Beginner’s Economics of Immigration

Introduction

First off, one of the latest news story was centering around Donald Trump’s executive order to bar citizens of certain Muslim countries from legally entering the country, even if they have already been given approval. Let me be clear: this is not a “strong border” issue. This is not a safety thing. Thanks in no small part to our lengthy vetting process, not a single person has been killed on American soil by a person from any of those countries since 1975 (Sources: 1, 2, 3). This includes San Bernardino, Orlando, and Boston (as well as Columbine, Virginia Tech, Sandy Hook, Charlottesville, and Aurora).

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Not only is this not a safety issue, it’s partially a business interest issue. If you look at the map of the Middle East that I’ve displayed below, you’ll notice five countries that are not on the banned list. They also happen to be countries where President Trump has business interests.

trump-middle-east

Personally, I consider the Muslim ban to be a distraction. I will withhold my opinion of Steve Bannon (and his known white supremacist ties) for a more personal setting, but I do not consider this controversial move by Trump to be separate from his appointment of Bannon to the National Security Council or even from his consideration (see Section 7D) to declare that the Department of Homeland Security oversee the Department of Education.

If you’re curious where your elected officials stand on this issue, look here.


It would be remiss if I failed to mention that you’re more likely to be killed by your own clothes than by an immigrant terrorist, or even armed toddlers. The Cato Institute calculated that “the chance of an American being murdered in a terrorist attack caused by a refugee is 1 in 3.64 billion per year…”

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Conservatives love to point out (see reasons 1 and 3) that banning firearms won’t prevent misuse and will fail to prevent to keep criminals from obtaining weapons. So why will banning refugees prevent terrorist acts?


I understand that this is not a broad immigration ban. But it offers a pretty easy segue into the economics of immigration.


This post, then, is an attempt to shed a light on how much of our economy and daily lives have benefited from immigration. Besides the obvious ones like Albert Einstein and Sergey Brin, migrant workers in agriculture to CEOs of major corporations offer economic benefits.


Demographics of Immigration

Gallup ran a survey that found that of 640M adults in the world (13%), 150M of them wanted to migrate to the United States. Berkeley found two main groups who are most likely to emigrate to the United States: the highly educated (college degree) are 4-5 times more likely to emigrate and 10-12 more likely to emigrate if they are from a poor country. The second group is aged 20-40 and have the highest propensity to emigrate.

Growth in Unauthorized Immigration Has Leveled Off

Despite claims from the administration, illegal immigration is not growing. For the past decade long-term residents make up a larger share illegal immigrants compared to short-term residents.

Share of Long-Term Unauthorized Immigrants Surpasses Share of Short-Term Immigrants

The Bush Institute published the following graph showing the decrease in southwest border apprehensions as well as a decrease in the issuance of worker visas here.

immigration-slowing

In terms of the United States, a large group of immigrants is made up of the young who are also highly educated. This mainly means scientists and engineers. Another large group is the young and uneducated who work labor-intensive jobs (Berkeley).


Often I hear how the immigrants of yesteryear had a higher work ethic than immigrants of today. Today, people supposedly come to this country in hopes of hand outs. I find this viewpoint laughable. Francis A. Walker, the founding president of the American Economic Association, wrote in 1896 about “the character of the foreigners” who were entering America at that time. His claim was that fifty to thirty years before the time of writing (so 1846 to 1866), the immigrants who came to America were “among the most enterprising, thrifty, alert, adventurous, and courageous” of all the people from their homeland. As of 1896, he writes, the situation is “completely reversed.”


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In 1966, 23% of doctorate degrees earned in the United States were held by foreign-born students. That number rose to 39% in 2009 (Saxenian). 51% of engineering doctorate earners and 41% of physical science doctorate earners are immigrants (Manhattan Institute). One quarter of American-based Nobel laureates in the last 50 years were born in foreign countries (Berkeley).

On the other hand, David Card found that for every 1% increase in the proportion of illegal immigrants there was a rise in the high-school dropout population share of 0.2%. This isn’t to say that more undocumented immigrants leads to a higher dropout rate; rather, illegal immigrants increase the proportion of the population that does not have a high school diploma.

In 2006, as we read from Peri, we saw a large disparity in the immigration population across cities and states. In California, one worker out of three were born in a foreign country. In West Virginia, that number is one in one hundred. This makes sense seeing as California is the major entry point for immigration from the Eastern hemisphere.


The Science Behind The Ban

There are numerous articles discussing foreign-born scientists who are now barred from entering the United States. Here’s one.

