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The costs of immigration

- The Washington Times - Wednesday, August 17, 2005

A growing body of research on how immigration affects the U.S. economy sends a clear message: Skilled immigrants are beneficial, unskilled immigrants are not.

Skilled immigrant workers help the economy when they take hard-to-fill jobs and don't compete with native workers. Consequently, output and income rise to the benefit of all. More skilled workers help use capital resources more efficiently and pay more in taxes than they receive in public benefits.

In contrast, low-skill immigrants depress the employment and wages of native-born workers. They compete with native workers for housing and drive up rents and home prices. Part of the wages they earn, rather than being spent or saved here, are sent to their home countries. They pay less in taxes than they get in public benefits, with the difference paid for by others' taxes. Many work in the underground economy and pay no taxes. Not least, a surfeit of cheap immigrant labor delays adoption of labor-saving technology, slowing productivity gains.

There are about 34 million immigrants in the United States, of which 10 million to 11 million are believed to be illegal (estimates vary). In recent years net immigration has run about a million a year, half legal and half illegal.

Latin American countries, mainly Mexico, account for more than half of all U.S. immigrants. Because of their relatively low earnings, low education level and large family size, a larger proportion of immigrants than native Americans live in poverty and depend on welfare. Immigrant workers perform various jobs and are employed in all major sectors of the economy, including agriculture, manufacturing and services.

It is often contended that low-skilled immigrants work in jobs U.S. natives don't want. That is doubtful. What American workers don't want are low wages depressed by the easy availability of immigrant workers. Many native-born are available for work and would willingly accept low-skilled jobs at the higher wage that would be offered if there weren't an excess supply of immigrants holding wages down.

Mark Krikorian, executive director of the Center for Immigration Studies, noted last year in congressional testimony there is a good deal of evidence millions of Americans without a high school education directly compete with immigrants, and the idea "that there are jobs Americans won't do is simply false."

It follows, if low-skilled immigration were restricted, more Americans would be offered jobs at better wages. Fringe benefits and working conditions also would improve. There would be less income inequality, and welfare costs and poverty would decline. Employers would seek to offset higher wage costs by investing in and employing new technologies, thereby increasing productivity, profitability and economic growth.

When the bracero program, which allowed Mexicans to work on U.S. farms, ended in the 1960s, wages and mechanization increased. Mr. Krikorian testified that a labor market tightened by restricted low-skilled immigration can spur modernization not only in agriculture but the service sector too.

Economist Ethan Lewis of the Federal Reserve Bank of Philadelphia recently completed a significant econometric study, "Immigration, Skill Mix, and the Choice of Technology" (May 2005). Using Census Bureau plant-level data, he examined the effect of low-skilled labor on technology adoption in U.S. manufacturing. The study concluded "plants in areas experiencing faster less-skilled relative labor supply growth adopted automation technology more slowly... and even de-adoption was not uncommon. ... The relative supply of less-skilled labor reduced demand for technology." In his paper, the author cited other related studies.

The negative effect of low-skilled labor on technological development is particularly worrisome. Technology-induced productivity growth in many ways is our golden goose. It boosts our incomes, lowers prices, fights inflation, helps keep interest rates low, gives us greater leisure, and raises our standard of living. What hurts productivity hurts us all. All told, the economic costs of low-skilled immigration are too high.

Our immigration policy needs repair. Not only should existing immigration laws be more strictly enforced and our borders better controlled, but U.S. employers who hire illegal immigrants should be stiffly fined. Immigrant admission rules should be revised to take into account a potential worker's education, skill, work experience and health, as well as other work-related characteristics.

It's time for policymakers to weigh the shortsighted special business interests that benefit from cheap immigrant labor against the greater potential economic benefits for all Americans from restricting low-skilled immigration.

Alfred Tella is former Georgetown University research professor of economics.