immigration and the u.s. economy where do we go from here? pia orrenius, ph.d. federal reserve bank...
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Immigration and the U.S. EconomyWhere do we go from here?
Pia Orrenius, Ph.D.
Federal Reserve Bank of Dallas
The Houston Economics Club October 18, 2007
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
U.S. immigration, population, and labor force growth
The foreign-born population islarger than ever before
Source: Census Bureau
0
5
10
15
20
25
30
35
40
1850 1870 1890 1910 1930 1950 1970 1990 20060
2
4
6
8
10
12
14
16Millions Percent
Number
And foreign-born share of population headed toward historic peak
Source: Census Bureau
0
5
10
15
20
25
30
35
40
1850 1870 1890 1910 1930 1950 1970 1990 20060
2
4
6
8
10
12
14
16Millions Percent
Percent of total population
Number
Three out of ten foreign-born are undocumented
Legal permanent residents
32%
Undocumented immigrants30%
Naturalized citizens35%
Legal temporary residents
3%
Source: Pew Hispanic Center (2005)
Illegal inflows rival legal
Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)
0
200
400
600
800
1000
1200
1400
1600
1990 1992 1994 1996 1998 2000 2002 2004
Legal PermLegal TempUndoc
Thousands
Increasingly bimodal education distribution of foreign-born workers
0
5
10
15
20
25
30
35
0 to 11 Years 12 Years(High School
Grads)
13 to 15Years
16 Years(CollegeGrads)
Master,Professional
Degree
Doctorate
19802004
Percent
Source: Ottaviano & Peri, 2005
0 20 40 60 80 100
Legal
Protective service
Total
Healthcare support
Construction and extraction
Computer and mathematical
Architecture and engineering
Percent
Foreign-born share of employment growth by selected jobs
2003-2006 Source: BLS
Share of workers who are undocumented by occupation
0
5
10
15
20
25
30
Farming Cleaning Construction Food Prep. Production Transport Other
Overall share
4.9
Percent
Source: Pew Hispanic Center (2005)
Projected foreign-born contribution to labor force growth significant as baby boomers retire
Source: PEW Hispanic Center
05
101520253035404550
2010 2020 2030 2040 2050
Percent
Foreign-born share of labor force growth by census division
U.S. immigration, the business cycle and regional growth
40
50
60
70
80
90
100
Undocumented Migrants Legal Immigrants Natives
Percent
Source: Pew Hispanic Center (2005)
Immigrants work moreLabor Force Participation: Men
40
50
60
70
80
90
100
Undocumented Migrants Legal Immigrants Natives
Percent
Correction: male immigrants work moreLabor Force Participation: Women
Source: Pew Hispanic Center (2005)
Unemployment rate of foreign-born, native-born very similar
3
4
5
6
7
8
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Percent
Foreign-born
Native born
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
0
50
100
150
200
250
92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06
Thousands
Source: Department of Homeland Security
H1-B petitions approved for initial employment
Peak
Post-recession
“Real-time” immigration pro-cyclicalApprehensions along southwest border
Source: DHS
0
20
40
60
80
100
120
140
160
180
200
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Thousands, SA
Apprehensions fall as demand in construction weakens
0
20
40
60
80
100
120
140
160
180
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
-200
-150
-100
-50
0
50
100
150
200Apprehensions Construction Employment
Thousands, SA
Source: DHS; BLS
Among less-educated, undocumented immigrants more mobile than natives
0
5
10
15
20
25
State-to-State International
US BornIllegals
Percent
Source: Bean et al, 2007
Among Mexican immigrants, illegals more mobile than legals
0
5
10
15
20
25
State-to-State International
LegalIllegal
Percent
Source: Bean et al, 2007
0
5
10
15
20
25
30
35
State-to-State International
LegalIllegal
Percent
Among Chinese immigrants, illegals more mobile than legals
Source: Bean et al, 2007
U.S. immigration andthe effect 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 $60 billion
– Consumers• Prices of certain goods and services fall
– Capitalists (investors, producers, homeowners)
Effects of immigration on natives
• Who loses?– Wage effects
• Low-skilled native workers
• Prior immigrants
– Fiscal effects• Taxpayers
300
400
500
600
700
800
900
1000
1100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
BA degree & higher$/week
Some college, Associate degree
Less than high school diploma
Source: BLS
Wages of less-skilled workers in long-run stagnation
Real median weekly earnings by education level
High school diploma, no college
300
400
500
600
700
800
900
1000
1100
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
BA degree & higher$/week
Some college, Associate degree
Less than high school diploma
Source: BLS
Wages of less-skilled workers in long-run stagnation
Real median weekly earnings by education level
High school diploma, no college
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
-1787
-655
3231
7428
-3000 -1000 1000 3000 5000 7000 9000
Less than highschool
High school grad
Some college
College grad
Native
Source: 1996-2006; BLS, Haver AnalyticsThousands
Native and foreign-born labor force change, by education
-1787
-655
3231
7428
2151
1983
1020
2904
-3000 -1000 1000 3000 5000 7000 9000
Less than highschool
High school grad
Some college
College grad
Foreign-born
Native
Source: 1996-2006; BLS, Haver AnalyticsThousands
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
Level of Education
1996 Dollars, NPV
-50000
0
50000
100000
150000
200000
250000
Overall < High School High School > High School
Source: National Research Council, The New Americans (1997)
-100,000
-50,000
0
50,000
100,000
150,000
< High School High School > High School
Level of Education
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
0
5
10
15
20
25
30
35
Native Immigrant
Household participation in public assistance programs
Source: Center for Immigration Studies, March 2005 Current Population Survey
U.S. immigration policy
Walls on the Southern border are not new…
Where do we go from here?
• More enforcement– No-match program, Real ID Act, worksite raids– Local, state law enforcement cooperation w feds
0
500
1000
1500
2000
2500
3000
3500
4000
2002 2003 2004 2005 2006 2007
Criminal ArrestsAdministrative Arrests
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.
0
5
10
15
20
25
30
Italy Spain Sweden Denmark Germany France UK USA Switzerland
Percent of GDP
Source: Schneider (2000)
…partly due to relatively low tax burden
0
5
10
15
20
25
30
Italy Spain Sweden Denmark Germany France UK USA Switzerland0
10
20
30
40
50
60
70
80
90
Percent of GDPCumulative tax rate %
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
Other57%
California17%
Florida6%
New York4%
Georgia3%
Texas10%
Arizona 3%
Source: Pew Hispanic
Center (2005)
Share undocumented immigrant workers by industry
0
5
10
15
20
25
Overall Proportion
4.9
Source: Pew Hispanic
Center (2005)
Priv. Households
Food mfg.
Ag. Furniture mfg.
Const. Textiles Food Svcs.
Admin & Support
Hotels Other mfg.
Percent
Source: BLS (2006)
0 5 10 15 20 25 30 35 40
Legal occupations
Protective service occupations
Total
Food preparation and servingrelated occupations
Production occupations
Construction and extractionoccupations
Building and grounds cleaningand maintenance operations
Farming, fishing, and forestryoccupations
Percent
Foreign-born share of employment by sector
Job-based green cards remain in short supply
0
100
200
300
400
500
600
700
800
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Temp Work VisasJob-Based Green Cards
Thousands
Source: Department of Homeland Security, Department of State
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
By JOEL MILLMAN September 18, 2006