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Immigration and the U.S. Economy Where do we go from here?. The Houston Economics Club October 18, 2007. Pia Orrenius, Ph.D. Federal 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

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Immigration and the u s economy where do we go from here

Immigration and the U.S. EconomyWhere do we go from here?

The Houston Economics Club

October 18, 2007

Pia Orrenius, Ph.D.

Federal 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.


Overview

Overview

  • Immigration and

    • Population, labor force growth

    • Cyclical, regional effects

    • U.S. workers

    • Taxpayers

    • Policy


U s immigration population and labor force growth

U.S. immigration, population, and labor force growth


The foreign born population is larger than ever before

The foreign-born population islarger than ever before

Source: Census Bureau


And foreign born share of population headed toward historic peak

And foreign-born share of population headed toward historic peak

Source: Census Bureau


Three out of ten foreign born are undocumented

Three out of ten foreign-born are undocumented

Source: Pew Hispanic Center(2005)


Illegal inflows rival legal

Illegal inflows rival legal

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


Increasingly bimodal education distribution of foreign born workers

Increasingly bimodal education distribution of foreign-born workers

Percent

Source: Ottaviano & Peri, 2005


Immigration and the u s economy where do we go from here

Foreign-born share of employment

growth by selected jobs

Percent

2003-2006 Source: BLS


Share of workers who are undocumented by occupation

Share of workers who are undocumented by occupation

Percent

Overall share

4.9

Source: Pew Hispanic Center(2005)


Projected foreign born contribution to labor force growth significant as baby boomers retire

Projected foreign-born contribution to labor force growth significant as baby boomers retire

Source: PEW Hispanic Center


Foreign born share of labor force growth by census division

Foreign-born share of labor force growth by census division


U s immigration the business cycle and regional growth

U.S. immigration, the business cycle and regional growth


Immigration and the u s economy where do we go from here

Immigrants work moreLabor Force Participation: Men

Percent

Source: Pew Hispanic Center(2005)


Correction male immigrants work more labor force participation women

Correction: male immigrants work moreLabor Force Participation: Women

Percent

Source: Pew Hispanic Center(2005)


Unemployment rate of foreign born native born very similar

Unemployment rate of foreign-born, native-born very similar

Source: BLS


Immigrants are more mobile responsive to economic growth

Immigrants are more mobile, responsive to economic growth

  • More likely come in good times, leave in bad times

    • Flexibility allows for faster economic growth, more efficient use of resources

    • Lower unemployment

  • Some immigrant groups are even more mobile once here

    • Move to where the jobs are

      • Fewer regional discrepancies in growth

        • Lower unemployment, regional convergence


Skilled flows pro cyclical

Skilled flows pro-cyclical

H1-B petitions approved for initial employment

Peak

Post-recession

Source: Department of Homeland Security


Immigration and the u s economy where do we go from here

“Real-time” immigration pro-cyclical

Apprehensions along southwest border

Source: DHS


Immigration and the u s economy where do we go from here

Apprehensions fall as demand in construction weakens

Source: DHS; BLS


Among less educated undocumented immigrants more mobile than natives

Among less-educated, undocumented immigrants more mobile than natives

Percent

Source: Bean et al, 2007


Among mexican immigrants illegals more mobile than legals

Among Mexican immigrants, illegals more mobile than legals

Percent

Source: Bean et al, 2007


Among chinese immigrants illegals more mobile than legals

Among Chinese immigrants, illegals more mobile than legals

Percent

Source: Bean et al, 2007


U s immigration and the effect on natives

U.S. immigration andthe effect on natives


Effects of immigration on natives

Effects of immigration on natives

  • Immigration has effects similar to trade

    • Greater specialization, efficiency

    • More choice, innovation

    • GDP rises, GDP per capita rises

  • Who benefits?

    • Immigrants

      • Bulk of GDP increase goes to them

      • Natives get $30 to $60 billion

    • Consumers

      • Prices of certain goods and services fall

    • Capitalists (investors, producers, homeowners)


Effects of immigration on natives1

Effects of immigration on natives

  • Who loses?

