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< Back to current issue of Immigration Daily

The Economic Impact Of Immigration

by Angela M. Kelley of the Immigration Policy Center

Most studies claiming to calculate the net "costs" of immigration to the U.S. economy suffer from one or more fatal flaws:

  • They rely upon single-year "snapshots" of the immigrant population that fail to account for the fact that the income levels and tax contributions of immigrants increase over time and from generation to generation;
  • They count the education and care of the U.S.-born children of immigrants as "costs" incurred by immigrant households, but classify these same children as "natives" when they are working, tax-paying adults;
  • They do not consider economic contributions such as consumer purchasing power and the formation of businesses, both of which create jobs and provide federal, state, and local governments with additional revenue through sales, income, business, and property taxes.
More comprehensive studies that seek to avoid these pitfalls have found that…

…Immigrants use relatively few federal or state public-benefit programs
  • .. The vast majority of immigrants are not eligible to receive public benefits such as Medicaid, State Children's Health Insurance Program (SCHIP), Temporary Assistance to Needy Families (TANF), Supplemental Security Income (SSI), or food stamps for many years after their arrival in the United States, if ever. Legal permanent residents (LPRs) must pay into the Social Security and Medicare systems for approximately 10 years before they are eligible to receive benefits when they retire. In most cases, LPRs can not receive SSI, which is available only to U.S. citizens, and are not eligible for means-tested public benefits until 5 years after receiving their green cards. Undocumented immigrants, who comprise nearly one-third of all immigrants in the country, are not eligible for any kind of public benefits—ever.[1]


  • A 2007 analysis of U.S. Census data by the Center on Budget and Policy Priorities found that, between 1995 and 2005, the share of low-income, noncitizen immigrant children receiving Medicaid or SCHIP dropped from 36 percent to 30 percent. In comparison, there were increases in the Medicaid or SCHIP participation of low-income citizen children, whether they lived in immigrant-headed households or households headed by native-born citizens (rising from 45-47 percent in 1995 to 53-54 percent in 2005).[2]


  • An analysis of welfare data by researchers at the Urban Institute reveals that less than 1 percent of households headed by undocumented immigrants receive cash assistance for needy families, compared to 5 percent of households headed by native-born U.S. citizens.[3]


  • A 2003 report from the Center on Budget and Policy Priorities found that "participation by noncitizens in the Food Stamp Program declined 64 percent between 1996 and 2000." Furthermore, "U.S.-citizen children account for all of the increase in Medicaid or SCHIP participation among U.S. citizens living in low-income households headed by noncitizens" between 1996 and 2001.[4]
…Immigrants account for very little of the increase in poverty in the United States
  • According to a 2007 analysis of U.S. Census data by the Center on Budget and Policy Priorities, the number of people in the United States with incomes below the poverty line grew by 3.9 million between 2000 and 2006, but the foreign-born accounted for only 16 percent of that increase, while native-born U.S. citizens accounted for 84 percent. Only 10 percent of the total increase consisted of noncitizen immigrants, which includes undocumented immigrants. Moreover, poverty rates for immigrants actually fell slightly from 2000 to 2006, while they increased for U.S.-born citizens.[5]
…Immigrants do not strain the U.S. healthcare system
  • A 2007 study based on data from the 2003 California Health Interview Survey found that "undocumented Mexicans and other undocumented Latinos reported less use of health care services and poorer experiences with care compared with their U.S.-born counterparts."[6]


  • A 2005 study found that "per capita health care expenditures were 55 percent lower for immigrants than for natives in 1998, even after adjusting for sociodemographic characteristics. On average, immigrants received about $1,139 in health care, compared with $2,546 for native-born residents. Although immigrants comprised 10 percent of the U.S. population in 1998, they accounted for only 8 percent of U.S. health care costs." In addition, "despite the fact that all immigrants are eligible for emergency medical services, they had lower expenditures for emergency room visits, as well as doctor's office visits, outpatient hospital visits, inpatient hospital visits, and prescription drugs."[7]
…Immigrants are a net fiscal benefit to the U.S. economy

