Ed Lotterman: Calculating immigration's effects is tough

May 24, 2013 

The brief hubbub about a Heritage Foundation report on one aspect of legalizing unlawful immigrants - how it would affect government finances - contrasts sharply with the lack of discussion of how such immigration and eventual legalization affect the broader economy.

This may well reflect the fact that the post-election rush to immigration "reform" is driven more by pragmatic issues of comparative partisan advantage than by abstract considerations of economic efficiency or social justice.

Nevertheless, the discussion, or lack of discussion, provides a good opening for considering the economic ramifications more broadly. Is our economy better off or not because some 10 million people have immigrated unlawfully over the quarter-century since the last immigration bill? Will it be better off or worse off if we enact some form of amnesty for those already here and facilitate somewhat higher legal immigration rates?

Start by understanding that most studies of the effects of immigration, illegal as well as legal, find at least a small net benefit for the national economy. Looking forward, a quick answer would be that yes, most economists conclude that our overall economy would be better off after passage of the "reform" bill under consideration.

However, as in most controversial policy questions, while some groups clearly benefit, others lose. Weighing the gains and losses of one group against the other is difficult, particularly when some of the people in question are, at least de facto, members of society, but are not "Americans," meaning citizens.

Those who choose to immigrate despite laws to the contrary clearly see benefits or they would not risk it. Similarly, those who offer them jobs also see benefits. So people get their houses cleaned, their roofs shingled, their children nannied and their lawns mowed cheaper than if only lawful immigrants crossed the border.

And, indirectly, with over half of all Minnesota milk cows reportedly now milked by persons born in Mexico, we all have slightly cheaper milk along with the cheaper fruits, vegetables and meat produced with labor from unlawful aliens.

However, a greater labor supply, all other things equal, means lower wage rates. This is as true for IT professionals as for roofers.

Nevertheless, most studies find little or no overall effect on wages or salaries of the workforce as a whole from immigration up to now.

But many studies do find downward effects on earnings of low-skilled workers, those who do roofing or sodding, wrestle with hoses of concrete pumps or clean houses.

Estimates of lower wages for these groups range between 2 percent and 10 percent. The Heritage study cites the upper end of this range.

Unfortunately, many African-Americans and native-born Hispanics are still in this category and so they probably are the groups within society most harmed.

Ironically, many of the lowest-skilled workers are in services like cleaning or construction and thus escaped the effects of low-wage overseas competition that have hit the manufacturing and technical-support sectors for decades.

However, there are economists who are skeptical of studies showing positive net benefits from immigration for the economy as a whole, though most have not done detailed research themselves.

Their logic is as follows: For the nation as a whole to be better off, it is not enough that overall Gross Domestic Product rise as a result of immigration. GDP per worker, and hence per capita income, must rise for households to have more goods and services to meet their needs.

Increases in overall productivity are key. Intuitively, it seems hard to make productivity rise by adding people with below-average productivity to the workforce.

There also is the argument that immigration increases the general population of consumers, increasing demand for goods and services. Businesses face increased demand and respond by hiring more workers, buying more machinery and building more facilities. This gooses the overall economy.

That is what we call increased output or GDP. But it doesn't necessarily mean more GDP per worker.

One can also argue that, like it or not, our nation is undergoing structural change, including retirement of the baby boomers, which means we will need more limited-skill workers, including aides in nursing homes.

That may be true, but just as there were people willing to wash dishes, work in nursing homes or shingle houses before there was a large pool of immigrants, so there would be such workers in the future as wages rose to a higher market equilibrium.

Nursing home fees and roofing your house would get more expensive, however.

There would be less growth of consumers, but some of the ones we have would have more money to spend.

Moreover, as vegetable growers would argue, some jobs requiring low-skill workers do compete with imports from low-wage countries. If they cannot hire low wage Mexican immigrants to harvest broccoli in California, farmworker wages won't rise. The vegetable will be grown in Mexico and trucked here. Even more fruit will come from Chile or Brazil than now.

You would be correct to assume that I personally don't see great economic advantage for the national economy from amnesty or increases in low-skill immigration.

But I do respect the competence of economists who find little harm or even improvement for the overall economy. So we won't hurt ourselves much.

And Sen. Marco Rubio is correct that without new legislation we have a de facto amnesty that creates more problems for us, socially and economically, than would reforms including a "path to citizenship."

Write economist Ed Lotterman at ed@edlotterman.com.

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