Mr. Chairman and members of the Subcommittee, thank you for inviting the Cato Institute to testify today on the subject of immigration reform and the U.S. economy. Our current immigration system is fundamentally out of step with the realities of American life and desperately needs comprehensive reform.
Immigrants play an important part in the success of America’s free-enterprise economy. Immigrant workers willingly fill important niches in the labor market. They gravitate to occupations where the supply of workers falls short of demand, typically among the higher-skilled and lower-skilled occupations. That hourglass shape of the immigration labor pool complements the native-born workforce, where most workers fall in the middle range in terms of skills and education. As a result, immigrants do not compete directly with the vast majority of American workers.
Immigration provides needed flexibility to the U.S. economy, allowing the supply of workers to increase relatively quickly to meet rising demand. When demand falls, would-be immigrants can decide not to enter, and those already here can decide to return home. The result is a more efficient economy that can achieve a higher rate of sustainable growth without encountering bottlenecks or stoking inflation.
Immigration not only increases the supply of labor but also the demand for the labor of others-to provide food, housing, transportation, services and consumer goods. Immigration helps to maintain a steady, healthy growth rate in the U.S. labor force. Because of immigration, the U.S. workforce and economy will continue to grow well into the 21st century, while Japan, Germany, and other advanced economies will be forced to adjust to an unprecedented decline in their workforces.1
The impact of immigration on the small segment of the U.S. workforce that competes directly with immigrants is more than offset by the lower prices and wider range of goods and services that all workers enjoy because of immigration. Americans also benefit from higher returns on investment, and from the opportunities created for more skilled native-born workers in those industries that depend on immigrant workers to meet the needs of their customers. The comprehensive study by National Research Council in 1997 concluded that immigration delivers a “significant positive gain” of $1 billion to $10 billion a year to native-born Americans. 2 And those gains from immigration recur year after year.
America’s recent history confirms that American workers can find plentiful employment opportunities during times of robust immigration. During the long boom of the 1990s, and especially in the second half of the decade, the national unemployment rate fell below 4 percent and real wages rose up and down the income scale, including for the poorest one-fifth of American households, during a time of high immigration levels. Today the U.S. unemployment rate has again fallen to levels consistent with full employment and without diminished levels of immigration. Obviously, immigrants and native-born Americans alike can all find work in our $11 trillion economy.
Low-skilled immigrants benefit the U.S. economy by filling jobs for which the large majority of American workers are overqualified and unwilling to fill. Large and important sectors of the U.S. economy-hotels and motels, restaurants, agriculture, construction, light manufacturing, health care, retailing, and other services-depend on low-skilled immigrant workers to remain competitive.
Even as our economy becomes more technologically advanced, the demand for less-skilled labor will continue to grow in the years ahead. According to the Department of Labor, the largest growth in absolute numbers of jobs during the next decade will be in several categories that require only “short-term on-the-job training” of one month or less. Of the 20 job categories with the largest expected growth in employment between 2002 and 2012, 14 of them require only short-term training. Those occupations include retail sales, food preparation, landscaping and grounds keeping, janitors, cashiers, waiters and waitresses, teaching assistants, and home health aides. The net employment growth in those 14 categories alone in the next decade will total 4.9 million.3 (See Table 1.)
Meanwhile, the pool of American workers willing and happy to fill such jobs continues to shrink. We are getting older and better educated. Between 1982 and 2012, according to the Bureau of Labor Statistics, the median age of workers in the U.S. labor force will increase from 34.6 years to 41.6 years, the highest level ever recorded in U.S. history. The share of young workers between 16 and 24 will drop by a third, from 22.3 percent to 15 percent.4 At the same time, workers in the U.S. labor force are more educated than ever. In the past four decades, the share of adults 25 and older who have not completed high school has plunged from more than half in 1964 to less than 15 percent in 2004.5 (See Figure 1.) The share of native-born adult Americans without a high school degree has declined even further, to below 10 percent.6 Immigrants provide a ready and willing source of labor to fill that growing gap between demand and supply on the lower rungs of the labor ladder.
Yet our current immigration system offers no legal channel for peaceful, hardworking non-residents to enter the United States even temporarily to fill those jobs that the vast majority of Americans do not want. The result is large-scale illegal immigration.
