Immigrants in the U.S. Economy:
A Host Country Perspective
Pia Orrenius, Ph.D.
Federal Reserve Bank of Dallas
Sam Houston State University
Huntsville, Texas
April 12, 2008
Disclaimer: The views expressed herein are those of the presenter;
they do not necessarily reflect the views of the Federal Reserve
Bank of Dallas or the Federal Reserve System.
Overview
Immigration

Population, labor force growth

Changing characteristics of foreign born

Reasons for coming: Cyclical, regional effects

U.S. workers

Taxpayers

Policy
U.S. Immigrants:
How many are there?
The foreign-born population is
larger than ever before
Percent
16
Millions
40
35
14
30
12
25
10
20
8
Number
15
6
10
4
5
2
0
0
1850
Source: Census Bureau
1870
1890
1910
1930
1950
1970
1990
2006
And foreign-born share of
population headed to historic peak
Percent
16
Millions
40
Percent of total population
35
14
30
12
25
10
20
8
Number
15
6
10
4
5
2
0
0
1850
Source: Census Bureau
1870
1890
1910
1930
1950
1970
1990
2006
U.S. Immigrants:
What do they do?
Foreign-born share of employment
growth substantial
Total
0
20
40
60
80
100
Percent
2003-2006 Source: BLS
Foreign-born share of employment
growth by selected occupations
Architecture and engineering
Computer and mathematical
Construction and extraction
Healthcare support
Total
Protective service
Legal
0
20
40
60
80
100
Percent
2003-2006 Source: BLS
U.S. Immigration:
How has it changed?
Increasingly bimodal education distribution
of foreign-born workers
Percent
35
1980
2004
30
25
20
15
10
5
0
0 to 11 Years
12 Years
(High School
Grads)
Source: Ottaviano & Peri, 2005
13 to 15
Years
16 Years
(College
Grads)
Master,
Professional
Degree
Doctorate
Illegal inflows rival legal
Legal Perm
Legal Temp
Undoc
Thousands
1600
1400
1200
1000
800
600
400
200
0
1990
1992
1994
1996
1998
Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)
2000
2002
2004
Three out of ten foreign-born
are undocumented
Legal temporary
residents
3%
Undocumented immigrants
30%
Legal permanent
residents
32%
Source: Pew Hispanic Center (2005)
Naturalized citizens
35%
U.S. Immigrants:
Why do they come?
Why do they come?
Economic conditions


Destination
Origin
Family reunification
Social or political conditions


War
Persecution
Real-time migration, U.S. and
Mexican business cycles
Thousands, SA
200
180
160
Migrant apprehensions
140
120
100
80
60
40
20
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: CBP, Department of Homeland Security
Apprehensions a function of labor demand
(Detrended employment, apprehensions lagged 6m)
Thousands, SA
200
Employment
Thousands, SA
1500
180
1000
160
140
500
120
100
0
80
-500
60
40
Apprehensions
20
0
-1000
-1500
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: BLS, DHS
Among Mexican immigrants,
illegals more mobile than legals
Percent
25
20
Legal
Illegal
15
10
5
0
State-to-State
Source: Bean et al, 2007
International
U.S. Immigrants:
Where do they go?
Growth in the foreign-born population
1990-2006
Legend
United States
Percent
FB_Pop
0 - 99
100-- 199
100
199
200-- 299
200
299
Source: Census, ACS
300
434
300-- 434
State GDP growth drives foreignborn population growth
Legend
United States
FB_Pop
FB growth + GSP +
FB growth + GSP FB growth – GSP +
FB growth – GSP Source: Census, ACS, BEA
U.S. immigration:
How are natives
affected?
Effects of immigration on natives
Immigration has effects similar to trade

GDP rises, GDP per capita rises
Who benefits?

Immigrants
Bulk of GDP increase goes to them
Natives get $30 to $60 billion

Consumers
Prices of certain goods and services fall

Capitalists (investors, producers, homeowners)
Effects of immigration on
natives
Who loses?