  • In a 2007 report, the White House Council of Economic Advisers concluded that, because immigrants increase the size of the total labor force, complement the native-born workforce, and stimulate capital investment by adding workers to the labor pool, immigration increases the U.S. Gross Domestic Product (GDP) by roughly $37 billion each year.[8]


  • According to a 1997 study by the National Research Council, "the average fiscal impact of immigrants…is positive in part because they tend to arrive at young working ages, in part because their descendants are expected to have higher skills and incomes, in part because they pay taxes for some items, such as national defense and interest on the federal debt, for which they do not impose costs, and in part because they will help to pay the public costs of the aging baby-boom generations." In addition, "the economic benefits of immigration that operate only through lower prices, without displacing or disadvantaging competitive domestic labor, add to the positive effects of immigration."[9]
…Immigrants pay more in taxes than they consume in public benefits

  • The National Research Council estimated in 1997 that "the average immigrant pays nearly $1,800 more in taxes than he or she costs in benefits."[10] However, the net tax contribution of an immigrant and his or her descendants is $80,000: +$105,000 at the federal level, but -$25,000 at the state level.[11]


  • The National Research Council concluded that immigration has different fiscal impacts at the state and federal levels primarily for two reasons: "First, state and local investments in education pay off in higher tax payments later in life, although only a portion of the payoff is at the state and local level; the remainder is at the federal level, where tax payments are also raised. Second, at the state and local level, an individual or a household typically first receives costly services and transfers, particularly for education, and then in a sense pays for them later in life through taxes…At the federal level, the opposite occurs: workers pay taxes first, and receive their pension and health care benefits about 30 years later on average."[12]


  • According to a 1998 study by the National Immigration Forum and the Cato Institute, immigrant households and businesses paid $162 billion in taxes to federal, state, and local governments in 1997. The study found that immigrants become net economic contributors after 10 to 15 years in the United States.[13]
…Undocumented immigrants are taxpayers, too

  • Between one-half and three-quarters of undocumented immigrants pay federal and state income taxes, Social Security taxes, and Medicare taxes. Moreover, all immigrants (legal and undocumented) pay sales taxes (when they buy anything at a store, for instance) and property taxes (even if they rent housing).[14]


  • According to the 2005 Economic Report of the President, undocumented immigrants working "‘on the books'…contribute to the tax rolls but are ineligible for almost all Federal public assistance programs and most major Federal-state programs." The report also notes that immigrants in general "contribute money to public coffers by paying sales and property taxes (the latter are implicit in apartment rents)."[15]


  • A 2006 study by the Texas State Comptroller found that "the absence of the estimated 1.4 million undocumented immigrants in Texas in fiscal 2005 would have been a loss to our gross state product of $17.7 billion. Undocumented immigrants produced $1.58 billion in state revenues, which exceeded the $1.16 billion in state services they received."[16]


  • A 2007 study by the Oregon Center for Public Policy estimated that undocumented immigrants in Oregon pay state income, excise, and property taxes, as well as federal Social Security and Medicare taxes, which "total about $134 million to $187 million annually." In addition, "taxes paid by Oregon employers on behalf of undocumented workers total about $97 million to $136 million annually." As the report goes on to note, undocumented workers are ineligible for the Oregon Health Plan, food stamps, and temporary cash assistance.[17]


  • A 2007 study by the Iowa Policy Project concluded that "undocumented immigrants pay an estimated aggregate amount of $40 million to $62 million in state taxes each year." Moreover, "undocumented immigrants working on the books in Iowa and their employers also contribute annually an estimated $50 million to $77.8 million in federal Social Security and Medicare taxes from which they will never benefit. Rather than draining state resources, undocumented immigrants are in some cases subsidizing services that only documented residents can access." [18]
…Immigrants—legal and undocumented alike—contribute to the Social Security system

