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Three economic questions frame nearly every debate on the immigration issue.  First, can America absorb the latest wave of immigrants?  Second, what is the impact of immigrants on the labor market prospects for low- and high-skilled natives?  Third, do immigrants represent a strain on public services?  In answering these questions it is important to appreciate that non-economic considerations are not abstract from an understanding of whether the nation would be better off economically without immigrant workers – legal or otherwise. 

The question of whether America can “take it” encapsulates both an economic and a social dimension, call these absorption and assimilation.  The former is the impact on the overall economy, resources, and infrastructure of America – and how well subsequent generations of immigrants do economically. What is meant by the latter is less clear.  Does it mean to become a Christian or to speak English?  Or does it mean adherence to traditional American customs and culture?  If so, then which customs are important and what exactly is “American culture?”  Must immigrants eat turkey on Thanksgiving Day or watch football on Super Bowl Sunday?  Even something as “American as Apple Pie” is extraordinarily cosmopolitan – with English and Dutch recipe origins and whose production today would be impossible without the mutual cooperation of literally thousands of people. 

In fact there is no mention of religion, race, language or custom in the oath taken by immigrants applying for citizenship – perhaps in recognition that assimilation is an emergent process, more like the unplanned order which explains why no one goes to sleep anxiously in New York worried about whether there will be bagels, coffee, and newspapers available for purchase in the morning, rather than something that can be achieved with the pull of a policy lever.  As there is no single “us” for immigrants to aspire to look like, assimilation requires an assumption of the institutional factors that are common to all Americans – respect for the rule of law, representative democracy, and the rights of fellow citizens.  Unfortunately, politically correct multicultural forces (for example “theme housing” on college campuses or bilingual public elementary education) have both discouraged assimilation among new immigrants and subdued productive discourse on the importance of national identity.  Better public policy requires recognition of these forces in light of the economic evidence that follows.

On the issue of absorption fears that the entry of tens of millions of immigrants will overwhelm our streets, exhaust our resources and shrink our economy are unwarranted.  Immigration has been estimated to add between $7 billion and $20 billion to national income (net) largely through its impact on lowering consumer prices.  Economist Don Boudreaux has illustrated that America enjoys an abundance of space and resources even as its financial wealth and scientific achievements have soared.  In per capita terms, today there is ten times more capital, ten times the mileage of paved roads, twice the number of doctors and thrice the number of teachers, for example, than in World War I when the last great wave of immigration ended.  Today’s residences both house fewer people and are larger than those built in the past.  Currently only three percent of continental America’s land area is dedicated to urban and suburban uses and farming that land requires the same acreage to feed a population of 300 million today as it did a population of less than 80 million in 1900.  In short, America’s wealth, resources and know-how enable it to accommodate a much larger population today (when immigrants comprise 12 percent of the population) than it did a century ago (when immigrants comprised 15 percent of the population).

Two conspicuous dichotomies complicate the absorption discussion.  First, one-third of today’s foreign born population is here illegally while almost none were illegal historically.  Notwithstanding the causes of this change, endorsing the existence of a substantial number of undocumented workers raises concerns about the legitimacy (and arbitrariness) of the rule of law and has also changed the incentives faced by perspective migrants.  For example, the 1986 Immigration Reform and Control Act granted amnesty to nearly three million illegal aliens and intensified the patrolling of the Mexican border.  The unintended consequences of this law induced both larger flows and stocks of illegal immigrants in America.  Amnesty sends a signal that the benefits of illegal entry have increased (they too might circumvent standard naturalization procedures) and border patrols make it more difficult for migrants to return to Mexico.  In fact from 1965 to 1985, 85 percent of undocumented entries from Mexico were offset by departures back to Mexico.  Since 1985 the rate of illegal out-migration has been halved.  Today there are over 11 million illegal aliens in the United States.

