HOLTZ-EAKIN: Strength in numbers
The immigration reform debate has begun. With the release of a framework for Senate legislation, voices are being heard on national security (especially on the southern border), legal issues (protection for employers who attempt to follow hiring laws), the future of the undocumented in the United States, and sector concerns (high-tech and agriculture).
Few Americans are aware, though, of the key fact that should drive the reform debate: Without immigration, the United States will shrink.
America’s birth rate has fallen to its lowest level since 1920. Native-born women are having fewer than the average of 2.1 children needed to keep the population size stable. In the absence of immigration, the population of the United States will decline, and the size of its economy will contract.
Immigrants have a much higher birthrate than native-born women 87.8 per 1,000 women compared to 58.4 for native-born women. In recent years, 23 percent of all U.S. births were from foreign-born mothers, up from 16 percent in 1990.
The upshot is that immigration reform can shape the population, labor force and U.S. economy. Immigration reform is a tremendous economic policy opportunity.
The United States lags in taking advantage of this opportunity, as immigration policy has primarily been concerned with family reunification, which accounted for 74 percent of immigrants in 2010. The rest of the developed world promotes reunification less, and competitors like Australia, Canada and the United Kingdom have undertaken reforms to focus their system on economic growth. In 2010, the United States issued a mere 6.4 percent of visas for economic reasons, compared to the United Kingdom’s 33 percent.
How can immigration reform aid growth? Total gross domestic product (GDP) stems from the total number of workers and the average output per worker, or productivity. The pace of overall population growth will raise the number of workers, and thus raise GDP. In addition, the structure of the population by age, gender and education can influence the fraction of the population at work. Growth in the labor force participation rate can, in turn, raise the rate of GDP above the rate of population growth. In addition, at higher rates of overall GDP growth, there will be greater replacement of existing capital goods and investment in new capital goods.
How large might these effects be? To get a feel, consider that greater immigration in the U.S. census projections amounts to more rapid population growth of nearly 0.2 percent annually. Since labor force participation rates are higher among the foreign-born and rates of entrepreneurship among immigrants are higher than among the native-born population, there will be a double bonus in more workers and greater productivity from immigration reform.
More rapid population growth translates directly into more rapid GDP growth rates by 0.25 percent annually over the first 10 years. In addition, the bonus to labor force growth and productivity could lead the overall impact to be as much as 0.9 percentage points annually. The upshot: After 10 years, GDP will be higher a difference of $64,700 per capita versus $62,900 per capita and per capita income would be enhanced by $1,700.
These are core potential benefits of immigration reform.
Immigration reform has raised consternation among some critics because of its putative budgetary impact. As a starting point, however, before factoring in new benefit payments and taxes received, reform will reshape the budget outlook through its impacts on economic growth. These impacts are “dynamic” effects in the parlance of federal budgeting. That is, any budgetary analysis that is conducted strictly using the baseline economic growth impacts will necessarily be incomplete by excluding the impacts that produce more rapid economic growth.
How large are these impacts? Congressional Budget Office rules of thumb imply that over the first 10 years of the benchmark immigration reform, the federal deficit would be reduced by a cumulative amount of $2.7 trillion.
It is important to emphasize that ballpark estimates of the growth and budget impacts are exactly that: ballpark. They will change with the details of legislation as it evolves, and benefit from more detailed scrutiny.
However, at even half the size, estimates of growth make the point that immigration reform is a potentially compelling element of the economic policies of the United States. In that light, it would be even more incorrect to exclude such effects entirely and thus, assert de facto that they are zero.
While the debate over the security and legal aspects of immigration reform will persist, clear-eyed policymakers will not permit the economic opportunity to be ignored.