  • The Social Security Administration (SSA) has concluded that undocumented immigrants "account for a major portion" of the billions of dollars paid into the Social Security system under names or social security numbers that don't match SSA records; payments from which immigrants cannot benefit while undocumented.[19] As of October 2005, the reported earnings on which these payments are based—which are tracked through the SSA's Earnings Suspense File (ESF)—totaled $520 billion.[20]


  • A 2005 study by the National Foundation for American Policy calculated that "over the next 50 years, new legal immigrants entering the United States will provide a net benefit of $407 billion in present value to America's Social Security system."[21]
…Immigrants climb the socioeconomic ladder

  • According to a 2003 RAND Corporation study, "2nd and 3rd-generation Hispanic men have made great strides in closing their economic gaps with native whites. The reason is simple: each successive generation has been able to close the schooling gap with native whites which then has been translated into generational progress in incomes. Each new Latino generation not only has had higher incomes than their forefathers, but their economic status converged toward the white men with whom they competed."[22]


  • A 2007 report by the Pew Hispanic Center found that "the proportion of foreign-born Hispanics who were at the bottom when ranked by hourly wage decreased from 42% in 1995 to 36% in 2005."[23]


  • A comprehensive 2007 study released by the Russell Sage Foundation found that:


    • Among Latino immigrants who arrived in California between 1960 and 1970, the poverty rate declined from 23.9 percent in 1970 to 16.8 percent in 1980 and 12.6 percent in 1990.[24]


    • Latino immigrants in California exhibit exceptionally large gains in homeownership—a key indicator of entry into the middle class. Homeownership rose from 16.4 percent of Latino immigrant householders in California who arrived in the U.S. in the last 10 years to 64.6 percent among those who have lived here for 30 years or more.[25]


    • Latino immigrants who arrived in the 1970s in California had a 16.3 percent homeownership rate in 1980, which rose to 33.6 percent in 1990, and then climbed to 51.9 percent in 2000.[26]

  • A 2001 Urban Institute study found that "by the second generation, immigrants overall end up doing as well as, or in some instances, better than third generation non-Hispanic white natives in terms of their educational attainment, labor force participation, wages, and household income."[27]
…Immigrants are essential to the growth of the U.S. labor force

  • According to a 2007 report by the Pew Hispanic Center, foreign-born workers accounted for 49% of labor-force growth between 1995 and 2005.[28]


  • The 2005 Economic Report of the President points out that "between 1996 and 2003, when total employment grew by 11 million, 58 percent of the net increase was among foreign-born workers," almost all of whom had arrived since 1995. The immigrant share of employment growth was even higher in particular occupations, amounting in the 1996-2002 period to 86 percent of the 1 million new positions in "precision production, craft, and repair" (which includes mechanics and construction workers) and 62 percent of the 2 million new positions in service occupations (such as janitors, kitchen workers, and grounds workers).[29]


  • According to data from the Bureau of Labor Statistics, in 2003 foreign-born workers comprised roughly 41 percent of the labor force in "farming, fishing, and forestry occupations"; 33 percent in "building and grounds cleaning and maintenance occupations"; 22 percent in "food preparation and serving related occupations"; 22 percent in "construction and extraction occupations" (which includes mining); 19 percent in "computer and mathematical occupations"; and 17 percent in "life, physical, and social science occupations."[30]


  • Immigrants account for an enormous share of the most highly educated scientists and engineers in the United States. For instance, the National Science Board estimates that among all doctorate holders in the United States in 2003, the foreign-born accounted for 57.4 percent of computer scientists, 50.6 percent of engineers, 43.1 percent of mathematicians, 40.1 percent of physicists and astronomers, 37.4 percent of biologists, 37.0 percent of chemists, and 31.5 percent of economists.[31]


  • Because of long-term demographic trends in the U.S. population, the U.S. economy is likely to grow increasingly reliant on immigrant workers. According to estimates released in February 2005 by the United Nations, the fertility rate in the United States is projected to fall below "replacement" level by 2015-2020, declining to 1.91 children per woman (lower than the 2 children per woman required for parents to "replace" themselves in the population).[32]
…Immigrants create jobs

  • Given that 40 percent of the 44.3 million Latinos and 67 percent of the 13.1 million Asians in the United States were foreign-born as of 2006,[33] immigrants account for a large share of the hundreds of billions of dollars in Latino and Asian purchasing power and entrepreneurship.