The second dichotomy is that while America has the space and resources to absorb immigrants, population pressures are not equally distributed, and this may also be an unintended consequence of the informal enforcement of immigration laws.  Clearly El Paso faces different pressures than Omaha.  Despite rhetoric to the contrary, immigrants are in search of jobs – compare the 94 percent labor force participation rate of illegal immigrants with the 46 percent and 40 percent rates of male white and black high school dropouts respectively.  Immigrants also do not necessarily desire to remain in border or entry cities.  In previous times, religious, ethnic and civic societies were particularly active in helping immigrants settle throughout the country.  Even corporations themselves aided immigrants.  For example many thousands of Eastern European immigrants in the early twentieth century with no knowledge of the English language knew only the phrase, “Which way E.J.?” The Endicott-Johnson shoe company had immigrants placed on trains from New York City and brought them to the Triple Cities where jobs, homes and medical care awaited.  The lack of legal status rules out this type of mobility today.    

Ethnic enclaves are not new nor are they necessarily located near points of entry.  Swede Hollow, MN is further from Sweden than Maine; Garfield Ridge Chicago is not the closest city to Poland; Jackson Heights is not closer than Texas is to Colombia.  Many enclaves provide cultural benefits to Americans and have proven to be flourishing symbols of pride for the cities they are located in.  Chinatowns in San Francisco and other major cities, Portuguese settlements in Fall River, MA, Czech settlements in West, TX, are but a few of the myriad flourishing enclaves.  Furthermore, immigrant settlement into a community today is no guarantee that they will remain there in perpetuity.  For example, the famed North End in Boston has passed from dominance by freed slaves in the eighteenth century to Irish to Jewish to present day Italian inhabitants.   

One could point to the many ethnic enclaves that are not flourishing as a counter-example.  However, careful consideration would have to be given to the differences between these and other poor enclaves that are defined only by their common low socio-economic status and not a common ethnicity.  For example, the trouble France is currently having with its Muslim enclaves is often cited as evidence for what will happen with the American Latino population.  However, French labor market regulatory policies are largely responsible for the production of a large class of economic losers which are concentrated in the Muslim population.  When Latino immigrants take to the streets in America it is because our government makes it harder for firms to hire workers; young Muslims in France are right to resent that their fellow countrymen take to the streets when government tries to make it easier to hire workers.  Restrictive anti-work, anti-market, anti-opportunity policies create breeding grounds of resentment.   

The possibility of similar problems spreading to America conflates fears that Latino immigrants, Mexicans in particular, will not do well economically with the empirical and observational evidence to date.  A RAND study followed groups of Latino immigrants over time and found that while immigrant Latino men earn 50% of what whites do; their grandsons earn almost 80% of whites.  A Milken Institute study reports that while 54 percent of Hispanic immigrants do not complete high school, their children fare better – with 22 percent not completing high school.  The National Research Council reports that after controlling for differences in age, English language ability, educational attainment and geography, Mexican males earn 2.4 percent per year more than whites – and Mexican women do just as well as their white counterparts.  According to the 2004 Economic Report of the President the returns to education for children of Latino immigrants is for males equal to those of the native population and for females exceeds those of natives.  Furthermore, the political and economic background of Mexican immigrants is not very different from that of many Americans.  Despite a national poverty rate of 40 percent, the Mexican population doubles every 60 years (77 in America); life expectancy is 75 years (78 in America); the literacy rate is 92 percent (99 in America); 95 percent of the population is Christian (78 percent in America) with no resident Islamic community or known terrorist cells; Mexico is a federal republic with 31 states and universal suffrage for all citizens over the age of 18; 70 percent of its economy comes from the service sector and 26 percent from the industrial sector (79 and 20 respectively in America).  In addition, there are a million American citizens living in Mexico and American business and culture is abounding south of the border. 

As to fears that Latinos will not assimilate culturally, economists Tyler Cowen and Daniel Rothschild demonstrate that second generation Latino immigrants are more likely to marry natives than immigrants.  They also document that seven percent of the children of Latino immigrants speak Spanish as a primary language (and almost none of their children) and show a dramatic rise in the number of English language Latino periodicals including throughout cities such as Los Angeles, New York and Houston.  Though bilingual education as public policy has certainly discouraged assimilation, 78 percent of the grandchildren of Mexican immigrants cannot speak any Spanish at all.  While it is the case that Mexicans have a higher incidence of out-of-wedlock births than natives, 67 percent of Mexican children live in two parent families – compared to 77 percent of native white and 37 percent of native black children.

