Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform

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By the latest estimates, 8.3 million workers in the UnitedStates are illegal immigrants. Proposed policy responses range frommore restrictive border and workplace enforcement to legalizationof workers who are already here and the admission of new workersthrough a temporary visa program. Policy choices made by Congressand the president could have a major economic impact on the welfareof U.S. households. This study uses the U.S. Applied GeneralEquilibrium model that has been developed for the U.S.International Trade Commission and other U.S. government agenciesto estimate the welfare impact of seven different scenarios, whichinclude increased enforcement at the border and in the workplace,and several different legalization options, including a visaprogram that allows more low‐​skilled workers to enter the U.S.workforce legally.

For each scenario, the USAGE model weighs the impact on suchfactors as public revenues and expenditures, the occupational mixand total employment of U.S. workers, the amount of capital ownedby U.S. households, and price levels for imports and exports. Thisstudy finds that increased enforcement and reduced low‐​skilledimmigration have a significant negative impact on the income ofU.S. households. Modest savings in public expenditures would bemore than offset by losses in economic output and job opportunitiesfor more skilled American workers. A policy that reduces the numberof low‐​skilled immigrant workers by 28.6 percent compared toprojected levels would reduce U.S. household welfare by about 0.5percent, or $80 billion.

In contrast, legalization of low‐​skilled immigrant workers wouldyield significant income gains for American workers and households.Legalization would eliminate smugglers’ fees and other costs facedby illegal immigrants. It would also allow immigrants to havehigher productivity and create more openings for Americans inhigherskilled occupations. The positive impact for U.S. householdsof legalization under an optimal visa tax would be 1.27 percent ofGDP or $180 billion.

Peter B. Dixon and Maureen T. Rimmer

Peter Dixon is the Sir John Monash Distinguished Professor and Maureen Rimmer is a Senior Research Fellow at the Centre of Policy Studies at Monash University in Australia. Their USAGE model of the U.S. economy has been used by the U.S. Departments of Commerce, Agriculture, and Homeland Security, and the U.S. International Trade Commission.