Immigration and the U.S. Economy Pia M. Orrenius, Ph.D. Federal Reserve Bank of Dallas June 19, 2007 Mercatus Center, George Mason University 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 and labor force growth Business cycle Historical context US.-born workers Taxpayers Conclusion
U.S. Immigration and labor force growth
The foreign-born population is larger than ever before Millions 40 35 30 25 20 15 10 5 Number Percent 16 14 12 10 8 6 4 2 0 1850 1870 1890 1910 1930 1950 1970 1990 2005 0 Source: Census Bureau
And foreign-born share of population headed toward historic peak Millions 40 35 30 25 Percent of total population Percent 16 14 12 10 20 15 10 5 0 Number 1850 1870 1890 1910 1930 1950 1970 1990 2005 8 6 4 2 0 Source: Census Bureau
U.S.A: destination for 37% of world s migrants (net immigration by country) Source: www.worldmapper.org
Foreign-born inflow drives population and employment growth Stock vs. flow distinction important Stock: Foreign-born compose 12 % of U.S. population (2005) 15 % of U.S. labor force (2006) Flow: Foreign-born generated 40 % of population growth (1990-2005) 47% of labor force growth (2000-2005)
Projected foreign-born contribution to labor force growth significant through 2030 Percent 50 45 40 35 30 25 20 15 10 5 0 Source: PEW Hispanic Center 2010 2020 2030 2040 2050
Foreign-born share of labor force growth by census division 20-40 40-60 60-80 Source: 2000-2005 BLS 80-100
Foreign-born share of employment growth by sector Farming, fishing, and forestry occupations Architecture and engineering occupations Computer and mathematical occupations Construction and extraction occupations Healthcare support occupations Total Protective service occupations Legal occupations 2003-2006 Source: BLS 0 10 20 30 40 50 60 70 80 90 100 Percent
Foreign-born share of employment by sector Farming, fishing, and forestry occupations Building and grounds cleaning and maintenance operations Construction and extraction occupations Production occupations Food preparation and serving related occupations Total Protective service occupations Legal occupations Source: BLS (2006) 0 5 10 15 20 25 30 35 40 Percent
U.S. Immigration and the business cycle
Immigrants are hard at work Foreign-born in U.S. have Higher labor force participation rates Lower unemployment rates Lower initial earnings than similar, U.S.-born workers But higher earnings growth
Unemployment rate of foreign-born, native-born track each other Percent 8 7 6 Native born 5 4 Foreign-born 3 Source: BLS 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Difference in Foreign/National Youth Unemployment Rates by OECD country 20 15 Belgium France 10 5 0-5 Czech Rep. United States Canada Spain United Kingdom Australia Greece -10 30 35 40 45 50 55 60 65 Minimum Wage as % Average Wage* *2002 wage as percent of APW
Immigrants are hard at work Immigration is procyclical More come in good times, leave in bad times Accommodates faster economic growth Allows for more efficient economy Fewer idle factors Less unemployment Immigrants are more mobile Move to where the jobs are Fewer regional discrepancies Lower unemployment
Real-time immigration is pro-cyclical Thousands, SA 200 Apprehensions along southwest border 180 160 140 120 100 80 60 40 20 0 Source: Border Patrol 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Apprehensions fall as demand in construction weakens Thousands, SA 180 Apprehensions Construction Employment 200 160 150 140 100 120 50 100 80 0 60-50 40-100 20-150 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007-200
U.S. Immigration in the historical context
The Historical Context: Comparing First and Second Great Migrations Similarities Differences Rapid output growth Mass immigration 15% of workers (1910) 40% labor growth (1880-1910) High skill premium, rising inequality Rising diversity, declining immigrant skills Large wage gaps
Late 19 th century: immigrant origins shifted to Percent of foreign-born population 100 90 80 70 60 50 40 30 20 10 0 Southern and Eastern Europe Northern and Western Europe Source: Census Gibson and Lennon Historical Census Statistics on the Foreign-Born Population of the United States: 1850-1990 Southern and Eastern Europe North America Latin America Region of Birth Asia 1870 1930 Africa
Late 20 th century: immigrant origins shifted to Latin America and Asia Percent of foreign-born population 80 70 1960 2005 60 50 40 30 20 10 0 Europe Other Latin America Asia Source: Census Region of Birth
Foreign-born wage gap by immigrant origin, 1909 Percent 0-5 -10-15 -11.3-20 -25-30 -35-30.1-26.1-22.1-21.2-40 -37.1 Syrian/Turkish South Italian/Other Italian Polish German/Swiss Northern Italian English Source: Timothy J. Hatton How much did immigrant quality decline in late nineteenth century America?. Journal of Population Economics
Foreign-born wage gap by immigrant origin, 1909 Percent 0-5 -10-15 -11.3-20 -25-30 -35-30.1-26.1-22.1-21.2-40 -45-40.1-37.1 Mexico Syrian/Turkish South Italian/Other Italian Polish German/Swiss Northern Italian English Source: Timothy J. Hatton How much did immigrant quality decline in late nineteenth century America?. Journal of Population Economics
The Historical Context: Comparing First and Second Great Migrations Similarities Differences Rapid output growth Mass immigration 15% of workers (year) 40% labor growth (year) High skill premium, Rising inequality Rising diversity, declining immigrant skills Large wage gaps Public backlash Illegal immigration
Three out of ten foreign-born are undocumented Legal temporary residents Legal permanent residents 32% Undocumented immigrants 30% Source: Pew Hispanic Center (2005) Naturalized citizens 35%
