Immigrants in the U.S. Economy: A Host Country Perspective

1. Immigrants in the U.S. Economy: A Host Country Perspective Pia Orrenius, Ph.D. Federal Reserve Bank of Dallas Sam Houston State University Huntsville, Texas April 12, 2008 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.

2. Overview • Immigration • Population, labor force growth • Changing characteristics of foreign born • Reasons for coming: Cyclical, regional effects • U.S. workers • Taxpayers • Policy

3. U.S. Immigrants:How many are there?

4. The foreign-born population islarger than ever before Source: Census Bureau

5. And foreign-born share of population headed to historic peak Source: Census Bureau

6. U.S. Immigrants:What do they do?

7. Foreign-born share of employment growth substantial Percent 2003-2006 Source: BLS

8. Foreign-born share of employment growth by selected occupations Percent 2003-2006 Source: BLS

9. U.S. Immigration: How has it changed?

10. Increasingly bimodal education distribution of foreign-born workers Percent Source: Ottaviano & Peri, 2005

11. Illegal inflows rival legal Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)

12. Three out of ten foreign-born are undocumented Source: Pew Hispanic Center(2005)

13. U.S. Immigrants: Why do they come?

14. Why do they come? • Economic conditions • Destination • Origin • Family reunification • Social or political conditions • War • Persecution

15. Real-time migration, U.S. and Mexican business cycles Thousands, SA Migrant apprehensions Source: CBP, Department of Homeland Security

16. Apprehensions a function of labor demand(Detrended employment, apprehensions lagged 6m) Thousands, SA Thousands, SA Employment Apprehensions Source: BLS, DHS

17. Among Mexican immigrants, illegals more mobile than legals Percent Source: Bean et al, 2007

18. U.S. Immigrants: Where do they go?

19. Growth in the foreign-born population 1990-2006 Percent 0 - 99 100- 199 200- 299 300- 434 Source: Census, ACS

20. State GDP growth drives foreign-born population growth FB growth + GSP + FB growth + GSP - FB growth – GSP + FB growth – GSP - Source: Census, ACS, BEA

21. U.S. immigration:How are natives affected?

22. Effects of immigration on natives • Immigration has effects similar to trade • 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)

23. Effects of immigration on natives • Who loses? • Wage effects • Low-skilled native workers • Prior immigrants • Fiscal effects • Certain taxpayers

24. Wages of less-skilled workers in long-run stagnation Real median weekly earnings by education level High school diploma, no college Source: BLS

25. Wages of less-skilled workers in long-run stagnation Real median weekly earnings by education level High school diploma, no college Source: BLS

26. Wage Effects of Immigration • Models with large adverse effects (Borjas 2003) • Assume perfect substitutability, no change in capital • 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

27. Native-born labor force change, by education Thousands Source: 1996-2006; BLS, Haver Analytics

28. Native and foreign-born labor force change, by education Thousands Source: 1996-2006; BLS, Haver Analytics

29. 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

30. Fiscal impact of immigration • Fiscal impact • Tax contributions minus transfer payments and cost of public services received, expressed in 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

31. NRC: Immigrants have positive fiscal impact when including their descendants 1996 Dollars, NPV Level of Education Source: National Research Council, The New Americans (1997)

32. NRC: But immigrants have a negative fiscal impact in their lifetime 1996 Dollars, NPV Source: National Research Council, The New Americans (1997)

33. U.S. immigration policy: Where are we headed?

35. Walls on the Southern border not new

36. Where is policy headed? • More interior enforcement • No-match program, Real ID Act, worksite raids, higher employer fines • E-verify: immigration status verification • Local, state enforcement of immigration laws • Local, state ordinances reg. illegal immigrants

37. Worksite enforcement jumps in ‘06, ‘07

38. No-match letter program: forthcoming safe harbor guidelines could have big impact • SSA sends no-match letters to employers with workers whose SS numbers don’t match names • Under original proposed rules, employers have to fire workers within 90 days • If caught, employers assumed to have ‘constructive knowledge’ and may face stiff penalties • If implemented without comprehensive reforms, no-match could impact millions of workers & grow shadow economy

39. Where do we go from here? • Implications of no-match, interior enforcemnt • Relative demand for illegal workers falls • Segmented labor markets • More employment off-the-books; Decline in tax receipts • Lower wages, worse working conditions for illegals • Turnover, lost benefit coverage • Move from large to small employers • Greater inequality; slower assimilation • Reallocation of workers across states, localities • Less illegal immigration, all other things same

40. Conclusion • Foreign-born important role in economic growth • Benefits of immigration extensive • Labor market impacts limited; fiscal impact sizable • Current policies & unintended consequences

42. Where undocumented immigrants live Source: Pew Hispanic Center(2005)