Tag: illegal immigration

Immigration Does Not Decrease Economic Freedom

A common criticism of immigration reform (here, here, and here) is that it will decrease economic freedom in the United States, by increasing the voting pool for the Democratic Party.  Leaving aside the issue of which party supports economic liberty, if any, it’s important to see what the actual impacts of immigration are on economic freedom in the United States and the world.  The political effects of immigrants after they arrive are less certain than the economic benefits.  Do immigrants decrease economic freedom in their new countries?  The bottom line: fears of immigrants decreasing economic freedom seem unfounded.

Since 1980, wealthy countries have seen rises in immigrant populations.  Immigrants are drawn to economic prosperity, higher wages, and better standards of living so it’s not surprising that wealthier countries have higher percentages of immigrants.  I excluded numerous small countries and petro-states like the UAE and Kuwait from the analysis.

I looked at the 25 wealthiest nations in the world in 1980 (by per capita GDP PPP) and considered their economic freedom rating and the percent foreign born.  I then tracked those same countries every 5 years until 2010.  Here are the averages for all 25 nations:

The Border Security Obsession

Immigration is mainly an economic phenomenon, but the politics surrounding reform are mired in border security talking points. The soon-to-be-voted-on Hoeven-Corker amendment to the immigration reform bill will double the size of border patrol and place an absurd array of technology and fencing on the southern border. The Hoeven-Corker amendment is a political necessity, but a policy absurdity.

Securing the border is largely a rhetorical excuse to oppose reforming the immigration system. Senator Jeff Sessions (R-AL) said of the Hoeven-Corker amendment that, “I do not think this amendment is going to touch many of the objections that I spoke about.” The Hoeven-Corker amendment militarizes the border to an embarrassing degree–replacing the Statue of Liberty’s promise of liberty to all with a wall facing southward.   

How will this $5-billion-a-year security buildup be financed? The Congressional Budget Office (CBO) estimates enormous fiscal gains from immigration reform–reducing deficits from between $700 billion and $1.2 trillion over the next 20 years. Spending large portions of those anticipated savings on more security will convince some Republicans to vote for the entire immigration bill, but it won’t solve the unlawful immigration problem going forward. Fixing the legal immigration system will. 

Allowing more legal low-skilled guest workers will channel would-be unlawful immigrants into the legal market. Immigrants won’t cross illegally if they can come in legally through a checkpoint. Shrinking the size of the unlawful immigrant population by channeling most of them into the legal system will help Border Patrol weed out the criminals, national security threats, and sick people from the vast majority of willing peaceful workers. History shows us the way. 

In the early 1950s unlawful immigration was a problem, but Border Patrol did not just punish the immigrants, it funneled them into the legal market. During that time there was a guest worker visa program called Bracero. After arresting unlawful immigrants, Border Patrol drove them down to the Southern border and immediately let them enroll in the Bracero program, allowing them to return to their jobs after taking a few steps over the border and coming back into the U.S. with lawful permission. 

Soon, would-be unlawful immigrants learned they could just enter legally–and they did. Unlawful immigration dropped by more than 90 percent in the following years. If there was a legal immigration option today, expanded to sectors of the economy besides just agriculture, immigrants would overwhelmingly make the same choice.

Today, the immigration enforcement infrastructure already exists to funnel would-be unlawful immigrants into the legal market. The only thing lacking is a functional guest worker visa program. The current immigration reform bill’s guest worker visa program is a complicated mess that is barely better than the current system.  

Allowing additional legal guest workers will accomplish more than spending $5 billion a year on border security.  It will channel peaceful people in the legal immigration system while leaving Border Patrol to deal with the real criminal and national security threats that remain.  Militarizing the border without improving the guest worker visa system risks a repeat of the 1986 Reagan amnesty.

The good portions of this immigration reform bill still outweigh the bad but we cannot afford too many more Hoeven-Corker amendments.

CBO Dynamically Scores Immigration Bill

The Congressional Budget Office has fiscally scored the Senate’s immigration bill, S. 744, and found that it will decrease fiscal deficits over the next 20 years—giving a huge boost to reform proponents.  In line with criticisms made by me and others, the CBO departed from orthodoxy and assumed that S. 744 would affect economic growth (i.e., they dynamically scored the bill)—arguing that the economic and fiscal gains from immigration reform are clear.  These findings are broadly consistent with Cato’s findings here.  

The CBO produced two scores of S. 744.  The first was less dynamic, assuming that GDP and the workforce would grow as a result of immigration. Increased numbers of workers will add to GDP, producing growth by definition, and not displacing many other workers.  The second score is more dynamic, taking into account many of the economic effects of immigration reform using an enhanced Solow model.

