The Economic Benefits of Immigration

Posted by Joshua Culling on Friday, June 21st, 2013, 5:35 PM PERMALINK

Legalizing undocumented immigrants who are already working here make them more productive and flexible, and puts their labor on the books.  Granting legal status and removing the fear of deportation incentivizes immigrants to invest in their own human capital, education, and businesses.  After the 1986 legalization, those who were given amnesty experienced a wage gain of between 5 percent and 15 percent.  Because they had legal status, they could invest in improving their skills and earn a higher income without fear of losing the value of that investment if they were deported.

The richest countries in the world are those most hospitable to immigration. Countries that promote free labor markets and embrace immigration are far richer than those which restrict immigration. According to the World Bank, the 25 richest countries in the world have an average foreign-born population of 22.5 percent, including the United States (12.8 percent), Hong Kong (42.6 percent), Australia (19.9 percent), and Switzerland (22.9 percent). Conversely, some of the world’s poorest countries are also the most hostile to immigration, like North Korea (0.2 percent foreign-born), Iran (2.9 percent), and Venezuela (3.7 percent).

Japan’s experience is a cautionary tale for the United States. In the 1980s it was widely assumed that Japan would surpass the U.S. as the world’s one true economic superpower. Three decades later, Japan’s economy has stagnated and it has the largest debt-to-GDP ratio in the industrialized world. Japan has a demographic disaster as a result of a low birthrate – the fifth-lowest in the world – and almost no immigration to speak of, with a foreign-born population of only 1.6 percent. Japan is unable to replenish its workforce, and its society is aging rapidly. By 2050, the number of Japanese citizens over 65 will swell from 23 percent to 39 percent, while the working-age population will decline from 64 percent to 51 percent.

Historically, America’s biggest economic gains coincide with waves of immigration. The largest and most sustained period of American economic growth occurred from 1840 to 1914, during which the U.S. economy became the largest in the world. The “take-off” phase of this growth took place from 1843-1860, “almost precisely the peak years of the first great immigration surge.” Again after 1970, immigration to the U.S. took off again, an increase that continues to present-day. During these four decades, America has again increased its relative economic superiority to its Western European rivals.

As birth rates fall and the population ages, immigrants fill the lower end of the age distribution. America’s birth rate is 1.93 births per woman, down from over 3.5 births per woman in the 1950s. This is well below the replacement rate of 2.1. Immigrants are younger than native-born American (31 years old versus 36 years old), and can mitigate the demographic problems associated with an aging population. Because they work and pay taxes for decades, immigrants help sustain the costs of older generations, giving us more time to reform our entitlement programs.

Low-skilled immigrants complement the existing labor force and create American jobs. Low-skilled immigrants do not generally compete with native-born Americans. They have complementary skills to the existing American workforce. A janitor does not compete with a waiter, for instance; he frees up the waiter to serve more customers instead of taking out the trash. There is considerable evidence that low-skilled immigrants spur significant job growth. Between 2000 and 2010, each additional 100 low-skilled workers on an H-2B visa was associated with an additional 464 jobs for native-born Americans. And in the first two and last two decades of the 20th century, periods of high immigration, unemployment rates were relatively low. In the 1930s, however, when there was almost no immigration, unemployment rates were very high.

High-skilled immigrants create new businesses, invent new products and services, and create jobs. Immigrants or their children founded more than 40 percent of Fortune 500 companies. These immigrant-founded Fortune 500s employ more than 10 million people and have combined global revenues of $4.2 trillion. Between 2001 and 2010, every 100 high-skilled workers that came to America on an H-1B visa was associated with 183 additional jobs for native-born Americans. And high-skilled immigrants are innovators. Immigrants are twice as likely as native-born Americans to file patent applications.  A 10 percent increase in the number of foreign-born graduate students would increase the number of patents by 4.7 percent. And research suggests that “in the absence of constraints on green card and H-1B visas over the period 2003-07, an additional 182,000 foreign graduates in science, technology, engineering, and mathematics fields would have remained in the United States. Their earnings and contributions to GDP would have been $14 billion in 2008, and they would have paid $2.7 billion to $3.6 billion in taxes.”

The long-run effect of immigration on native-born American wages is positive.  Immigrants and Americans have different skills so the amount of competition between immigrants and native workers is minimal.  However, having Americans work with immigrants when both groups have different skill and language abilities makes everyone more productive, especially boosting the wages of poorer American workers.  At most, Americans with less than a high school degree suffer slight wage decreases but, on average, all Americans will experience wage increases.     

A larger legal immigration structure frees up law enforcement to focus on truly dangerous criminals. It is currently a crime to cross the border without papers, whether you are looking for work or smuggling heroin. Because border patrol is focused on job-seekers, its attention is distracted from human smugglers, drug traffickers, and violent offenders. Arizona’s Maricopa County is a prominent example of this. After Sheriff Joe Arpaio began focusing on immigration enforcement and workplace raids, violent crime skyrocketed and the arrest rate plunged in the county

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