    • According to the Selig Center for Economic Growth at the University of Georgia, Latino buying power totaled $798 billion in 2006 and is expected to increase to $1.2 trillion by 2011.[34] Asian buying power totaled $427 billion in 2006 and is expected to increase to $622 billion by 2011.[35]


    • According to the U.S. Census Bureau, in 2002, 1.6 million Hispanic-owned firms provided jobs to 1.5 million employees, had receipts of $222 billion, and generated payroll of $36.7 billion.[36] The same year, 1.1 million Asian-owned firms provided jobs to 2.2 million employees, had receipts of $326.4 billion, and generated payroll of $56 billion.[37]

  • A 2002 study by the Center for Urban Economic Development at the University of Chicago found that undocumented immigrants in the Chicago metropolitan area alone spent $2.89 billion in 2001. These expenditures stimulated "an additional $2.56 billion in local spending," for a total of $5.45 billion in additional spending, or 1.5% of the Gross Regional Product. This spending, in turn, sustained 31,908 jobs in the local economy.[38]


  • A 2005 report from the Ewing Marion Kauffman Foundation found that "immigrants have substantially higher rates of entrepreneurship than U.S.-born individuals." During the 1996-2004 period, 0.46 percent of immigrants created a new business, compared to 0.35 percent of natives.[39]
…Immigrants are a driving force in the housing market

  • According to Harvard University's Joint Center for Housing Studies, in 2001 there were more than 5.7 million foreign-born homeowners in the United States, representing $1.2 trillion in home value and $876 billion in home equity.[40] In addition, "household growth, the primary driver of housing demand, may well exceed 12 million between 2000 and 2010" and immigrants will "contribute more than one-quarter of this net increase."[41]
…Immigrants do not undermine the wages of most native-born workers

  • The White House Council of Economic Advisers concluded in a 2007 report that roughly 90 percent of native-born workers experience wage gains from immigration, which total between $30 billion and $80 billion per year.[42]


  • A 2006 study by University of California, Davis, economist Giovanni Peri found that because immigrant workers generally "complement"—rather than substitute for—native workers in terms of their education and skills, immigration tends to increase the productivity, and therefore the wages, of natives. According to Peri, between 1990 and 2004, the 90 percent of native-born workers with at least a high-school diploma experienced wage gains from immigration ranging from 0.7 percent to 3.4 percent, depending on education. Native-born workers without a high-school diploma lost only 1.1 percent of their real yearly wages due to immigration.[43]


  • A 2004 study by University of California, Berkeley, economist David Card found that, despite the large influx of immigrants without a high-school diploma from 1980 to 2000, the wages of U.S.-born workers without a diploma relative to the wages of U.S.-born workers with a diploma "remained nearly constant."[44]


  • The National Research Council concluded in 1997 that "the impact of immigration on the wages of competing native-born workers is small—possibly reducing them by only 1 or 2 percent"[45] and that "the numerically weak relationship between native wages and immigration is observed across all types of native workers, white and black, skilled and unskilled, male and female."[46]


  • Harvard economist George J. Borjas, who is now commonly cited by critics of immigration, concluded earlier in his career that "modern econometrics cannot detect a single shred of evidence that immigrants have a sizable adverse impact on the earnings and employment opportunities of natives in the United States."[47]

Endnotes

1 Ruth Ellen Wasem, Noncitizen Eligibility for Federal Public Assistance: Policy Overview and Trends (RL33809). Washington, DC: Congressional Research Service, January 19, 2007, pp. 18-20.

