Mr. Chairman and members of the Subcommittee, thank you forinviting the Cato Institute to testify today on the subject ofimmigration reform and the U.S. economy. Our current immigrationsystem is fundamentally out of step with the realities of Americanlife and desperately needs comprehensive reform.
Immigrants play an important part in the success of America'sfree-enterprise economy. Immigrant workers willingly fill importantniches in the labor market. They gravitate to occupations where thesupply of workers falls short of demand, typically among thehigher-skilled and lower-skilled occupations. That hourglass shapeof the immigration labor pool complements the native-bornworkforce, where most workers fall in the middle range in terms ofskills and education. As a result, immigrants do not competedirectly 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 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.
Immigration not only increases the supply of labor but also thedemand for the labor of others-to provide food, housing,transportation, services and consumer goods. Immigration helps tomaintain a steady, healthy growth rate in the U.S. labor force.Because of immigration, the U.S. workforce and economy willcontinue to grow well into the 21st century, while Japan, Germany,and other advanced economies will be forced to adjust to anunprecedented 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 thanoffset by the lower prices and wider range of goods and servicesthat all workers enjoy because of immigration. Americans alsobenefit from higher returns on investment, and from theopportunities created for more skilled native-born workers in thoseindustries that depend on immigrant workers to meet the needs oftheir customers. The comprehensive study by National ResearchCouncil in 1997 concluded that immigration delivers a "significantpositive gain" of $1 billion to $10 billion a year to native-bornAmericans. 2 Andthose gains from immigration recur year after year.
America's recent history confirms that American workers can findplentiful employment opportunities during times of robustimmigration. During the long boom of the 1990s, and especially inthe second half of the decade, the national unemployment rate fellbelow 4 percent and real wages rose up and down the income scale,including for the poorest one-fifth of American households, duringa time of high immigration levels. Today the U.S. unemployment ratehas again fallen to levels consistent with full employment andwithout diminished levels of immigration. Obviously, immigrants andnative-born Americans alike can all find work in our $11 trillioneconomy.
Low-skilled immigrants benefit the U.S. economy by filling jobsfor which the large majority of American workers are overqualifiedand unwilling to fill. Large and important sectors of the U.S.economy-hotels and motels, restaurants, agriculture, construction,light manufacturing, health care, retailing, and otherservices-depend on low-skilled immigrant workers to remaincompetitive.
Even as our economy becomes more technologically advanced, thedemand for less-skilled labor will continue to grow in the yearsahead. According to the Department of Labor, the largest growth inabsolute numbers of jobs during the next decade will be in severalcategories that require only "short-term on-the-job training" ofone month or less. Of the 20 job categories with the largestexpected growth in employment between 2002 and 2012, 14 of themrequire only short-term training. Those occupations include retailsales, food preparation, landscaping and grounds keeping, janitors,cashiers, waiters and waitresses, teaching assistants, and homehealth aides. The net employment growth in those 14 categoriesalone in the next decade will total 4.9 million.3 (See Table 1.)
Meanwhile, the pool of American workers willing and happy tofill such jobs continues to shrink. We are getting older and bettereducated. Between 1982 and 2012, according to the Bureau of LaborStatistics, the median age of workers in the U.S. labor force willincrease from 34.6 years to 41.6 years, the highest level everrecorded in U.S. history. The share of young workers between 16 and24 will drop by a third, from 22.3 percent to 15percent.4 At the sametime, 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 havenot completed high school has plunged from more than half in 1964to less than 15 percent in 2004.5 (See Figure 1.) The share of native-born adultAmericans without a high school degree has declined even further,to below 10 percent.6Immigrants provide a ready and willing source of labor to fill thatgrowing gap between demand and supply on the lower rungs of thelabor ladder.
Yet our current immigration system offers no legal channel forpeaceful, hardworking non-residents to enter the United States eventemporarily to fill those jobs that the vast majority of Americansdo not want. The result is large-scale illegal immigration.
