Walled Off From Reality

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Dollars & Sense

Walled Off From Reality

Trump’s claims about immigration economics are without merit.

(Photo: LM Otero/AP)

"Mexico’s leaders have been taking advantage of the United States by using illegal immigration to export the crime and poverty in their own country. The costs for the United States have been extraordinary: U.S. taxpayers have been asked to pick up hundreds of billions in healthcare costs, housing costs, education costs, welfare costs, etc. ... 

"The influx of foreign workers holds down salaries, keeps unemployment high, and makes it difficult for poor and working class Americans—including immigrants themselves and their children—to earn a middle class wage.” 

—"Immigration Reform That Will Make America Great Again," Donald Trump campaign website

Donald Trump’s immigration plan has accomplished something many thought was impossible. He has gotten mainstream and progressive economists to agree about something: his claims about the economics of immigration have “no basis in social science research,” as economist Benjamin Powell of Texas Tech’s Free Market Institute put it. That describes most every economic claim Trump’s website makes about immigration: that it has destroyed the middle class, held down wages, and drained hundreds of billions from government coffers. Such claims are hardly unique to Trump, among presidential candidates. Even Bernie Sanders has said that immigration drives down wages (though he does not support repressive nativist policies like those proposed by Trump and other GOP candidates). Beyond that, even attempting to implement Trump’s nativist proposals, from building a permanent border wall to the mass deportation of undocumented immigrants, would cost hundreds of billions of dollars directly, and forfeit the possibility of adding trillions of dollars to the U.S. and global economies by liberalizing current immigration policies. That’s not counting the human suffering that Trump’s proposals would inflict.

No Drag on the Economy

Even the most prominent economist among immigration critics, Harvard’s George Borjas, recognizes that immigration has had a large positive effect on the U.S. economy. By his calculations, immigrant workers (documented and undocumented) add $1.6 trillion to the U.S. economy each year, or 11% of Gross Domestic Product (GDP). The great bulk that additional income (97.8% according to Borjas) goes to immigrant workers. But that still leaves what he calls an “immigrant surplus” of $35 billion a year, which goes to non-immigrants, including workers, employers, and other users of services provided by immigrants.

Others have emphasized the disproportionate impact that immigrants have had on innovation in the U.S. economy. A study for the Kauffman Foundation found that, in 2006, foreign nationals residing in the United States were named as inventors or co-inventors in over 25% of all U.S. patent applications. Around the same time, another study found that immigrants were the founders of over half of all Silicon Valley startups and almost one-third of Boston startups.

Immigrants Didn’t Do It

U.S. workers have undoubtedly fallen on hard times. The reasons are manifold: slow economic growth; pro-rich, anti-worker, anti-poor policies; the decline of unions; “free-trade” globalization; and so on. But immigration isn’t one of those reasons, especially when it comes to “the middle class.” Not only has immigration benefitted the U.S. economy, but economists find no evidence that immigration causes a widespread decrease in the wages of U.S.-born workers.

Estimates vary, but the best economic studies point to the same conclusion: over the long run, immigration has not caused the wages of the average U.S. born worker to fall. Immigration critic Borjas calculated that, from 1990 to 2010, immigrant labor pushed down the wages of (pre-existing) U.S. workers by 3.2% in the short run. But even he conceded that over the long run, wages of native-born and earlier immigrant workers recovered to their previous level. Other economists find immigration to have a positive long-run effect on wages. Gianmarco Ottaviano and Giovanni Peri found that, from 1990 to 2006, immigration reduced wages of native-born workers in the short run (one to two years) by 0.7%, while over the long run (ten years) immigration into the United States boosted wages 0.6%.

Neither Ottaviano and Peri’s nor even Borjas’s estimates of the wage effects of immigration are consistent with Trump’s claim that immigration is destroying the middle class. But what happens when we look at the wages of native-born workers by level of education? The Ottaviano-Peri study shows, in the long run, immigration is associated with an increase in wages across all education levels. Borjas’s study reports that immigration has negative effects on the wages of native-born college graduates and especially on workers with less than a high-school education (those at the “bottom” of the labor market, mostly in low-wage jobs), even in the long run. But again he concedes a positive effect for the 60% of U.S. workers with either a high school degree or some college (but no degree). These results are probably a head-scratcher for anyone who has taken introductory economics. After all doesn’t increasing the supply of labor, through immigration, drive down its price (the going wage)?

