10/26/2011

Illegal Immigrants Impact on the U.S. Economy

I have often wondered what kind of impact the 12 million immigrants might have on the U.S. economy. We are at a time when jobs are getting a little harder to find now verses 6-10 years ago. Could the large population of immigrants be a contributor to the decrease in jobs available?

Many of the jobs occupied by illegal immigrants are not desired by legal citizens. The article mentions that the only population these jobs are affecting are the high school drop outs who desire the same jobs. Many of the illegal immigrants do not pay taxes but still take part in many government programs funded by these taxes. Would this distort the supply and demand of these government programs?

If you removed all of the illegal immigrants out of the three major cities you would see an increase in wages almost immediately. But shortly after you would get a large supply of employees moving to that area for higher paying wages and it would bring the equilibrium of wages down once again. So the overall impact of illegal immigrants to the job market is very minimal if any in most areas.

11 comments:

Dr. Tufte said...

Ooh ... lots of opinions to steer towards the facts in this one ... but perhaps not much of a ManEc topic. But that's OK, it's an open forum.

1) I wonder where the 12 million figure comes from. Is that the total or a flow over a given period?

2) JOLTS data indicates that jobs are available in the numbers they were prior to the recession. The big problem now is the number of long-term unemployed who aren't in the market, or can't connect with the available openings. So it doesn't seem like immigrants has much to do with job availability.

3) There is some evidence that immigration slowed quite a bit over the last 3 years. Immigration is driven by the potential for better situations in the U.S., and many potential immigrants have gotten the message and stayed home.

4) Absolutely, it is not clear at all that a drop in immigration would put more citizens in jobs. This piece from The New York Times discusses the difficulty farmers have when they try to employ locals.

5) It's an urban myth that illegal immigrants are a net drain on the economy. There is a huge volume of literature in economics showing that (when properly measured) immigrants as a group contribute positively on net.

6) It's difficult to measure, but there is growing evidence that inmigration of Mexicans has been exceeded by outmigration since early in the last decade. This is largely a result of the good economic performance of the Mexican economy over the last 15 years.

The thing we have to remember about immigration, is that if someone wants to pick up and leave to move here, we must be doing something right. We always have the power to reverse that by doing something wrong. In macroeconomics, we could stop immigration relatively easily by not having a vibrant, growing economy. No one wants that. So your choice is not between immigration and no immigration, but between having a growing "pie" and losing a fraction of the growth, and not having a growing pie at all.

Jack said...

Dr. Tufte, I may be wrong but it seems like there is a large push to decrease the amount of immigrants into the country.

Now from a business prospective with the decreasing number of immigrants into the country won't that hurt our economy.

Lets take the example of farmers. They are struggling finding people to employ local people due to the hard and heavy labor of working the farm land. With hiring local workers the farmers generally have to pay more in wages then they would immigrants.

Now if farmers have to pay more to produce their crops then won't we as consumers of the product have to incur the added costs?

The country needs illegal immigrants to provide less expensive products for us. Without immigrants we may have to pay a higher premium for some of the products that we use.

Dr. Tufte said...

-1 on Jack for poor grammar.

Other than that, I think your position is well-taken.

Kevin said...

This is too good to pass up. The problem I see with most American people is the mindset that they are worth more than everyone else in the workforce. I have talked to several unemployed people who only want to work for $50,000+ a year, but have little vocational skills and education. They are not willing to work for $10-$12 an hour to put food on the table for their families. They would rather get handouts from the government and "wait around" for the perfect job that will pay them what they are worth so they can take lavish vacations and work 4 days a week. Hey, at least immigrants have their heads on straight and understand the principle of work and seek to provide the necessities for their families. As an employer, I would take an immigrant worker over the majority of the unemployed Americans taking advantage of the welfare system. They may not pay taxes, but they could don't you think? I'm sure the government could find a way to collect. I do agree with Dr. Tufte that a thriving economy is better than a dead one. What direction do you think we are pointed in?

Thomas said...

As Dr. Tufte alluded to in his post, illegal immigrants contribute in many positive areas economically.

As the son (O.K., as the great-great-great-great-grandson) of an immigrant, I am grateful for the process of immigration into these blessed United States of America.

I think it’s worth the reminder that the inscription many of our forefathers read on the Statue of Liberty (or felt in their hearts before penned by Emma Lazuras) has not been removed therefrom or revoked. Although the political and economic waves have driven and tossed public opinion back-and-forth on this issue, the inscription (worth a read below) stands stalwart as it has stretched beyond England and Europe to Mexico and South America and everywhere in between throughout the world.

Give me your tired, your poor,

Your huddled masses, yearning to breathe free,

The wretched refuse of your teeming shore,

Send these, the homeless, tempest tossed,

I lift my lamp beside the golden door.

In her article, Immigration in the United States , Joyce Bryant of the Yale-New Haven Teachers Institute, explains that the debate on immigration has been fueled from the beginning by fear. Although through the 1880’s many states still sent agents to Europe to attract settlers, the 1850’s brought forth the first groups (not counting the “Indians”) of native-born Americans (many just one generation removed from immigration) demanding immigration reform. What fueled their fear the most? Job competition from foreigners led the outcry. The demand for immigration reform is not new, but the laws on the books meant to contain and control it are as new and numerous as each succeeding Presidential inauguration and swearing in of Congress.

One thing is clear, the lamp is still lit and the golden door still open. According the 9-11 Commission’s Report , The United States continues to accept more legal immigrants as permanent residents than all other countries in the world combined.

