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Thursday, December 03, 2009

"The Economics and Policy of Illegal Immigration in the United States"

Gordon Hanson on illegal immigration:

The Economics and Policy of Illegal Immigration in the United States, by Gordon H. Hanson: Executive Summary Policymakers across the political spectrum share a belief that high levels of illegal immigration are an indictment of the current immigration policy regime. An estimated 12 million unauthorized immigrants live in the United States, and the past decade saw an average of 500,000 illegal entrants per year. Until recently, the presence of unauthorized immigrants was unofficially tolerated. But since 2001, policymakers have poured huge resources into securing US borders, ports, and airports; and since 2006, a growing range of policies has targeted unauthorized immigrants within the country and their employers.

Notwithstanding these efforts, no agreement has materialized on a system to replace the status quo and, in particular, to divert illegal flows to legal ones. Policy inaction is a result not only of a partisan divide in Washington, but also of the underlying economic reality that despite its faults, illegal immigration has been hugely beneficial to many US employers, often providing benefits that the current legal immigration system does not.

Unauthorized immigrants provide a ready source of manpower in agriculture, construction, food processing, building cleaning and maintenance, and other low-end jobs, at a time when the share of low-skilled native-born individuals in the US labor force has fallen dramatically.

Not only do unauthorized immigrants provide an important source of low-skilled labor, they also respond to market conditions in ways that legal immigration presently cannot, making them particularly appealing to US employers. Illegal inflows broadly track economic performance, rising during periods of expansion and stalling during downturns (including the present one). By contrast, legal flows for low-skilled workers are both very small and relatively unresponsive to economic conditions. Green cards are almost entirely unavailable to low-skilled workers; while the two main low-skilled temporary visa programs (H-2A and H-2B) vary little over the economic cycle and in any case represent scarcely 1 percent of the current unauthorized population, making them an inconsequential component of domestic low-skilled employment.

Despite all this, illegal immigration’s overall impact on the US economy is small. Low-skilled native workers who compete with unauthorized immigrants are the clearest losers. US employers, on the other hand, gain from lower labor costs and the ability to use their land, capital, and technology more productively. The stakes are highest for the unauthorized immigrants themselves, who see very substantial income gains after migrating. If we exclude these immigrants from the calculus, however (as domestic policymakers are naturally inclined to do), the small net gain that remains after subtracting US workers’ losses from US employers’ gains is tiny. And if we account for the small fiscal burden that unauthorized immigrants impose, the overall economic benefit is close enough to zero to be essentially a wash.

Where does this leave policymakers? Any new reform effort will have to take a stand on preventing versus facilitating inflows of low-skilled foreign labor. Legislation is expected to embrace aspects of two different strategies: enforcement strategies designed to prevent illegal immigration, and accommodation strategies designed to divert illegal flows through legal channels using legalization and expanded legal options for future prospective migrants.

Since US spending on enforcement activities is already very high, sizeable increases in enforcement resources could easily cost far more than the tax savings they generated from reduced illegal presence in the United States. Because the net impact of illegal immigration on the US economy does not appear to be very large, one would be hard pressed to justify a substantial increase in spending on border and interior enforcement, at least in terms of its aggregate economic return.

A more constructive immigration policy would aim to generate maximum productivity gains to the US economy while limiting the fiscal cost and keeping enforcement spending contained. Effectively, this means converting existing inflows of illegal immigrants into legal flows. It does not have to mean increasing the total number of low-skilled foreign workers in the labor force. Policies designed to achieve this would:

  • provide sufficient legal channels of entry to low-skilled workers by expanding legal options for immigration while maintaining reasonable enforcement of immigration laws;
  • allow inflows to fluctuate with the economy;
  • create incentives for both employers and immigrants to play by the rules by ensuring meaningful enforcement at US worksites and rewarding workers for their compliance by giving them the chance to seek legal permanent residence; and
  • mitigate the fiscal impact of low-skilled immigration by charging a fee for legal entry or taxing employers.

    Posted by on Thursday, December 3, 2009 at 12:10 AM in Academic Papers, Economics, Immigration | Permalink  TrackBack (1)  Comments (52)


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