The less-dynamic CBO score found that immigration reform will reduce the federal deficit by about $197 billion by increased GDP and tax revenues through adding six million people to the workforce by 2023.  Over a period of 20 years, the CBO estimated that this legislation would reduce deficits by about $700 billion—a sizeable decrease.  In what seems to be a specific dig at the 50-year span of the recent Heritage study, the CBO wrote that, “we cannot determine whether enactment of S. 744 would lead to an increase in on-budget deficits … in any of the three 10-year periods starting in 2033.” 

The more dynamic CBO score found that S. 744 would not affect the budget by 2023.  However, because the dynamic economic effects of S. 744 would affect the economy slowly, the CBO predicts a $300 billion decrease in deficits from 2023-2033 greater that the $700 billion reported in the less-dynamic score.

The more-dynamic CBO model predicts $1.197 trillion in reduced deficits over the next 20 years if immigration reform is passed. 

Delving into the details of the CBO’s more-dynamic score, they estimated that S. 744 would increase GDP by 3.3 percent in 2023 and 5.4 percent in 2033, relative to the baseline.  Per capita GNP would lower by .7 percent by 2023 but be higher by .2 percent in 2033.  Wages would be .5 percent higher in 2033 under S. 744. 

The more-dynamic score takes into account these effects from S. 744: 

  1. Increased size and employment in the economy.
  2. Increased average wages after 2025.
  3. Slightly increased unemployment rate through 2020.
  4. Increased quantity of capital investment.
  5. Increased productivity of labor (due to complementary task specialization).
  6. Increased productivity of capital (due to increase in supply of labor and TFP).
  7. Higher interest rates.

The CBO took account of some of the main findings in the economic literature about the economic effects of immigration.  For example, the CBO predicts there will be a 12 percent increase in the wages of legalized immigrants.

Conceptually, dynamically scoring legislation is a big step toward rationally judging the costs and benefits of policy changes.  Legislation that changes the size of the economy or the pace of economic growth will affect future tax revenues that will, in turn, affect the fiscal state of the federal government.  CBO scores have been inaccurate over time—many wildly so.  They should never be the final word on the estimated net fiscal costs of immigration reform, but this is the most thorough examination to date. The CBO’s findings broadly confirm Cato’s research that immigration reform will be economically beneficial to immigrants and the country as a whole. 

Senate Moving Forward with Immigration Reform Bill

Yesterday, senators voted to proceed with debating the immigration reform bill on the floor of the Senate. The Gang of Eight’s bill was amended numerous times in the Judiciary Committee but now it will face input and criticism from the rest of the Senate. There are four big areas of the legislation to watch for amendments and criticisms:

Welfare

Numerous amendments will be introduced to further block non-citizen access to the welfare state. Cato colleagues and I have done a lot of work on this issue, including a forthcoming policy analysis, that has provided some of the intellectual ammunition demonstrating the viability of building a wall around the welfare state while increasing lawful immigration.

Border Security

Senators like John Cornyn (R-TX) are deeply worried that the current bill does not provide enough border security. The current bill adds billions of dollars to an enforcement system that has grown along with the rest of the government over the last few decades. The best way to limit unlawful immigration is to increase legal immigration opportunities, such as temporary guest worker visas and other broader measures. Senator Cornyn’s border security amendment will be crucial for the bill’s political success but will not much affect the policy outcome of the legislation—except to make it more expensive.

E-Verify

With scandals about government invasions of privacy, one would think a national electronic employment eligibility system like E-Verify would raise opposition.  Designed to weed unlawful immigrants out of the work force, the system is fraught with problems and raises numerous privacy concerns that my colleague Jim Harper has explored here.  Given how internal enforcement has almost zero deterrent effect on unlawful immigration, it’s a mystery why so many so-called limited government conservatives support it in the first place.

Legal Immigration 

The guest worker provisions of the bill are too regulated, too restricted, and too limited for workers of every skill category.  Applied retroactively, the proposed guest worker visa system would not be big enough to channel most unlawful workers who came in previous years into the legal market.  Regardless, the immigration reform bill is a step in the right direction for guest workers—albeit a small one.

There are other important policy and political issues going forward, from controversy over the net fiscal cost of immigration reform to the tremendous economic benefits of increasing the number of productive people, but these are the big ones to follow for libertarians and fellow travelers.

Why Are There So Few Unlawful Immigrants?

Labor markets are heavily distorted by immigration restrictions, producing wide and persistent wage differences for observably identical workers in developed and developing nations. Income for low skilled American workers is 16 times as high as Haitians in Haiti, about 7 times as high as Indians in India, and about 4 times as high as Mexicans in Mexico—all adjusted for purchasing power parity. Just by moving here immigrants can largely close that wage gap. 