However, the process of legal immigration is very bureaucratic. Red tape rules the day. Legal immigration takes several years , even decades.

Even those being sponsored by a citizen-relative must wait several years.

One estimate puts total immigration, legal and illegal at 35 million. The math – with an estimate of 12-13 million illegal immigrants, reduces the balance to a strong majority of process-obeying, red-tape enduring legal, naturalized citizens.

Whether legal or illegal (or lumped into the same stereotypical view as shown by the lack of clarification in the original post by Jack) immigration is a serious issue for MBA’s studying Managerial Economics and MBA’s subsequently applying their studies in the real world.

Thomas said...

To shift gears back to proven economic benefit, please draw your attention to an excellent and timely paper by Raymond L. Cohn, Ph.D., Illinois State University, on the issue at hand.

Cohn’s paper posted on the Economic History Association ’s website, testifies of the significant economic benefits of legal and illegal immigration.
He explains that beyond any effect on wages, there are a number of ways in which immigration might improve the overall standard of living in an economy. First, immigrants engage in entrepreneurial, inventive and scientific activity, with the result being a gain to everyone. Evidence exists for both the historical and more recent periods that the United States has attracted individuals with an entrepreneurial, inventive/scientific nature. The United States has always been a leader in these areas. Individuals are more likely to be successful in such an environment than in one where these activities are not as highly valued. Second, immigrants expand the size of markets for various goods, which may lead to lower firms' average costs due to an increase in firm size. The result would be a decrease in the price of the goods in question. Third, most individuals immigrate between the ages of 15 and 35, so the expenses of their basic schooling are paid abroad. In the past, most immigrants, being of working age, immediately got a job.

Thus, immigration increased the percentage of the population in the United States that worked, a factor that raises the average standard of living in a country. Fourth, while immigrants may place a strain on government services in an area, such as the school system, they pay taxes. Illegal immigrants directly pay sales taxes on their purchases of goods and indirectly pay property taxes through their rent – along with billions in personal income taxes.

Thomas said...

While we are on the subject, the notion of illegal immigrants paying significant taxes is further studied and presented by the American Immigration Council . The AIC presents the facts that the unauthorized or illegal, like everyone else in the United States, pay sales taxes. They also pay property taxes—even if they rent. At least half of unauthorized immigrants pay income taxes. Add this all up and it amounts to billions in revenue to state and local governments. The Institute for Taxation and Economic Policy (ITEP) has estimated the state and local taxes paid in 2010 by households that are headed by unauthorized immigrants. These households may include members who are U.S. citizens or legal immigrants. Collectively, these households paid $11.2 billion in state and local taxes. That included $1.2 billion in personal income taxes, $1.6 billion in property taxes, and $8.4 billion in sales taxes. In spite of the fact that they lack legal status, these immigrants—and their family members—are adding value to the U.S. economy; not only as taxpayers, but as workers, consumers, and entrepreneurs as well.

However, once again, the debate is not new. In 1996, a strong welfare reform bill disqualified illegal immigrants from nearly all means-tested government programs including food stamps, housing assistance, Medicaid and Medicare-funded hospitalization. Author Shikha Dalmia , from the Reason Foundation explains that the only services that illegals can still get are emergency medical care and K-12 education. What's more, illegal immigrants who are not self-employed have Social Security and Medicare taxes automatically withheld from their paychecks. Since undocumented workers have only fake numbers, they'll never be able to collect the benefits these taxes are meant to pay for. Last year, the revenues from these fake numbers — that the Social Security administration stashes in the "earnings suspense file" — added up to 10 percent of the Social Security surplus. The file is growing, on average, by more than $50 billion a year.

I could go on. In short, we can agree immigration – legal and illegal – is a significant economic issue. It is one issue, however, that cannot be understood without honest and open research.

Papa Smurf said...

I have heard the argument before that if all of the illegal immigrants left the United States then the unemployment problems we are currently seeing in the economy of our country would be solved; I do not agree with that statement because, as this article pointed out, many of the jobs that are worked by illegal immigrants are low paying and have low skill requirements. Recently I had the opportunity to help local individuals who are unemployed search for employment opportunities, and I was shocked by the number of times I was told that the job seeker did not want to apply for the position because of the pay or tasks required. Working on remedial tasks for minimum wage is not a glamorous thing and it is “below” many people, few people are humble enough to accept what has happened and are willing to do whatever it takes to exit hardship. Although I will agree that some of our economic hardships can be placed on illegal immigration the laziness that has now gripped parts of our country cannot be blamed on our neighbors to the south.

Dr. Tufte said...

Kevin: worrying about immigrants paying taxes is one reason to be in favor of substituting some sort of national sales tax of VAT for all or part of the current tax system.

Other than that ... the discussion here is OK ... but I'd be happier if it steered back towards topics that are in the text.

Farva said...

I agree with Jack. If Americans were willing to work the jobs that immigrants work, there would not be as many. I have worked with immigrants my whole life. Whether or not they are here legally is not of a concern to me. They show papers and green cards before they are ever paid. Taxes are taken out of their paychecks. I'm sure that many illegals find work that pays them "under the table" and do not pay taxes, but there are a lot that do pay taxes and never file any returns for that matter. In my opinion our ecomony would be worse off without illegal immagrants.

Farva said...

Correction: I spelled immigrants wrong the last time and did not notice until after I clicked the "post" button.