Well, no. Immigrant workers do add to the supply of labor. But the economic effects of immigration do not stop there. Immigrants largely spend their wages within the U.S. economy. Businesses produce more—and hire more workers—to meet the increased demand. The cost savings from hiring cheaper immigrant labor also frees up businesses to expand production and hire more workers overall. Both those effects increase the demand for labor, offsetting the effects of added labor supply.

Economist David Card concludes that, taking into account these demand-side effects, “the overall impacts on native wages are small—far smaller than the effects of other factors like new technology, institutional changes, and recessionary macro conditions that have cumulatively led to several decades of slow wage growth for most U.S. workers.”

Complements or Substitutes?

The effect of immigration on native-born workers with less than a high-school education remains a matter of dispute. Borjas insists that the costs of immigration are visited disproportionately upon those with the least education (and, to a lesser extent, those with the most education). He estimates, in a couple of different studies, that over the long run the wages of native-born high school dropouts fell 3-5% due to immigration.

But these estimates rely on the assumption that immigrant and native-born workers are substitutes for each other, and therefore compete for the same jobs. But, in fact, their skills differ in important ways. The first is their command of English. The Immigrant Policy Institute found that approximately one-half of the 41 million immigrants ages five and older speak English less than “very well.” In addition, immigrant workers often have culture-specific skills—from cooking to opera singing to soccer playing, to cite examples given by Ottaviano and Peri—that differ from those of native-born workers.

When Ottaviano and Peri accounted for the imperfect substitutability between immigrants and natives, the negative of effect of immigration on native high school dropouts disappeared, and their wages were shown to rise by 0.3% over the long run.

Giving More Than They Get

Nor is there a credible case that undocumented immigrants are draining the public coffers by consuming more public services than they pay for. Immigrants migrate to jobs, not to welfare, and are disproportionately of working age. They are not major beneficiaries of the most generous U.S. welfare-state programs—Social Security and Medicare, which serve the elderly, not the young or the poor. And undocumented immigrants are already ineligible for most government benefits. (Even documented immigrants are ineligible for many federal programs, at least for some years after their arrival.)

On top of that, immigrants, both documented and undocumented, do pay taxes. They pay sales taxes, payroll taxes, and often income taxes. And they pay far more in taxes than they receive in benefits. That puts Trump’s outrage over $4.2 billion in “free tax credits ... paid to illegal immigrants” in a different light. In 2009, the federal government did in fact pay $4.2 billion in child tax credits to low-income tax filers using an Individual Taxpayer Identification Number (ITIN), the vast majority of them undocumented immigrants. But that same year, those ITIN filers paid an estimated $12 billion into a Social Security system from which they are not eligible to collect any benefits.

Trillions Left on the Sidewalk

Before the 1882 Chinese Exclusion Act, the United States allowed completely free immigration into our country. Immigration from elsewhere remained unrestricted until the eve of World War I. And immigrants flooded into the country and contributed mightily to its economic development.

Liberalizing immigration policies, unlike Trump’s proposed border wall or mass deportations, could once again benefit the U.S. economy. IEconomists Angel Aguiar and Terrie Walmsley found that deporting all undocumented Mexican immigrants from the United States would reduce U.S. GDP by about $150 billion, while granting legal status to unskilled, undocumented Mexican workers (without additional effective border enforcement) would raise it by nearly that amount. And the potential gain for the global economy from liberalizing immigration policies is far greater. In fact so large that economist Michael Clemens likens liberalizing immigration to picking up “trillion- dollar bills on the sidewalk.”

Such policies would also specifically improve conditions for workers, immigrant and native, in the United States. Immigrant workers, especially the estimated eleven million undocumented immigrants, tend to have less bargaining power than native-born workers. A policy granting undocumented immigrants legal status would make it easier for them to insist on their rights at work, and to organize and form unions. That’s why the AFL-CIO and unions like UNITE HERE and SEIU now favor it.

For those who remain concerned about the effects of immigration on U.S. born low-wage workers, there are obvious policies that would improve the lot of all low-wage workers: Boosting the minimum wage, making it easier for workers to organize unions, and making the welfare state more generous and inclusive, so people don’t have to accept whatever lousy job they can find. These are the policies that are called for, not keeping immigrants out.

John Miller

John Miller is a member of the Dollars & Sense collective, is professor of economics at Wheaton College.

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