Illegal inflows rival legal Thousands 1600 1400 Legal Perm Legal Temp Undoc 1200 1000 800 600 400 200 0 1990 1992 1994 1996 1998 2000 2002 2004 Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)
The Historical Context: Comparing First and Second Great Migrations Similarities Differences Rapid output growth Mass immigration 15% of workers (year) 40% labor growth (year) High skill premium, Rising inequality Rising diversity, declining immigrant skills Large wage gaps Public backlash Illegal immigration Fiscal impact Labor market trends Globalization Decline of unions National security and terrorist threat
U.S. Immigration and the effect on natives
Effects of immigration on natives Immigration has effects similar to trade Greater specialization, efficiency, innovation, choice GDP per capita rises for natives (by $30 to $60 billion) Who benefits? Immigrants Consumers Lower relative prices; greater diversity of goods, services Capitalists (investors, producers, home owners) Higher return to capital, lower labor costs, investment opportunities Higher home prices Who loses? Low-skilled native workers, taxpayers
Wages of less-skilled workers are falling $/week 1000 900 800 700 600 Real median weekly earnings by education level 500 Less than high school diploma 400 300 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: BLS
Wages of less-skilled workers are falling Real median weekly earnings by education level $/week 1000 900 800 700 High school diploma, no college 600 500 400 Less than high school diploma 300 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: BLS
Wages of less-skilled workers are falling $/week 1000 900 Real median weekly earnings by education level 800 700 Some college, Associate degree 600 500 400 300 High school diploma, no college Less than high school diploma 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: BLS
$/week 1100 Wages of less-skilled workers in long-run decline Real median weekly earnings by education level BA degree & higher 1000 900 800 700 600 500 400 300 Some college, Associate degree High school diploma, no college Less than high school diploma 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: BLS
Implications for native workers Falling low-skilled wages pervasive Skill-biased technological change Immigration: no wage effect on average in long run Low-skilled native workers: wages 1% to 2 % lower today Many factors mitigate adverse labor market effects Many foreign-born are not close substitutes for US workers Ottaviano & Peri (2005) Capital and labor respond Foreign-born flow to jobs where relative demand is higher
Native-born labor force change, by education College grad 7428 Some college 3231 High school grad -655 Less than high school -1787 Source: 1996-2006; BLS, Haver Analytics -3000-1000 1000 3000 5000 7000 9000 Thousands
Native and foreign-born labor force change, by education College grad 2904 7428 Some college 1020 3231 High school grad -655 1983 Foreign-born Native Less than high school -1787 2151 Source: 1996-2006; BLS, Haver Analytics -3000-1000 1000 3000 5000 7000 9000 Thousands
Fiscal impact of immigration Fiscal impact = tax contributions minus public services received Impact depends on education level High school graduate or below imposes net costs Fiscal burden distributed unevenly Payroll tax receipts benefit federal government Education and health expenses burden state and local government
Lifetime fiscal impact of less-educated immigrants is negative 1996 Dollars, NPV 150,000 100,000 50,000 0-50,000 Level of Education -100,000 < High School High School > High School Source: National Research Council, The New Americans (1997)
Immigrant households rely more on public assistance Percent 35 Household participation in public assistance programs 30 25 20 15 10 5 0 Native Immigrant Source: Center for Immigration Studies, March 2005 Current Population Survey
What policy makers can take away from the economics Immigrants should be different from us High-skilled immigration very beneficial Low-skilled immigration beneficial but Fiscal impact, assimilation issues suggest process should be managed Visa programs should be aimed at curbing illegal immigration Interior enforcement, no visa program: segmented labor markets?
Conclusions Foreign-born important role in economic growth Benefits of immigration extensive Labor market impacts limited; fiscal impact sizable Reform should be pragmatic, in line with the economics
Foreign-born share of US engineers and math/computer scientists Percent 60 50 Engineers Math/CS 40 30 20 10 0 All college degrees Bachelor's Master's Doctoral Source: Science and Engineering Indicators (2003)
Wage gap related to an immigrant s Percent 30 20 10 0-10 -20-30 -40-50 Asia country of origin Native-immigrant wage differential (males) 1990 Europe and Canada Mexico Other Latin America Source: George Borjas, Heaven s Door (1999)
H-1B cap binding since 2004 Petitions approved for initial employment Thousands 250 H1-B Cap 200 150 100 50 0 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 Source: Department of Homeland Security
Thousands 800 Job-based green cards remain in short supply 700 600 Temp Work Visas Job-Based Green Cards 500 400 300 200 100 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Department of Homeland Security, Department of State
Immigrants are more likely to lack a high Percent school degree 70 60 Native men Foreign-born men 50 40 30 20 10 0 1960 1970 1980 1990 2000 2006 Source: George Borjas, Heaven s Door (1999); Census; CPS