The United States is home to the largest immigration population in the world making immigration policy the most widely debated topic amongst US citizens and policy makers. In spite of heavy debate, the best immigration policy, supported by economic and empirical evidence, is to allow the natural rate of immigration to continue without any restrictions. Using empirical data from 1850 to 2013, the foreign-born population of the United States rose from five percent in 1970 to thirteen percent in 2013 (U.S Census Bureau, 2013). A one hundred and sixty percent change in population that has lead to positive changes in the American labor market. The positive changes, evidenced by economic research, show that the increase in population lead to an increase in labor-force participation, or increase in labor supply, and an increase in investment by firms. The overall net effect of these conditions, suggested by economic theory, is the absence of a long-run reduction in jobs or wages for natural-born American citizens.
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Economic research supports the claim that the increase in foreign-born population has not led to lower wages for natural-born American citizens. When immigrants enter the U.S. labor force they are considered imperfect substitutes for American laborers, meaning they are competing for different jobs and put little to no downward pressure on American’s wages. New immigrants only create competition for jobs for older immigrants and those Americans without a high school degree. Established immigrants are the population that experiences reduction in wages from new immigration. A recent study has actually found that high-skilled immigrants are complementary with natives; with human capital spillovers stemming from interactions among workers (Blau and Mackie, 2017). A high number of innovative immigrants submit new patents, graduate with upper-level science and technology degrees, and hold influential positions at venture capital firms. Highly skilled immigrants work with natural-born Americans to increase productivity in the American labor force; resulting in an increase in the average wage rate for American laborers.
A more in-depth look at the job sectors skilled and unskilled immigrants are entering in the American labor market further proves that immigrants are complements to American laborers and do not threaten to replace them. The language skills required by many jobs are often lacking for immigrant workers, educated and not. Less-educated immigrants are more likely to be employed in manual labor-intensive jobs such as agriculture and construction. Americans lacking higher education, working in construction and agriculture, face ambiguous competition from immigrants in these industries because they posses language skills the immigrant workers lack, making them eligible for different jobs where communication skills are valuable such as sales and service sector jobs (Peri and Sarber, 2009). Immigrants with higher education also face similar language barriers making them better candidates for scientific and technical jobs where high-level communication skills are not required. Highly educated American laborers face little competition from similarly educated immigrants in management, media, and communication-dependent jobs. The natural rate of immigration channels foreign-born laborers into concentrated job sectors where immigrants are already employed. Illustrating once more that earlier immigrants are the laborers forced to compete with new immigrants, not natural-born Americans.
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Immigrant laborers are increasing productivity for firms, and the overall labor market, by not only bringing new talent and innovative ideas to the table but also by working with Americans. Highly educated, foreign workers are more likely to hold a degree in science or mathematics, often a signifier of ingenuity and professional aspiration. Economic theory shows a correlation between a skilled labor force and rapid GDP growth. Over the last 150 years, three quarters of the U.S. GDP growth can be linked to improvements in education and a greater emphasis on research-based innovation (Fernald and Jones, 2014). Areas containing greater concentration of educated people, immigrant and native, experience faster productivity growth (Peri, 2012). The less educated Americans mentioned earlier, who leave manual labor for communication-based jobs leads to efficiently allocated labor. Immigrants, who work with Americans, not only increase average productivity but also their average wages, all due to natural immigration.
The media and some policy makers like to paint the picture that immigrant laborers are taking American jobs. Immigrants do increase labor supply but they put their wages directly back into the economy by purchasing goods and services in the domestic economy. Their demand for U.S. goods and services increases firms’ demand for labor to be able to meet their production needs, causing the labor market to expand naturally to meet our domestic needs. Basic economic theory proves that an increase in the supply of labor, caused by immigration, may deflate wages at first, but over time firms react by increasing their investment to outweigh any changes in capital per worker. Thus, restoring wages. Increases in the capital-to-labor ratio prevent decreases in the long-term average wage. This can be demonstrated by a comparison of the capital-to-labor ratio in 1980 to the ratio in 2013. In 1980, the ratio was 4.94, increasing to 5.75 in 2013 (Bureau of Labor Statistics, 2014). The extrapolation of the capital-to-labor ratio occurs at the same time as the increase in foreign-born population from the U.S. Census numbers. The natural influx of immigrants increases investment by American firms.
