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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. 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 • Immigration and • Population, labor force growth • Cyclical, regional effects • U.S. workers • Taxpayers • Policy
The foreign-born population islarger than ever before Source: Census Bureau
And foreign-born share of population headed toward historic peak Source: Census Bureau
Three out of ten foreign-born are undocumented Source: Pew Hispanic Center(2005)
Illegal inflows rival legal Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)
Increasingly bimodal education distribution of foreign-born workers Percent Source: Ottaviano & Peri, 2005
Foreign-born share of employment growth by selected jobs Percent 2003-2006 Source: BLS
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 Source: PEW Hispanic Center
Immigrants work moreLabor Force Participation: Men Percent Source: Pew Hispanic Center(2005)
Correction: male immigrants work moreLabor Force Participation: Women Percent Source: Pew Hispanic Center(2005)
Unemployment rate of foreign-born, native-born very similar Source: BLS
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 H1-B petitions approved for initial employment Peak Post-recession Source: Department of Homeland Security
“Real-time” immigration pro-cyclical Apprehensions along southwest border Source: DHS
Apprehensions fall as demand in construction weakens Source: DHS; BLS
Among less-educated, undocumented immigrants more mobile than natives Percent Source: Bean et al, 2007
Among Mexican immigrants, illegals more mobile than legals Percent Source: Bean et al, 2007
Among Chinese immigrants, illegals more mobile than legals Percent Source: Bean et al, 2007
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 natives • Who loses? • Wage effects • Low-skilled native workers • Prior immigrants • Fiscal effects • Taxpayers
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 stagnation Real median weekly earnings by education level High school diploma, no college Source: BLS
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 Thousands Source: 1996-2006; BLS, Haver Analytics
Native and foreign-born labor force change, by education Thousands Source: 1996-2006; BLS, Haver Analytics
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 • 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 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 1996 Dollars, NPV Source: National Research Council, The New Americans (1997)
Immigrant households rely moreon public assistance Percent Household participation in public assistance programs Source: Center for Immigration Studies, March 2005 Current Population Survey
Where do we go from here? • More enforcement • No-match program, Real ID Act, worksite raids • Local, state law enforcement cooperation w feds
Worksite enforcement jumps in ‘06, ‘07 Source: DHS
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 • 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. Percent of GDP Source: Schneider (2000)
…partly due to relatively low tax burden Cumulative tax rate % Percent of GDP Source: Schneider (2000)
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 Source: Pew Hispanic Center(2005)
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)
Foreign-born share of employment by sector Source: BLS (2006)
Job-based green cards remain in short supply Source: Department of Homeland Security, Department of State