How immigrants make economy grow

Immigrant labor — both legal and illegal — has been an important force propelling U.S. economic growth for years.

Growth in the native population has been in decline since the 1970s, so immigrant workers have filled in, providing half of the growth in the U.S. labor force since 1990. A basic rule of economics dictates that the economy in the long run can grow only as fast as the increase in the pool of workers, plus the growth in their productivity — or output per worker.

Immigrant workers, like all American workers, not only contribute their labor but further propel growth by liberally spending the wages they earn on a host of items, from food to cars to clothing. Their presence has been a significant factor fueling growth in key sectors from banking to agriculture and housing — many of which have been booming and underpinning the health of the rest of the economy.

Activists have organized a boycott, dubbed “A Day Without an Immigrant,” encouraging immigrants to skip work today to demonstrate their importance to the U.S. economy.

While the role of immigrants in the U.S. economy already is substantial, it promises to be even more important in the future as baby boomers retire and the number of American workers shrinks more rapidly.

“Immigration will be vital for long-run economic growth in the United States,” said Augustine Faucher, analyst with Economy.com. He estimates that average yearly economic growth will fall to about 2 percent in the next 30 years from 3 percent today — even with a continued flow of about 800,000 new legal and illegal immigrant workers a year — because of retirements.

The expected slowing of growth will usher in a host of other problems, most notably funding promised Social Security and Medicare benefits for retirees out of payroll taxes on a declining pool of workers.

“The problem would be a lot worse were it not for immigration,” Mr. Faucher said, adding that “allowing greater immigration in the U.S. would result in stronger long-run growth” that could mitigate many of the pension-funding issues.

In any case, as Congress considers how to reshape the immigration laws, he said lawmakers will need to “develop sensible policies that encourage immigration” if they want to keep the economy growing.

Good for the economy

Periods of high immigration have been associated with periods of high economic growth in the United States. Most recently, during the late 1990s, when immigration surged to a peak of 1.5 million new entrants a year, economic growth picked up to more than 4 percent a year and the unemployment rate fell to below 4 percent, the lowest level in a generation.

By contrast, when immigration dropped dramatically after the September 11, 2001, terrorist attacks to about 1 million a year, economic growth stagnated and the job market sank into a recession and sluggish recovery. The jobs recession finally receded in 2004 — about the time that immigration picked up again to 1.2 million, according to the Pew Hispanic Center.

“The strong performance of the U.S. labor markets during the 1990s was widely touted as the envy of the world,” said Andrew Sum, co-author of a study by Northeastern University’s Center for Labor Market Studies that found a record wave of 14 million immigrants during the decade — most healthy young men eager for work — accounted for the extraordinary performance.

Federal Reserve Chairman Ben S. Bernanke, like his predecessor, Alan Greenspan, views immigration as good for the economy, noting recently that immigrants have a “good work ethic.” Immigrant men are more likely to work than native men, often holding down more than one job. Nearly 85 percent of Hispanic men work, compared with 76 percent of native men.

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