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Documented and undocumented immigrants create net positive effects for the federal budget. The characteristics of the immigrant population (age, education, and skill) determine how much their fiscal impact varies at the state and local level. Immigrants do not generate any additional costs for the U.S. military and their taxes pay for defense spending. This results in a reduction of the federal tax burden on natural-born American citizens because most immigrants are not drawing social security or other non-defense related spending. Immigrants will pay fewer taxes and require less assistance from the government than native taxpayers, the exception being the Medicare program. When immigrants do require government assistance, the use of Medicare, the average costs of the assistance they receive is below the overall average cost for the program. Natural immigration creates a smaller net cost for the government (Ku and Bruen, 2013).
The drawback to this natural immigration plan is the cost immigrants create to Americans at the state and local level. Generally, less educated immigrants have larger families and, therefore, more children using the public school system. The K-12 public education system is the largest piece of state and local budgets. The cost per child of an immigrant will also be higher if the child is not fluent in English (Congressional Budget Office, 2007). This creates short-term costs by the immigrants to their state and local government. Economic mobility and future tax payments of second-generation immigrants more than covers their initial financial burden in the long-run. The socioeconomic composition of immigrant populations in each state determines their fiscal impact. This holds because an immigrant’s total cost to their state and local government is directly proportional to their education and income levels. A natural immigration policy without restrictions would still benefit the American labor market because immigrants are more than paying back their public education costs over the long-run.
Immigration’s effects on the United States economy and labor market are broadly positive (Chicago Booth IGM Forum, 2013). It does not matter if immigrants are educated, illegal or legal, they will not replace American laborers or reduce their long-term wages. Immigrants may cause dislocations in the labor market in the short-run, but the positive net effect of their labor-force participation compensates for the short-term hiccup. Immigrants increase productivity in the labor market, pushing Americans to work higher-paying jobs and increasing the pace of research, innovation, and overall growth. Immigrants help to keep the labor force in America young and kicking as baby boomers retire. Immigrants also shoulder the tax burden that finances retirement for the elderly population, helping natural-born Americans take care of their elderly relatives. Americans, especially at the state and local level, may have to absorb the initial costs of public education for immigrant families but they are investing in our country. Their investment will yield a net-positive return for our country for years to come.
- Blau, Francine and Mackie, Christopher, National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. https://doi.org/10.17226/23550.
- Borjas, George, “The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market,” Quarterly Journal of Economics 118, no. 4 (2003): 1335–1374.
- Bureau of Labor Statistics (2014). U.S. Log Capital-Labor Ratio, 1948-2013.
- Card, David, “Immigration and Inequality,” American Economic Review 99, no. 2 (2009): 1-21.
- Chicago Booth IGM Forum, “Low-Skilled Immigrants,” and “High-Skilled Immigrants,” 2013.
- Congressional Budget Office, “The Impact of Unauthorized Immigrants on the Budgets of State and Local Governments,” December 2007.
- Fernald, John and Jones, Charles, “The Future of US Economic Growth,” American Economic Review 104, no. 5 (2014): 44-49.
- Ku, Leighton and Bruen, Brian, “The Use of Public Assistance Benefits by Citizens and Non-citizen Immigrants in the United States,” Cato Working Paper No. 13, February 2013.
- Peri, Giovanni, “The Effect of Immigration on Productivity: Evidence from U.S. States,” Review of Economics and Statistics 94, no. 1 (February 2012): 348–358.
- Peri, Giovanni and Sparber, Chad, “Task Specialization, Immigration, and Wages,” American Economic Journal: Applied Economics 1, no. 3 (July 2009): 35–169.
- U.S. Census Bureau (2013). Foreign-Born Share of U.S. Population, 1850-2013.
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