2 Analysis of March 1996 and March 2006 Current Population Survey data by the Center on Budget and Policy Priorities (Washington, DC).

3 N.C. Aizenam, "Illegal Immigrants in Md. and Va. Out-Earn U.S. Peers, Study Says," Washington Post, November 29, 2007, p. A10.

4 Leighton Ku, Shawn Fremstad & Matthew Broaddus, Noncitizens' Use of Public Benefits Has Declined Since 1996: Recent Report Paints Misleading Picture of Impact of Eligibility Restrictions on Immigrant Families. Washington, DC: Center on Budget and Policy Priorities, April 2003, p. 2.

5 Analysis of March 2007 Current Population Survey data by the Center on Budget and Policy Priorities (Washington, DC).

6 Alexander N. Ortega, et al., "Health Care Access, Use of Services, and Experiences Among Undocumented Mexicans and Other Latinos," Archives of Internal Medicine 167(21), November 26, 2007: 2354-2360.

7 Sarita A. Mohanty, Unequal Access: Immigrants and U.S. Heath Care. Washington, DC: Immigration Policy Center, American Immigration Law Foundation, July 2006, p. 3. Based on data from Sarita A. Mohanty, et al., "Health Care Expenditures of Immigrants in the United States: A Nationally Representative Analysis," American Journal of Public Health 95(8), August 2005, p. 1431-1438.

8 White House Council of Economic Advisers, Immigration's Economic Impact. Washington, DC: Executive Office of the President, The White House, June 20, 2007, p. 3.

9 James P. Smith & Barry Edmonston, eds., The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington, DC: National Research Council, National Academy of Sciences Press, 1997, pp. 220, 353.

10 ibid., p. 349.

11 ibid., p. 351.

12 ibid., pp. 347-348.

13 Stephen Moore, A Fiscal Portrait of the Newest Americans. Washington, DC: National Immigration Forum & Cato Institute, 1998.

14 The White House, Economic Report of the President, February 2005, p. 107; Eduardo Porter, "Illegal Immigrants Are Bolstering Social Security With Billions," New York Times, April 5, 2005.

15 ibid., pp. 106-107.

16 Carole Keeton Strayhorn, Texas Comptroller, Special Report: Undocumented Immigrants in Texas: A Financial Analysis of the Impact to the State Budget and Economy. Austin, TX: December 2006, p. 1.

17 Oregon Center for Public Policy, Undocumented Workers Are Taxpayers, Too. Silverton, OR: April 10, 2007, p. 4

18 Beth Pearson & Michael F. Sheehan, Undocumented Immigrants in Iowa: Estimated Tax Contributions and Fiscal Impact. Mount Vernon, IA: Iowa Policy Project, October 2007, pp. 30-31.

19 Office of the Inspector General, Social Security Administration, Obstacles to Reducing Social Security Number Misuse in the Agriculture Industry (Report No. A-08-99-41004), January 22, 2001, p. 12.

20 Testimony of Patrick P. O'Carroll, Jr., Inspector General of the Social Security Administration, before the U.S. Senate, Committee on Finance, regarding "Administrative Challenges Facing the Social Security Administration," March 14, 2006.

21 Stuart Anderson, The Contribution of Legal Immigration to the Social Security System. Arlington, VA: National Foundation for American Policy, February 2005 (revised March 2005), p. 1.

22 James P. Smith, "Assimilation across the Latino Generations," American Economic Review 93(2), May 2003: 319.

23 Rakesh Kochhar, 1995–2005: Foreign-Born Latinos Make Progress on Wages. Washington, DC: Pew Hispanic Center, August 21, 2007, p. iii.

24 Dowell Myers, Immigrants and Boomers: Forging a New Social Contract for the Future of America. New York: Russell Sage Foundation, 2007, pp. 114-115.

25 ibid., p. 111.

26 ibid., p. 117.

