%

Texas10%

Arizona 3%

Source: Pew Hispanic

Center (2005)