Immigration Nation

Tamar Jacoby

From Foreign Affairs, November/December 2006

Summary:  The United States is far less divided on immigration than the current debate would suggest. An overwhelming majority of Americans want a combination of tougher enforcement and earned citizenship for the 12 million illegal immigrants in the country. Washington's challenge is to translate this consensus into sound legislation that will start to repair the nation's broken immigration system.

Tamar Jacoby is a Senior Fellow at the Manhattan Institute and the editor of Reinventing the Melting Pot: The New Immigrants and What It Means to Be American.

The resulting shortfall of unskilled labor -- estimated to run to hundreds of thousands of workers a year -- is showing up in sector after sector. The construction industry creates some 185,000 jobs annually, and although construction workers now earn between $30,000 and $50,000 a year, employers in trades such as masonry and dry-walling report that they cannot find enough young Americans to do the work. The prospects for the restaurant business are even bleaker. With 12.5 million workers nationwide, restaurants are the nation's largest private-sector employer, and their demand for labor is expected to grow by 15 percent between 2005 and 2015. But the native-born work force will grow by only ten percent in that period, and the number of 16- to 24-year-old job seekers -- the key demographic for the restaurant trade -- will not expand at all. So unless the share of older Americans willing to bus tables and flip hamburgers increases -- and in truth, it is decreasing -- without immigrants, the restaurant sector will have trouble growing through the next decade.

Fortunately for the United States, economic changes south of the border are freeing up a supply of unskilled labor to meet these growing needs in a timely way. Some of the circumstances generating the flow are positive (the move from subsistence agriculture to economies that require investment capital, including at the family level); others are not (the failure of Mexico to provide enough jobs for its working-age population). But even if Mexico were to become Switzerland overnight, the fact is that the United States would still lack unskilled laborers and would have to find them elsewhere.

The market mechanisms that connect U.S. demand with foreign supply, particularly from Latin America, are surprisingly efficient. Immigrants already here communicate to their compatriots still at home that the job market in, say, Detroit is flat, while that in Las Vegas is booming -- and this produces a just-in-time delivery of workers wherever they are most needed. The vast majority of the immigrants who make the trip to the United States do so in order to work: if you are going to be unemployed, it is better to be unemployed at home in Mexico than in New York or Chicago. Not even legal immigrants, who account for about two-thirds of the total influx, are eligible, during their first five to ten years in the United States, for the kind of welfare transfers that could sustain them without work. Illegal immigrants receive virtually no transfers. Labor-force participation among foreign-born men exceeds that of the native born: the figure for illegal immigrant men is the highest of any group -- 94 percent. And immigrants are less likely than natives to be unemployed.

These facts are stark, and those who buy into the comprehensive vision see no point in quarreling with them. Rather than seeking to repeal the laws of supply and demand -- or trying futilely to block them, as current policy does -- reformers want an immigration policy that acknowledges and makes the most of these realities.

COMPETITION OR COMPLEMENTARITY?

Critics of the comprehensive model dispute these fundamental economic assumptions, and some of their questions are serious enough to require answers. Do immigrants lower American wages, as the naysayers contend? Would Americans fill these jobs, at a higher wage, if foreigners were not available? Is it only employers who profit from the influx? And do the fiscal costs associated with immigration outweigh any macroeconomic benefit? If the answer to any of those questions were yes, the case for comprehensive reform would be far less compelling than it is. (Why change the law to accommodate a market reality if that reality is not good for the United States?) But the critics' case does not stand up.

Of all the economic consequences of immigration, the easiest to calculate is the fiscal effect -- whether immigrants consume more in government benefits than they contribute in taxes. Although this is one of the most disputed and emotional aspects of the immigration debate, in fact the net effect in most states is close to a wash. True, much of the immigrant population is poor and unskilled, which inevitably reduces their tax contribution. But most nonetheless pay as much to the government as comparable poor and unskilled native-born workers do, and even illegal immigrants pay sales and property taxes, thus contributing toward their childrens' schooling. To be sure, in states with lots of newcomers, the burden on native-born taxpayers can still add up: according to one estimate, in California in the mid-1990s the bite was $1,178 per native-born household. But in most states today, the cost per native household is no more than a couple of hundred dollars a year. And on average, this is offset by what immigrants pay in federal taxes. According to estimates, two-thirds of illegal immigrants have income tax withheld from their paychecks, and the Social Security Administration collects some $7 billion a year that goes unclaimed, most of it thought to come from unauthorized workers.

Immigrants' overall contribution to U.S. economic growth is harder to measure, although there is no doubt among economists that newcomers enlarge the economic pie. Foreign workers emerging at the end of the day from the meatpacking plant or the carpet factory buy groceries and shoes for their children; on Saturday, they buy washing machines and then hire plumbers to install them. The companies where they work are more likely to stay in the United States, rather than move operations to another country where labor is cheaper. Readily available immigrant workers allow these businesses to expand, which keeps other Americans on the job and other U.S. businesses, both up- and downstream, afloat. Economists call this shifting the demand curve outward, and no one disputes that it results in a bigger, more productive economy.

Just how much do immigrants expand the economy? One conventional way to measure this would be to calculate their spending power, but it is difficult to isolate immigrant purchases. And even if we could, that would not reflect the growth that occurs when, say, suppliers of irrigation equipment, fertilizer, and trucks sell more of their products to a farmer whose business is expanding thanks to immigrant workers. Still another way to quantify the immigrant contribution is to look at the percentage of new jobs they fill. Over the last decade, it was more than half of the total -- and two-thirds in regions such as the Midwest and the Southwest -- making them effectively responsible for half of the nation's economic expansion in that period.

Some of the best efforts to measure the elusive immigrant growth dividend look at states or regions rather than the nation as a whole. A recent report on immigrants in North Carolina -- which has one of the fastest-growing foreign-born populations in the country -- estimated their contribution to economic expansion and compared it with the more easily measured fiscal consequences. The bottom line: newcomers filled one-third of North Carolina's new jobs in the past decade, and they were responsible for $9.2 billion in consumer spending and $1.9 billion in saved wages -- a total growth dividend of $11 billion, which dwarfed the $61 million (or $102 per native-born taxpayer) that the newcomers cost the state when taxes and services were netted out.