There are very limited avenues for low skilled immigrants to immigrate legally, which raises an important question: if the economic benefits of immigrating are so high, why are there only 11 to 12 million unlawful immigrants here?  

Below are the two broad reasons: 

First, the benefits of immigrating are not as high as they seem. The probability of being employed in the destination country is a vital variable because unemployment does not confer any benefits on the immigrant. The skill level of prospective unlawful immigrants restricts job opportunities to certain occupations. If the sectors where low skilled immigrants work have high unemployment rates, as many do now, the chances of earning higher wages here is lower so the economic benefits of immigration are lower. Downward wage bargaining by immigrants is limited but unlawful immigrants do take a wage cut, all else being equal, of about 20 percent to compensate their employers for the legal risk of hiring them and other reasons. Growing economies in places like Mexico, China, and elsewhere might partially offset the benefits of immigrating by promising higher incomes in the near future.   

Second, the cost of unlawfully immigrating is very high. Opportunity costs, search costs (including language barriers), transportation costs, legal costs, the probability of dying en route, the probability of being sold into slavery, and the probability of not making it to the United States despite paying the smuggling fee are all high and increase risk. Immigration enforcement is very effective at deterring most would-be unlawful immigrants. High smuggling fees are a high up front cost. 

Immigration can be understood as an investment over a period of years.  The length of time the immigrant spends here employed at higher wages increases the economic benefits of immigrating. The costs of immigrating, like paying for a smuggler, are fixed while there seems to be a low marginal cost for staying here to avoid immigration enforcement. The psychic costs could shift with time.

Here is an example:

Immigration: Government Can Only Regulate Legal Markets

Details about the Boston bombers are surfacing by the minute, but many opponents of immigration reform are already using it as an excuse to oppose reform. There is no reason to assume that continuing the status quo immigration policy will prevent future terrorist attacks.

Legalizing the peaceful and otherwise law-abiding unauthorized immigrants here will allow law enforcement to focus on legitimate national security and crime threats. It is more costly for the government to weed out criminals and national security threats when there is such a large and relatively peaceful unauthorized immigrant population. Shrinking the size of that immigrant black market quickly and cheaply through responsible legalization, and allowing more immigration of workers in the future, will channel scarce government resources toward legitimate security and criminal screenings and away from enforcing economic protectionism. Every minute that a government official currently spends raiding workplaces and checking whether immigrants will affect the wages of technology workers or Washington lawyers is a waste.

Removing peaceful people from the immigration black market and channeling future immigrants into a legal system—after security, criminal, and health checks—is likely to increase safety, not diminish it. The number of permitted immigrants should be determined based on the demands of the market, not the whims of politcs. The government should shed its economic protectionist role in immigration enforcement and instead devote its resources to weeding out the terrorist and criminal needles in an otherwise peaceful and productive haystack.

Heritage Immigration Study Fatally Flawed

There are indications that The Heritage Foundation may soon release an updated version of its 2007 report, “The Fiscal Cost of Low-Skill Immigrants to the U.S. Taxpayer,” by Robert Rector. That 2007 report’s flawed methodology produced a grossly exaggerated cost to federal taxpayers of legalizing unauthorized immigrants while undercounting or discounting their positive tax and economic contributions – greatly affecting the 2007 immigration reform debate.

Before releasing its updated report, I urge the Heritage Foundation to avoid the same serious errors that so undermined Mr. Rector’s 2007 study. Here is a list of some of its major errors:

  1. Count individuals, not households.[1]  Heritage counts household use of government benefits, not individual immigrant use. Many unauthorized immigrants are married to U.S. citizens and have U.S. citizen children who live in the same households. Counting the fiscal costs of those native-born U.S. citizens massively overstates the fiscal costs of immigration. 
  2. Employ dynamic scoring rather than static scoring. [2] Heritage’s report relies on static scoring rather than dynamic scoring, making the same mistake in evaluating the impact of increased immigration on welfare costs that the Joint Committee on Taxation makes when scoring the impact of tax cuts. Instead, Heritage should use dynamic scoring techniques to evaluate the fiscal effects of immigration reform. For example, Heritage should assume that wages and gross domestic product are altered considerably because of immigration policy reforms. In contrast to that economic reality, immigrant wages, gross domestic product, and government welfare programs are unrealistically static in Mr. Rector’s study. His study largely ignores the wage increases experienced by immigrants and their descendants over the course of their working lives, how those wages would alter after legalization, and the huge gains in education amongst the second and third generation of Hispanics.[3] Heritage is devoted to dynamic scoring in other policy areas – it should be so devoted to it here too.[4]
  3. Factor in known indirect fiscal effects.[5]  The consensus among economists is that the economic gains from immigration vastly outweigh the costs.[6] In 2007, Mr. Rector incorrectly noted that, “there is little evidence to suggest that low-skill immigrants increase the incomes of non-immigrants.” Immigrants boost the supply and demand sides of the American economy, increasing productivity through labor and capital market complementarities with a net positive impact on American wages.[7] Heritage should adjust its estimates to take account of the positive spill-overs of low-skilled immigration.
  4. Assume that wages for legalized immigrants would increase – dramatically.[8]  Heritage did not assume large wage gains for unauthorized immigrants after legalization.  In the wake of the 1986 Reagan amnesty, wages for legalized immigrants increased – sometimes by as much as 15 percent – because legal workers are more productive and can command higher wages than illegal workers.  Heritage should adopt similar wage increases to estimate the economic effects of immigration reform if it were to happen today.[9] 
  5. Assume realistic levels of welfare use.[10]  Vast numbers of immigrants will return to their home countries before collecting entitlements,[11] the “chilling effect” whereby immigrants are afraid of using welfare reduces their usage of it, and immigrants use less welfare across the board.[12]  100 native-born adults eligible for Medicaid will cost the taxpayers about $98,000 a year.  A comparable number of poor non-citizen immigrants cost approximately $57,000 a year – a 42 percent lower bill than for natives.  For children, citizens cost $67,000 and non-citizens cost $22,700 a year – a whopping 66 percent lower cost.  Heritage should adjust its estimates of future immigrant welfare use downward. [13] 
  6. Use latest legislation as benchmark.[14]  The current immigration plan, if rumors are to be believed, would stretch a path to citizenship out for 13 years.[15]  Most welfare benefits will be inaccessible until then, so Heritage’s report must take that timeline into account.
  7. Remittances do not decrease long term consumption.[16]  Remittances sent home by immigrants will eventually return to the U.S. economy in the form of increased exports or capital account surpluses.  Heritage should recognize this aspect of economic reality rather than assuming remittances are merely a short-term economic cost.  
  8. Factor in immigration enforcement costs.[17]  Heritage did not compare costs of legalization and guest workers to the costs of the policy status quo or increases in enforcement.  The government spends nearly $18,000 per illegal immigrant apprehension while the economic distortions caused by forcing millions of consumers, renters, and workers out of the U.S. would adversely affect income and profitability.[18]
  9. Use transparent methodology.[19]  Heritage’s methodology should replicate that of the National Research Council’s authoritative and highly praised – even by immigration restrictionists – study entitled The New Americans.[20]  That study is the benchmark against which all efforts at generational fiscal accounting – including Heritage’s 2007 report – are measured.  If Heritage deviates from their methods, it should explain its methodology in a clear and accessible way that states why they altered practice.[21]
  10. Don’t count citizen spouses.[22]  Heritage counted U.S.-born spouses of unauthorized immigrants as fiscal costs.  Counting the net immigrant fiscal impact means counting immigrants and perhaps their children at most,[23] not native-born spouses who would be on the entitlement roles regardless of whether they married an immigrant or a native-born American.
  11. Suggest changes to the welfare state.  Heritage has elsewhere called low-skill migrant workers “a net positive and a leading cause of economic growth”[24] and accurately reported that “[t]he consensus of the vast majority of economists is that the broad economic gains from openness to trade and immigration far outweigh the isolated cases of economic loss.”[25]  Instead of arguing against low-skill immigration, Mr. Rector should instead suggest reforms that would, in the words of Cato’s late Chairman Bill Niskanen, “build a wall around the welfare state, not around the country.”[26]

It is imperative that the economic costs and benefits of increased immigration be studied using proper methods and the most recent data.  A previous report by the Heritage Foundation in 2006 entitled, “The Real Problem with Immigration … and the Real Solution,” by Tim Kane and Kirk Johnson roundly rejected the negative economic assessments of Mr. Rector’s 2007 study.[27]  Not only does Mr. Rector not speak for the broad conservative movement; it appears that economists who have worked for the Heritage Foundation also disagree with Mr. Rector’s conclusions. 

For decades, the Heritage Foundation has been an influential intellectual force in conservative circles.  Its economic analyses have been predicated on consideration of the dynamic effects of policy changes as opposed to static effects.  Unfortunately, Mr. Rector’s past work has not been consistent in this regard, employing the same static scoring conservatives have traditionally distrusted in other policy areas. 

Many conservatives rely on the Heritage Foundation for accurate research about immigration’s impact on the economy.  Before releasing another study assessing the net fiscal impacts of immigration reform, Heritage should correct the errors outlined above to guarantee the most accurate information on this important topic is available.