The Prospects for American Workers: Immigration’s Impact

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Mr. Chairman, Congresswoman Jackson-Lee, and members of theSubcommittee, thank you for inviting the Cato Institute to testifytoday on the subject of immigration and American workers.Immigration has been a blessing to the United States throughout ourhistory, and continues to bless Americans today.

Immigrants play an important part in the success of America'sfree-enterprise economy, filling important niches in the labormarket. Immigrants gravitate to occupations where the gap betweenthe supply of workers and demand for them is greatest, typically inthe highest-skilled and lowest-skilled jobs. That hourglass shapeof the immigration labor pool complements the native workforce,where most workers fall in the middle range in terms of skills andeducation. As a result, immigrants do not compete directly with thevast majority of American workers.

Immigration provides a safety valve for the U.S. labor market,allowing the supply of workers to increase relatively quickly tomeet rising demand. When demand falls, would-be immigrants candecide not to enter, and those already here can decide to returnhome. The result is a more efficient economy that can achieve ahigher rate of sustainable growth without encountering bottlenecksor stoking inflation.

The impact of immigration on the relatively small segment of theworkforce that competes directly with immigrants is more thanoffset by the lower prices that all workers enjoy for the goodsproduced by immigrants, and by the higher return on investment. Thecomprehensive study by National Research Council in 1997 concludedthat immigration delivers a "significant positive gain" of $1billion to $10 billion a year to native Americans. And those gainsfrom immigration recur year after year.

America's recent history confirms that our economy can prosperduring times of robust immigration. During the long boom of the1990s, and especially in the second half of the decade, thenational unemployment rate fell below 4 percent and real wages roseup and down the income scale, including for the poorest one-fifthof American households, during a time of high immigration levels.America's poverty rate fell by three percentage points during the1990s, and almost 10 percentage points among African Americans.

Those remarkable gains occurred during a decade of largeimmigration inflows, including low-skilled immigrants fromMexico.

Low-skilled immigrants benefit the U.S. economy by filling jobsfor which the large majority of American workers are overqualifiedand unwilling to fill. Important sectors of the U.S. economy dependon low-skilled immigrant workers to remain in business-hotels andmotels, restaurants, construction, light manufacturing, healthcare, retailing, and other services.

The demand for less-skilled labor will continue to grow in theyears ahead. According to the Department of Labor, the largestgrowth in absolute numbers of jobs will be in those categories thatrequire only "short-term on-the-job training" of one month or less.Across the U.S. economy, the Labor Department estimates that thetotal number of such jobs will increase by 7.7 million in thisdecade.

Meanwhile, the supply of American workers who would be satisfiedwith such work continues to shrink because of an aging workforceand rising education levels. By the end of this decade, the averageage of American workers will be 40.6 years. Meanwhile, younger andolder workers alike are now more educated as the share of adultnative-born men without a high school diploma has plunged, frommore than 50 percent in 1960 to below 10 percent and falling today.Immigrants provide a ready and willing source of labor to fill thatgrowing gap on the lower rungs of the labor ladder.

Immigration does lower the wages of high school dropouts, butthe combined effect of international trade and technological changeare believed to be even greater. Barring low-skilled immigrantsfrom the U.S. workforce would not reverse the underlying economictrends arrayed against the least skilled and educated. What thoseworkers need for their long-term success is not less competitionfrom immigrants but more skills and education.

In fact, competition from immigrants actually gives native-bornworkers an even greater incentive to stay in school and enhancetheir skills. Such competition actually increases the likelihoodthat native-born Americans will stay in school rather than drop outbecause immigration increases the wage premium young workersreceive for completing high school. We saw this happen early in the20th century when low-skilled immigration spurred a dramaticincrease in the share of Americans earning their high schooldegrees.

Our current dysfunctional immigration system is colliding withreality, and reality is winning. Since 1986, the U.S. governmenthas labored in vain to stem the inflow of illegal immigrants, withthe result that more than 5 million undocumented workers live in alegal twilight zone. Many of them are unable to bargain effectivelywith employers for a full market wage, relegating them to secondarymarkets where they are more likely to be paid in cash or hiredthrough subcontractors.

The result is submarket wages and submarket working conditionsfor undocumented workers and for legal immigrants and native-bornworkers who compete with them in the labor market. As a result,employer sanctions and other enforcement efforts have acted as akind of tax on low-skilled workers in the United States, whetherimmigrant or native.

In conclusion, members of the subcommittee and Congress havethree basic options before them. We can muddle through with thestatus quo, leaving millions of currently illegal and mostlylow-skilled immigrants in the legal shadows, unable to realize thefull benefits of their labor in the marketplace.

Or we can redouble the failed policies of the past and crackdown, once again, on illegal immigration, building more fences,assigning thousands more agents to patrol the border, and raidingmore workplaces.

Or we can recognize reality by fixing America's flawedimmigration system so that it conforms to the realities of a freesociety and a free and efficient economy. A legalized system ofmigration would, in one stroke, bring a huge underground marketinto the open. It would allow American producers in importantsectors of our economy to hire the workers they need to grow. Andit would raise wages and working conditions for millions oflow-skilled workers and spur investment in human capital.

Thank you and I look forward to your questions.

Daniel Griswold

Subcommittee on Immigration, Border Security, and Claims
United States House of Representatives