27 Michael Fix, Wendy Zimmermann & Jeffrey S. Passel, The Integration of Immigrant Families in the United States. Washington, DC: Urban Institute, July 2001, p. 19.

28 Rakesh Kochhar, 1995–2005: Foreign-Born Latinos Make Progress on Wages. Washington, DC: Pew Hispanic Center, August 21, 2007, p. 18.

29 The White House, Economic Report of the President, February 2005, p. 94.

30 Bureau of Labor Statistics, U.S. Department of Labor, News Release: "Labor Force Characteristics of Foreign-Born Workers in 2003," December 1, 2004 – Table 4: "Employed foreign-born and native-born persons 16 years and over by occupation and sex, 2003 annual averages."

31 National Science Board, Science and Engineering Indicators 2006 (vol. 1, NSB 06-01). Arlington, VA: National Science Foundation, 2006, Chapter 3, p. 35.

32 Population Division, Department of Economic and Social Affairs, United Nations, World Population Prospects: The 2004 Revision, Highlights, February 24, 2005, p. 71.

33 2006 American Community Survey, Table B06004D: "Place of Birth by Race (Asian Alone) in the United States" & Table B06004I: "Place of Birth by Race (Hispanic or Latino) in the United States."

34 Jeffrey M. Humphreys, "The multicultural economy 2006," Georgia Business and Economic Conditions 66(3), Third Quarter 2006, p. 6.

35 ibid., p. 4.

36 U.S. Census Bureau, Hispanic-Owned Firms: 2002 (SB02-00CS-HISP), 2002 Economic Census, Survey of Business Owners, Company Statistics Series, March 2006, Table 8: Statistics for Hispanic-Owned Firms by Kind of Business and Receipts Size of Firm: 2002, p. 267.

37 U.S. Census Bureau, Asian-Owned Firms: 2002 (SB02-00CS-ASIAN), 2002 Economic Census, Survey of Business Owners, Company Statistics Series, May 2006, Table 8: Statistics for Asian-Owned Firms by Kind of Business and Receipts Size of Firm: 2002, p. 277.

38 Chirag Mehta, Nik Theodore, Iliana Mora & Jennifer Wade, Chicago's Undocumented Immigrants: An Analysis of Wages, Working Conditions, and Economic Contributions. Chicago, IL: Center for Urban Economic Development, University of Illinois at Chicago, February 2002, p. 34.

39 Robert W. Fairlie, Kauffman Index of Entrepreneurial Activity. Kansas City, MO: Ewing Marion Kauffman Foundation, 2005, p. 1.

40 Rachel Bogardus Drew, New Americans, New Homeowners: The Role and Relevance of Foreign-Born First-Time Homebuyers in the U.S. Housing Market. Cambridge, MA: Joint Center for Housing Studies, Harvard University, August 2002, p. 2.

41 Joint Center for Housing Studies, The State of the Nation's Housing: 2003. Cambridge, MA: Harvard University, 2003, p. 3.

42 White House Council of Economic Advisers, Immigration's Economic Impact. Washington, DC: Executive Office of the President, The White House, June 20, 2007, p.4.

43 Giovanni Peri, Rethinking the Effects of Immigration on Wages: New Data and Analysis from 1990-2004. Washington, DC: Immigration Policy Center, American Immigration Law Foundation, October 2006, p. 2.

44 David Card, Is the New Immigration Really So Bad? (CDP No 02/04). Centre for Research and Analysis of Migration, Department of Economics, University College, London, April 2004, p. 23.

45 James P. Smith & Barry Edmonston, eds., The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington, DC: National Research Council, National Academy of Sciences Press, 1997, p. 220.

46 ibid., p. 223.

47 George Borjas, Friends or Strangers: The Impact of Immigrants on the U.S. Economy. New York, NY: Basic Books, 1990, p. 80-81.

Copyright: The material above was originally produced by the Immigration Policy Center of the American Immigration Law Foundation. Reproduced with Permission.


About The Author

Angela M. Kelley is Director of Immigration Policy Center.


The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.


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