Our current dysfunctional immigration system is colliding with those powerful economic and demographic realities, and as usual reality is prevailing. Since 1986, the U.S. government has increased spending on the Border Patrol by ten-fold. It has built walls for miles out into the desert. For the first time in U.S. history, it has imposed fines on U.S. employers who knowingly hire undocumented workers.7 Yet the number of illegal immigrants living in the United States continues to grow by several hundred thousand a year to an estimated 10 million today.8
The presence of such a large pool of illegal workers imposes an unnecessary drag on our economy. Many of those illegal workers are unable to bargain effectively with employers for a full market wage, relegating them to secondary markets where they are more likely to be paid in cash or hired through subcontractors. The result is submarket wages and submarket working conditions for undocumented workers and for legal immigrants and native-born workers who compete with them in the labor market. As a result, employer sanctions and other enforcement efforts have acted as a kind of tax on low-skilled workers in the United States, whether immigrant or native.
The only realistic answer is comprehensive immigration reform. Such reform should create a legal channel for workers from Mexico and other countries to enter the United States temporarily to fill those jobs vital to our economic strength as a nation. It should grant temporary but also renewable visas that would allow foreign-born workers to fill those jobs where their labor is most needed. Such visas should allow multiple re-entries for as long as the visa is valid, complete mobility between employers and sectors of the U.S. economy, and the full protection of U.S. law.
Comprehensive reform should also legalize the millions of workers currently in the United States without legal documentation. Many of these workers have lived and worked in the United States for several years. They have become valuable participants in their workplaces and their communities. They should be allowed and encouraged to come forward to be legalized and properly documented. Legalization does not mean amnesty. Newly legalized workers can be assessed a fine. They should be required to get in line with everybody else if they want to apply for permanent status. However we achieve legalization, it would be far preferable to the status quo of millions of people living in a legal and social twilight zone, outside the rule and protection of the law.
Undocumented workers who are currently employed and who pose no security threat should be allowed to stay in the country while they adjust their status. Forcing several million workers to leave their jobs and their communities for an indefinite period would serve no compelling national interest. It would, however, impose a substantial cost on U.S. companies and consumers in terms of disrupted production and even potential unemployment for native-born American workers in the affected industries. It would also impose an unnecessarily harsh cost on the affected immigrant workers and, in many cases, their U.S.-citizen family members.
Reform is not about opening the door to millions of additional foreign workers. It’s about legalizing the millions already here and the hundreds of thousands who are coming in each year already. Legalization would raise their wages, benefits and working conditions by giving them more bargaining power in the marketplace. They could more easily change jobs to improve their pay and working conditions. They would be more likely to qualify for health insurance. They would be more likely to invest in their language and job skills. They could put their savings in the bank. Legalization would replace an underground flow and stock of illegal workers with a safe and orderly supply of legal workers-workers who would enjoy the full protection of the law and freedom of movement in the labor market.
In conclusion, members of the subcommittee and Congress have three basic options before them. We can muddle through with the status quo, leaving millions of currently illegal and mostly low-skilled immigrants in the legal shadows, unable to realize the full benefits of their labor in the marketplace.
Or we can redouble the failed policies of the past and crack down, once again, on illegal immigration, building more fences, assigning thousands more agents to patrol the border, and raiding more workplaces.
Or we can recognize reality, adopt comprehensive reform, and fix America’s flawed immigration system so that it conforms to the realities of a free society and a free and efficient economy. A legalized system of migration would, in one stroke, bring a huge underground market into the open. It would raise wages and working conditions for millions of low-skilled workers and spur investment in human capital. And it would allow American producers in important sectors of our economy to hire the workers they need to grow.
Thank you and I look forward to your questions.
1 Pete Engardio and Carol Matlack, “Global Aging,” BusinessWeek, January 31, 2005.
2 James P. Smith and Barry Edmonston, editors, The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, National Research Council (Washington: National Academy Press, 1997), p. 6.
3 Daniel Hecker, “Occupation Employment Projections to 2012,” U.S. Department of Labor, Monthly Labor Review, February 2004, Table 4, p. 101.
4 Mitra Toossi, “Labor Force Projections to 2012: The Graying of the U.S. Workforce,” U.S. Department of Labor, Monthly Labor Review, February 2004, p. 56.
5 U.S. Bureau of the Census. http://www.census.gov/population/socdemo/education/tabA-2.xls.
6 George Borjas, Heaven’s Door (Princeton, N.J.: Princeton University Press, 1999), p. 21.
7 For an examination of the failure of U.S. border enforcement policies, see Daniel T. Griswold, “Willing Workers: Fixing the Problem of Illegal Mexican Migration to the United States,” Cato Trade Policy Analysis no. 19, October 15, 2002, especially pp. 4-5.
8 Jeffrey S. Passel, “Estimates of the Size and Characteristics of the Undocumented Population,” Pew Hispanic Center, March 21, 2005, p. 2.