    • Wage effects

      • Low-skilled native workers

      • Prior immigrants

    • Fiscal effects

      • Taxpayers


Wages of less skilled workers in long run stagnation

Wages of less-skilled workers in long-run stagnation

Real median weekly earnings by education level

High school diploma, no college

Source: BLS


Wages of less skilled workers in long run stagnation1

Wages of less-skilled workers in long-run stagnation

Real median weekly earnings by education level

High school diploma, no college

Source: BLS


Wage effects of immigration

Wage Effects of Immigration

  • Models with large adverse effects (Borjas 2003)

    • Assume perfect substitutability, no change in K

    • 3% drop in native earnings on average

    • 9% drop for natives who are low-skilled

  • Other models (Ottaviano & Peri 2006)

    • Allow imperfect substitutability, change in K


Native born labor force change by education

Native-born labor force change, by education

Thousands

Source: 1996-2006; BLS, Haver Analytics


Native and foreign born labor force change by education

Native and foreign-born labor force change, by education

Thousands

Source: 1996-2006; BLS, Haver Analytics


Wage effects of immigration1

Wage Effects of Immigration

  • Models with large adverse effects (Borjas 2003)

    • Assume perfect substitutability, no change in K

    • 3% drop in native earnings on average

    • 9% drop for natives who are low-skilled

  • Other models (Ottaviano & Peri 2006)

    • Allow imperfect substitutability, change in K

    • 2% rise in native earnings on average

    • 1% drop for low-skilled natives

    • Big declines for prior immigrants


Fiscal impact of immigration

Fiscal impact of immigration

  • Fiscal impact

    • Tax contributions minus transfer payments and cost of public services received

    • Net present value

  • Tax contributions include

    • Payroll, income, sales, property taxes

      • Majority of illegal immigrants have payroll taxes withheld

  • Public transfers and services include

    • Education, health care, welfare (EITC, TANF), police and fire

  • Estimates

    • Gold standard: National Research Council (1997)

    • Recent work: Robert Rector’s piece for Heritage

      • Household-level analysis


Nrc immigrants have positive fiscal impact when including their descendants

NRC: Immigrants have positive fiscal impact when including their descendants

1996 Dollars, NPV

Level of Education

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


Nrc but immigrants have a negative fiscal impact in their lifetime

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

1996 Dollars, NPV

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


Immigrant households rely more on public assistance

Immigrant households rely moreon public assistance

Percent

Household participation

in public assistance programs

Source: Center for Immigration Studies, March 2005 Current Population Survey


U s immigration policy

U.S. immigration policy


Walls on the southern border are not new

Walls on the Southern border are not new…


Where do we go from here

Where do we go from here?

  • More enforcement

    • No-match program, Real ID Act, worksite raids

    • Local, state law enforcement cooperation w feds


Immigration and the u s economy where do we go from here

Worksite enforcement jumps in ‘06, ‘07

Source: DHS


Where do we go from here1

Where do we go from here?

  • More enforcement

    • No-match program, Real ID Act, worksite raids

    • Local, state law enforcement cooperation w feds

  • Less chance of reform

    • Issues need to be addressed

      • H-2B, H-1B visas, green card quotas outdated, insufficient

      • Existing illegal immigrants, inflows

    • Piecemeal reform?

      • Ag Jobs

      • DREAM Act


No match letter program new safe harbor guidelines could have big impact

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

  • SSA sends no-match letters to employers with workers whose SS numbers don’t match their names

  • Under new rules, employers have to fire workers with unresolved no-matches within 90 days

  • If caught, employers assumed to have ‘constructive knowledge’ and may face stiff penalties

    • Massive interior enforcement policy, could impact millions of workers if enforced

    • Currently under preliminary injunction in U.S. District Court

  • If implemented, no-match could substantially grow the shadow economy


Shadow economy small in u s

Shadow economy small in U.S.

Percent of GDP

Source: Schneider (2000)


Partly due to relatively low tax burden

…partly due to relatively low tax burden

Cumulative

tax rate %

Percent of GDP

Source: Schneider (2000)


Conclusion

Conclusion

  • Foreign-born important role in economic growth

  • Benefits of immigration extensive

  • Labor market impacts limited; fiscal impact sizable

  • More enforcement without reform will grow the shadow economy; worsen fiscal effects


Where undocumented immigrants live

Where undocumented immigrants live

Source: Pew Hispanic Center(2005)


Share undocumented immigrant workers by industry

Share undocumented immigrant workers by industry

Percent

Overall Proportion

4.9

Priv. Households

Food mfg.

Ag.

Furniture mfg.

Const.

Textiles

Food Svcs.

Admin

& Support

Hotels

Other mfg.

Source: Pew Hispanic Center(2005)


Immigration and the u s economy where do we go from here

Foreign-born share of employment

by sector

Source: BLS (2006)


Job based green cards remain in short supply

Job-based green cards remain in short supply

Source: Department of Homeland Security, Department of State


Fiscal and wage impact of immigration take aways

Fiscal and wage impact of immigration: Take-Aways

  • Fiscal impact depends on education level and time horizon

    • High school graduates or below impose net costs

    • Almost all costs are made up for by descendants

  • Wage impact is among prior immigrants, less so natives

    • Market-driven selection of immigrants is key

      • Complement native labor

    • Flexibility is important in allowing K, L to adjust

      • Mitigates adverse effects


Immigration and the u s economy where do we go from here

By JOEL MILLMAN September 18, 2006


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