Tag: immigration reform

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:

Immigration Illusions Part One: “Average Wages” Severely Muddled

The Senate immigration bill would ease quotas on legal immigration (particularly for highly-skilled and farm workers), and also allow those now here unlawfully to apply for a green card after ten years if they pay a fine and back taxes.  In an effort to defend our current tight but leaky immigration quotas, a few legislators and commentators seized on the first half of a sentence in the Congressional Budget Office report on this bill:  “CBO’s central estimates also show that average wages for the entire labor force would be 0.1 percent lower in 2023… under the legislation than under current law.”  The CBO goes on to predict average wages would be “0.5 percent higher in 2033” (roughly in line with academic studies).  But the CBO cannot possibly predict such data with any precision for a year ahead, much less 10 or 20.  The larger problem is a common yet severe misunderstanding of what “average wage” really means.

If the Senate bill were enacted, claims Alabama Republican Senator Jeff Sessions, “the wages of U.S. workers – which should be growing – will instead decline… It would be the biggest setback for poor and middle-class Americans of any legislation Congress has considered in decades.” Indeed, if it were to pass, he added, “the wages of American workers will fall for the next 12 years. They will be lower than inflation rates.”

This is quite mistaken.  The CBO never said wages of U.S. workers would fall for even one year, much less twelve, nor did the CBO claim wage gains might be “lower than inflation rates.” All the CBO did was to predict that average nominal wages might end up one-tenth of one percent (0.1%) lower in 2023 than they would be if legal immigration remained as restrictive as it is under current law. If the average wage would otherwise have risen to $45 an hour in 2023, for example, it would instead turn out to be just $44.996 with the Senate bill.

Under the current law baseline, the CBO projects that the employment cost index would rise by 3.7 percent per year from 2014 to 2023, while prices would rise by only 2 percent. That means real compensation (the projection includes benefits, not wages alone) is projected to rise by 1.7 percent a year over the next decade, with or without immigration reform.  

If you add up all the yearly increases, the estimated cumulative rise in worker compensation would be 48.7 percent from 2014 to 2023 under current law, or 48.6 percent − 0.1 percent lower − with the Senate immigration bill.  The difference is doubly insignificant, because CBO ten-year projections are no better than throwing darts.  But for a U.S. Senator to misidentify such as trivial 0.1 percent difference over 12 years as a 12-year spell of falling wages, and for Fox News and others to report that error as though it had substance, involves monumental misunderstanding.  

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.

Heritage Immigration Study and Government Spending

Conservative and libertarian scholars are clashing over the findings and political implications of the new Heritage Foundation immigration study. The study spans 92 pages and is jam-packed full of statistics and detailed calculations.

I’ll leave the immigration policy to my colleagues who are experts in that area. To me, the study provides a very useful exploration into how massive the American welfare state has become. Here are some highlights:

  • “There are over 80 of these [means-tested] programs which, at a cost of nearly $900 billion per year, provide cash, food, housing, medical, and other services to roughly 100 million low-income Americans.”
  • “The governmental system is highly redistributive … For example, in 2010, in the whole U.S. population, households with college-educated heads, on average, received $24,839 in government benefits while paying $54,089 in taxes … [and] households headed by persons without a high school degree, on average, received $46,582 in government benefits while paying only $11,469 in taxes.”
  • “Few lawmakers really understand the current size of government and the scope of redistribution. The fact that the average household gets $31,600 in government benefits each year is a shock.”

Total federal, state, and local government spending in 2010 was $5.4 trillion, or $44,932 per U.S. household. The figure of $31,600 in “benefits” is total spending less spending on public goods, interest, and government pensions.

A useful feature of the Heritage study is a breakdown of the $5.4 trillion in spending into six categories constructed by the authors. “Direct benefits” includes mainly Social Security and Medicare. “Pure public goods” includes programs such as defense and scientific research. “Population-based services” includes programs aimed at whole communities, such as police and highways. (Some of these also seem to be public goods). “Means-tested benefits” includes programs such as food stamps. Education includes both K-12 and college subsidies. “Interest and pensions” is the current costs of past spending, which includes servicing the debt and paying for government pensions. The chart shows spending in 2010.  

This spending breakdown is useful for thinking about the proper size of government. From a libertarian standpoint, governments ought to be spending only on public goods and population-based services, as a first cut. That would be $1.94 trillion, or just 36 percent of the current total of $5.4 trillion. As a percent of GDP in 2010, that would be spending of 14 percent, rather than current spending of 38 percent.

But some of the population-based services mentioned by the authors could be privatized, and spending on some of the public goods could be cut. So a good libertarian target might be less than 36 percent of current spending, or less than 14 percent of GDP.

The Heritage study is sparking a debate about what type of immigration reform the nation should have. But hopefully, it will also spur more discussion about the massive size of the American welfare state. Immigration is partly, or mainly, such a contentious issue because we have such a huge welfare state.

The study includes projections about how many trillions of dollars of government benefits will flow to immigrants and their children in the decades ahead. But conservatives and libertarians agree that we ought to cut trillions of dollars in benefits to immigrants and nonimmigrants alike.

So is there some common ground here? Can we work toward an immigration reform that cuts government dependency in general and downsizes the welfare state?

The Path to National Identification

In my 2008 paper, “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration,” I wrote about where “internal enforcement” of immigration law leads: “to a national, cradle-to-grave, biometric tracking system.” More recently, I wrote “Internal Enforcement, E-Verify, and the Road to a National ID” in the Cato Journal. The “Gang of Eight” immigration proposal includes a large step on that path to national identification.

National ID provisions in the 2007 immigration bill were arguably its downfall. Scrapping the national ID provisions in the current bill would improve it, allowing our country to adopt more sensible immigration policies without suffering a costly attack on American citizens’ liberties.

Title III of the “Gang of Eight” bill is entitled “Interior Enforcement.” It begins by reiterating the current prohibition on hiring unauthorized aliens. (What seems to many a natural duty of employers was an invention that dates back only as far as 1986, when Congress passed the Immigration Reform and Control Act. Prior to that time, employers were free to hire workers based on the skills and willingness they presented, and not their documents. But since that time, Congress has treated the nation’s employers as deputy immigration agents.)

The bill details the circumstances under which employers may be both civilly and criminally liable under the law and provides for a “good faith defense” and “good faith compliance” that employers may hope to use as shelter. The bill restates (with modifications) the existing requirements for checking workers’ papers, saying that employers must “attest, under penalty of perjury” that they have “verified the identity and employment authorization status” of the people they employ, using prescribed documents or combination of documents. Cards that meet the requirements of the REAL ID Act are specifically cited as proof of identity and authorization to work.

In addition, the bill would create a new “identity authentication mechanism,” requiring employers to use that as well. It would take one of two forms. One is a “photo tool” that enables employers to match photos on covered identity documents to photos “maintained by a U.S. Citizenship and Immigration Services database.” If the photo tool is not available, employers must use a system the bill would instruct the Department of Homeland Security develop. The system would “provide a means of identity authentication in a manner that provides a high level of certainty as to the identity of such individual, using immigration and identifying information that may include review of identity documents or background screening verification techniques using publicly available information.”

The bill next turns to expanding the E-Verify system, requiring its use by various employers on various schedules. The federal government and federal contractors would have to use E-Verify as required already or within 90 days. A year after the DHS publishes implementing regulations, the Secretary of Homeland Security could require anyone touching “critical infrastructure” (defined here) to use E-Verify. She could require immigration law violators to use E-Verify anytime she likes.