Wage effects
Low-skilled native workers
Prior immigrants

Fiscal effects
Certain taxpayers
Wages of less-skilled workers
in long-run stagnation
Real median weekly earnings by education level
$/week
1100
BA degree & higher
1000
900
Some college,
Associate degree
800
700
600
High school diploma, no college
500
400
Less than high school diploma
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: BLS
Wages of less-skilled workers
in long-run stagnation
Real median weekly earnings by education level
$/week
1100
BA degree & higher
1000
900
Some college,
Associate degree
800
700
600
High school diploma, no college
500
400
Less than high school diploma
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: BLS
Wage Effects of Immigration
Models with large adverse effects (Borjas
2003)



Assume perfect substitutability, no change in
capital
3% drop in native earnings on average
9% drop for natives who are low-skilled
Other models (Ottaviano & Peri 2006)

Allow imperfect substitutability, change in K
Native-born labor force change,
by education
College grad
7428
Some college
High school grad
3231
Native
-655
Less than high
-1787
school
-3000
-1000
Source: 1996-2006; BLS, Haver Analytics
1000
3000
5000
7000
9000
Thousands
Native and foreign-born labor
force change, by education
2904
College grad
7428
1020
Some college
High school grad
3231
-655
Less than high
-1787
school
-3000
Foreign-born
Native
1983
2151
-1000
Source: 1996-2006; BLS, Haver Analytics
1000
3000
5000
7000
9000
Thousands
Wage Effects of Immigration
Models with large adverse effects (Borjas
2003)



Assume perfect substitutability;no change in K
3% drop in native earnings on average
9% drop for natives who are low-skilled
Other models (Ottaviano & Peri 2006)




Allow imperfect substitutability, change in K
2% rise in native earnings on average
1% drop for low-skilled natives
Big declines for prior immigrants
Fiscal impact of immigration
Fiscal impact

Tax contributions minus transfer payments and cost of
public services received, expressed in net present
value
Tax contributions include

Payroll, income, sales, property taxes
Majority of illegal immigrants have payroll taxes withheld
Public transfers and services include

Education, health care, welfare (EITC, TANF), police
and fire
Estimates


Gold standard: National Research Council (1997)
Recent work: Robert Rector’s piece for Heritage
Household-level analysis
NRC: Immigrants have positive fiscal impact
when including their descendants
1996 Dollars, NPV
250000
200000
150000
100000
50000
0
Overall
< High School
High School
> High School
-50000
Source: National Research Council, The New Americans (1997)
Level of Education
NRC: But immigrants have a negative
fiscal impact in their lifetime
1996 Dollars, NPV
150,000
100,000
50,000
0
Level of Education
-50,000
-100,000
< High School
High School
Source: National Research Council, The New Americans (1997)
> High School
U.S. immigration
policy: Where are we
headed?
Walls on the Southern border not new
Where is policy headed?
More interior enforcement




No-match program, Real ID Act, worksite raids,
higher employer fines
E-verify: immigration status verification
Local, state enforcement of immigration laws
Local, state ordinances reg. illegal immigrants
Worksite enforcement jumps in ‘06, ‘07
4000
Criminal Arrests
3500
Administrative
Arrests
3000
2500
2000
1500
1000
500
0
2002
2003
2004
2005
2006
2007
No-match letter program: forthcoming safe
harbor guidelines could have big impact
SSA sends no-match letters to employers with
workers whose SS numbers don’t match names
Under original proposed rules, employers have
to fire workers within 90 days
If caught, employers assumed to have
‘constructive knowledge’ and may face stiff
penalties
If implemented without comprehensive reforms,
no-match could impact millions of workers &
grow shadow economy
Where do we go from here?
Implications of no-match, interior enforcemnt

Relative demand for illegal workers falls
Segmented labor markets

More employment off-the-books; Decline in tax receipts
Lower wages, worse working conditions for illegals


Turnover, lost benefit coverage
Move from large to small employers
Greater inequality; slower assimilation


Reallocation of workers across states, localities
Less illegal immigration, all other things same
Conclusion
Foreign-born important
role in economic
growth
Benefits of immigration
extensive
Labor market impacts
limited; fiscal impact
sizable
Current policies &
unintended
consequences
Where undocumented
immigrants live
New York
4%
Arizona Georgia
3%
3%
Florida
6%
Texas
10%
Other
57%
California
17%
Source: Pew Hispanic Center (2005)