Our current dysfunctional immigration system is colliding withthose powerful economic and demographic realities, and as usualreality is prevailing. Since 1986, the U.S. government hasincreased spending on the Border Patrol by ten-fold. It has builtwalls for miles out into the desert. For the first time in U.S.history, it has imposed fines on U.S. employers who knowingly hireundocumented workers.7 Yet the number of illegal immigrants living in theUnited States continues to grow by several hundred thousand a yearto an estimated 10 million today.8
The presence of such a large pool of illegal workers imposes anunnecessary drag on our economy. Many of those illegal workers areunable to bargain effectively with employers for a full marketwage, relegating them to secondary markets where they are morelikely to be paid in cash or hired through subcontractors. Theresult is submarket wages and submarket working conditions forundocumented 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.
The only realistic answer is comprehensive immigration reform.Such reform should create a legal channel for workers from Mexicoand other countries to enter the United States temporarily to fillthose jobs vital to our economic strength as a nation. It shouldgrant temporary but also renewable visas that would allowforeign-born workers to fill those jobs where their labor is mostneeded. Such visas should allow multiple re-entries for as long asthe visa is valid, complete mobility between employers and sectorsof the U.S. economy, and the full protection of U.S. law.
Comprehensive reform should also legalize the millions ofworkers currently in the United States without legal documentation.Many of these workers have lived and worked in the United Statesfor several years. They have become valuable participants in theirworkplaces and their communities. They should be allowed andencouraged to come forward to be legalized and properly documented.Legalization does not mean amnesty. Newly legalized workers can beassessed a fine. They should be required to get in line witheverybody else if they want to apply for permanent status. Howeverwe achieve legalization, it would be far preferable to the statusquo of millions of people living in a legal and social twilightzone, outside the rule and protection of the law.
Undocumented workers who are currently employed and who pose nosecurity threat should be allowed to stay in the country while theyadjust their status. Forcing several million workers to leave theirjobs and their communities for an indefinite period would serve nocompelling national interest. It would, however, impose asubstantial cost on U.S. companies and consumers in terms ofdisrupted production and even potential unemployment fornative-born American workers in the affected industries. It wouldalso impose an unnecessarily harsh cost on the affected immigrantworkers and, in many cases, their U.S.-citizen family members.
Reform is not about opening the door to millions of additionalforeign workers. It's about legalizing the millions already hereand the hundreds of thousands who are coming in each year already.Legalization would raise their wages, benefits and workingconditions by giving them more bargaining power in the marketplace.They could more easily change jobs to improve their pay and workingconditions. They would be more likely to qualify for healthinsurance. They would be more likely to invest in their languageand job skills. They could put their savings in the bank.Legalization would replace an underground flow and stock of illegalworkers with a safe and orderly supply of legal workers-workers whowould enjoy the full protection of the law and freedom of movementin the labor market.
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, adopt comprehensive reform, and fixAmerica's flawed immigration system so that it conforms to therealities of a free society and a free and efficient economy. Alegalized system of migration would, in one stroke, bring a hugeunderground market into the open. It would raise wages and workingconditions for millions of low-skilled workers and spur investmentin human capital. And it would allow American producers inimportant sectors of our economy to hire the workers they need togrow.
Thank you and I look forward to your questions.
1 Pete Engardio and CarolMatlack, "Global Aging," BusinessWeek, January 31, 2005.
2 James P. Smith and BarryEdmonston, editors, The New Americans: Economic, Demographic, andFiscal Effects of Immigration, National Research Council(Washington: National Academy Press, 1997), p. 6.
3 Daniel Hecker,"Occupation Employment Projections to 2012," U.S. Department ofLabor, Monthly Labor Review, February 2004, Table 4, p. 101.
4 Mitra Toossi, "LaborForce 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 theCensus.http://www.census.gov/population/socdemo/education/tabA-2.xls.
6 George Borjas, Heaven'sDoor (Princeton, N.J.: Princeton University Press, 1999), p.21.
7 For an examination ofthe failure of U.S. border enforcement policies, see Daniel T.Griswold, "Willing Workers: Fixing the Problem of Illegal MexicanMigration 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 UndocumentedPopulation," Pew Hispanic Center, March 21, 2005, p. 2.