Turning to the second question, economists have found scant empirical evidence that massive immigration has increased unemployment of native workers, even among low-skilled workers deemed most at risk for job loss.  Immigration’s effect on the wages of the low-skilled has been found to be at worst small and negative and at best small and positive.  High skilled workers have not been shown to suffer any ill effects.  George Borjas has found that immigration between 1980 and 2000 has reduced the wages of high school dropouts by five percent.  On the other hand, David Card has concluded that immigration has had no impact on the wages of American workers.  Gianmarco Ottaviano and Giovanni Peri, using the same data as Borjas, find that immigration lowers the wages of American born workers without a high school degree by 1.5 percent and at the same time raises the wages of all workers by 1.1 percent.

A final question concerns the fiscal impact immigrants have on the public sector.  For the nation as a whole, studies have found that immigrants have a positive net impact on public sector budgets – over their lifetimes, they contribute more in tax payments than they consume in public goods and services.  However, the aggregate impact masks substantial variation in the burden on state and local budgets along two dimensions.  First, the net fiscal impact of immigrants with less than a high school degree is negative and their impact is more than offset by the fiscal impact of immigrants with a high school degree or better.  However, not only have Mexican service usage rates fallen sharply since the mid-1990s, illegal Mexicans consume services at rates far lower than similarly educated and skilled native workers.  Second, since immigrants are concentrated in a few geographic areas, natives in states with a heavy concentration of immigrants from Latin America do realize an increased overall tax burden.  One study found that legal California households pay $1,100 more in taxes each year to pay for the services provided to illegal immigrants.  This latter effect occurs because immigrants’ taxes often go to the nation as a whole, but they have legal claims on all citizens’ tax dollars – including expensive schools and hospitals and the high cost of imprisoning those who commit crimes – most of which are local expenses

The apprehension with which immigrants are viewed likely comes from the belief that the economic world is comprised of a fixed pie – that someone’s gain necessarily comes at another’s expense.  A majority of America’s wealth and economic resiliency today is the direct result of its deep and extensive division of labor.  Immigration allows for a further deepening of this division and permits wealth creating exchanges that will add substantially to our prosperity.  Allowing people to peacefully and freely exchange their labor services across borders will not impoverish a nation, just as no nation has ever become poorer due to the free exchange of goods and services.

Consumers and entrepreneurs stand to benefit greatly from immigration.  Our actions dictate that we enjoy low cost landscaping, want to remodel our homes, want to enjoy fresh fruits and vegetables all year long, etc. and trading with low-skilled immigrants allows us to do just that.  Owners of businesses that employ these workers will operate at lower cost – enabling expanded output and higher profits.  Owners of capital will be rewarded with higher returns.  Save for the Luddites, nary an eyebrow is raised when new technologies are developed which accomplish similar ends.  Yet when this technology takes the form of other human beings, threatened.

Given the clear economic benefits of immigration and the evidence that Mexicans do in fact assimilate, a better policy than what we have now – millions of illegal immigrants – would be one that allows them to come legally and move freely (maybe in a guest worker program) but also addresses the unequal distribution of the fiscal benefits and costs.  The costs can be addressed with better government policies ranging from federal reimbursement payments to state and local governments to a reduction in the scale and scope of the welfare state.  It would also be a mistake to recommend a scaling back of low-skilled immigration on the grounds that native high-school dropouts are made worse off.  Native high school dropouts earn on average $25,000 per year.  This means that they would lose $1,250 per year if one accepts the direst estimate of immigration’s negative labor market impacts – a miniscule amount compared to other factors contributing to their low-income status.  Policies like the city of Chicago imposing a thirteen-dollar compensation minimum for workers in big box stores, or Maryland’s imposition of mandatory health insurance provided by big box retailers, or the slew of regulations faced by entrepreneurs, and the sorry state of the public education system are but a few of the myriad factors conspiring to keep American low-skilled workers poor.  It has been estimated that complying with all federal, state, and local mandates costs every person in the United States $4,680 per year.  Further, the gap between average high school drop-out earnings and high school graduate earnings is $8,000 and the gap with college graduates exceeds $29,000.  Thus, by eliminating regulatory burdens and barriers to high school completion, current low-skilled Americans could expect an increase in income of over $12,000 per year – dwarfing any loss imposed by immigration.  It would therefore be foolish to promote policies which prevent immigration when the economic gains to the nation are widespread and when far more serious challenges face America’s low-skilled workers.    

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