Overall, over 17,000 students are from the countries impacted by the ban as of last academic year. If you take the average cost for a public four-year degree, including room and board, that’s an impact of $613,810,980. Don’t go around quoting this number as there are a number of variables to consider, but let it sink in that around half a billion dollars are being spent by immigrants trying to receive a better education.

There isn’t a benefit to barring intelligent people. If there is, please educate me. Especially when America needs all the help we can get.

stem_pisa

On a more personal note, I made the decision to study economics in 2008 as a freshman while sitting in history class. The teacher for that course (as well as my history class the next year, unfortunately for him) was Alex Marbukh, a refugee from the USSR.


The Economics of Immigration

Finally, lets get to the economic impact of immigration. On the macro-level, noncitizens have a higher labor force participation rate compared to Native-born Americans. labor-force

Below is a chart providing a breakdown of where unauthorized workers are employed.
Some U.S. industries and occupations have high shares of unauthorized immigrant workers

Lets address something right now: Opponents of immigration claim that immigrants reduce the employment rate and the hourly wage of native-born citizens. Proponents suggest the opposite.

Studies agree with both. Typically, when they do find a statistically significant change in employment or wages, it’s a small change. Most often in the range 0-3% either way. When it comes to a decrease, it is found mostly for native-born workers who either stopped their education during or at the end of high school. Other studies which claim an effect on wages typically find them more so in the immigrant population rather than the native-born population.

This type of effect, where more immigrants workers cause an effect on native workers, would suggest that the two are something called perfect substitutes; that is, 1 worker from one population is equal to 1 worker from the other population. Rather, studies find them to be imperfect substitutes. That is to say, 1 of one population is not equal to 1 of the other population.

These studies that make claims either way are linked throughout this next section, as well as at the bottom. I won’t even begin to make claims about whether or not immigrants take jobs from native citizens, but rather that immigration offers a benefit to the economy as a whole.


Manufacturing (and a brief note on automation)

I’m going to start with manufacturing. Many would have you believe that illegal immigrants are taking jobs from blue-collar workers. Ball State University disagrees. In their report titled “The Myth and Reality of Manufacturing in America” they find that automation (also known as: robots) are responsible for the loss of jobs in manufacturing.

Productivity, which is easily measured as the value of all goods manufactured within the United States divided by the number of workers who made those products. The manufacturing average was $149,299 in 2012 with a large variation between sectors. They find that manufacturing productivity grew 90% from 1998 to 2012. To provide context, GDP grew 32% in this same time period.

Tangent: Productivity is not the most robust measure. One reason is the price at which goods are sold. If the price doubles, productivity doubles, even if the number of workers, goods, and consumers remain the same.

When comparing productivity between 1998 and 2015, Ball State found that productivity had risen by a large amount and attributed it to “automation and information technology advances…” They go on further to claim that 87.8% of the 5,647,700 lost jobs were lost due to productivity.


“Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”

(Ball State University)

Low-Skill Immigrants

Low-skill immigrants are often those without high school diplomas. When we check with the economists of the IGM Forum, we see that they were surveyed about low-skilled immigrant workers in 2013.

This is interesting. The overall average American appears to benefit from more low-skilled foreign workers; however, low-skill American workers would not benefit. So this introduces a philosophical question: Do we take a utilitarian approach and work only to improve every individual life? Or do we work to improve the average American, with the expectation that everybody will eventually benefit?

Like I said earlier: I cannot begin to comment on the reality of immigration impact for certain subsets of the population. You can click the link above and see that some of the respondents offer their reasoning.

42% of the American unskilled labor force was comprised of Hispanic and Latino immigrants (Manhattan Institute). Page 6 of this PDF gives a broader view of the graph below.

occupation.PNG

In 2011, low-skilled immigrant women made up 1.9% of the overall labor force. This same group was responsible for over 25% of workers in private household occupations, as well as 12% of workers in laundry and dry cleaning jobs. Low-skilled immigrant men, on the other hand, represented 3.3% of the labor force but 29% of gardeners in America’s largest cities (Cortes and Tessada).

The American Farm Bureau claims that enforcement against undocumented workers without a path to legalization (this is called enforcement-only reform) would lead to a rise in food prices of 5-6%.

Highly-Educated Immigrants

The inflow of STEM employees through the H-1B visa program in the time period 1990-2010 explains about 30% of productivity growth in US cities. This led to an increase in per capita income of 8% (Berkeley).


“Arlene Holen, using Congressional Budget Office methodology, has estimated that if no green card or H-1B visa constraints had existed in the period 2003-07, an additional 182,000 foreign graduates in science and technology fields would have remained in the U.S. Their contribution to GDP would have been $14 billion in 2008, including $2.7 to $3.6 billion in tax payments. Three hundred thousand H-1B visa holders would also have remained in the U.S. labor force, earning $23 billion in 2008 and generating $34-$47 billion in tax revenue over the next decade.”

(Manhattan Institute)

In 1965, only 47 scientists emigrated from Taiwan to the United States. In 1966, after the Hart-Cellar Act, that number rose to 1,321. By 1990, around 25% of engineers and scientists in the technology industries of California were immigrants (Saxenian). More than half of the engineers born in Asia were from China (51%). The next most represented (23%) country was India.

Entrepreneurship

Immigrants start a quarter of new businesses despite accounting for 13% of the population. Businesses owned by immigrants pay about $126B a year in wages. They are responsible for employing 1 out of 10 Americans in private companies.

Businesses founded by immigrants in the United States employed about 560,000 workers generating $63B in sales in the year 2012. 44% of high-tech firms in Silicon Valley were founded by an immigrant (Manhattan Institute).


“Between 1996 and 2008, immigrants were twice as likely as native-borns to start new businesses.”

(Brookings)

Taxation

As we read from the Institute on Taxation and Economic Policy (ITEP), the effective tax rate (the actual amount of income paid in taxes such as property, income, and sales) for undocumented immigrants is 8%. The average taxpayer in the top 1% of income has an effective tax rate of 5.4%. Lets break it down some more. In California, the state with the largest number of illegal immigrants, the top 1% have an effective tax rate of 8.7%. Nevada, the state with highest proportion of illegal immigrants, has an effective tax rate of 1.4% for the top 1%. New York, the east entry point for immigration, has an effective tax rate of 8.1% for the top 1%. Texas, another state with a high proportion of illegal immigrants, has an effective tax rate of 2.9% for the top 1%.

Overall, undocumented workers paid $11.84B in taxes in 2012 (ITEP). Granting permanent residence status to all 11.4Mthese workers would add another $2.2B to that amount.

Costs of Immigration

The costs which are most often pointed out are related to social services, welfare, healthcare, and others. However, this report from Brookings points out something very interesting.

Most immigrants, legal or illegal, are not allowed to participate in Medicaid, Supplemental Security Income, food stamps, Temporary Assistance to Needy Families, or the State Children’s Health Insurance program. Illegal immigrants are not able to receive any forms of welfare, public health care (except for emergency services), or retirement benefits. Legal permanent residents must contribute to Medicare and Social Security for at least ten years before they can benefit from these government programs.

The Congressional Budget Office backs this up . It should be noted that anybody can receive Social Security benefits as long as they worked 40 quarters in the United States (less if you have a disability). You must be lawfully present in the country, though, which bars illegal immigrants. Medicare has a similar provision.

However, children born in the United States are entitled to government aid targeted at the young. The largest example of this is education, going back to Plyler v. Doe.

While there are the aforementioned rules, illegal immigrants still receive some help. 1% of illegal immigrant households, through false documents, receive cash assistance. This compares to 5% of citizen households (Brookings).

What about healthcare? Hospitals treat anybody and everybody to emergency care, regardless of citizenship or ability to pay. However, “undocumented Mexicans and other undocumented Latinos reported less use of health care services and poorer experiences with care compared with their US-born counterparts…” It should be noted that this is an interview survey which is not the best source of information, but it’s about the best anybody can do in this circumstance.

If we look compare tax benefits versus costs in context of illegal immigrants, we find that undocumented workers pay $1,800 more in taxes than what the worker costs in taxes. Somewhere between 33% to 50% of undocumented workers pay federal and state taxes despite not being able to draw much benefit (Brookings).

Conclusion

It is my opinion, and the opinion of many economists, the immigration offers more benefits than costs. Immigration reform is necessary. I am not advocating for fully open borders; I am advocating for rational conversation. Take the emotion out.

Only when the facts are presented, and when all parties involved are properly educated, can we then discuss reform. As it stands now, Republicans are becoming isolationists who once supported free-trade. It will be interesting to see how the opinion that their working-class supporters (who they have repeatedly stood against) have changes as this administration gets more time under their belt.

Appendix

The following are studies and reports that are pretty math-heavy. Most of them offer significance tests, robustness tests, elasticity information, and other economist fun-facts. If this post is boring, dive into these. All but one, the last link, are not cited here. Most of them debate the effect that immigration has on native employment and wages and, like I said, disagree with each other on their findings.

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