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.

But even these calculations may significantly underestimate the immigrant contribution to the U.S. economy. Economists disagree on whether economic growth is in fact good or bad for a society. Many believe that it produces economies of scale and overall strength, both economic and other kinds, for the nation. Others feel it burdens and clogs the economy. The critical question is whether growth makes life better for individual workers, augmenting their productivity and increasing their incomes. And according to most economists, this is what happens when immigrants complement, rather than substitute for, native-born workers. In other words, the more different the foreigners are -- the less interchangeable with Americans -- the more they add. This, too, has yet to be adequately measured. A much-cited nine-year-old estimate by the National Academy of Sciences suggests that complementarity could add as much as $10 billion a year to U.S. incomes. But according to some economists, immigrants may be even more different (and thus account for even more added income) than many realize.

Think about a typical company. If all the employees were the same, adding more would expand the business but not -- once maximum economies of scale were achieved -- make other workers better off. But the picture changes dramatically if the employees have different skills. Then, adding more low-level workers would mean not only more opportunities for foremen but also that these supervisors would be more productive and earn more. In the case of immigration, this benefit comes not just within companies but also across the economy.

Immigrants are different from native-born workers in myriad ways. Roughly a quarter are more skilled and a third less skilled. On the whole, they are younger and more mobile (think of the construction workers who raced to New Orleans in the wake of Hurricane Katrina). They generally know the language less well and are less familiar with the culture. (Remember, complementarity is beneficial even when the added workers are less productive.) They often work harder and for longer hours, and in some cases they take jobs many Americans no longer want to do. But rather than undercut the native born, immigrants who are genuinely different make Americans better off. More low-skilled construction workers mean more jobs and higher wages for plumbers, electricians, and architects. More service workers allow skilled Americans to spend more of their time doing more productive work: instead of staying home to cut the grass, the brain surgeon has time for more brain surgeries. And over time, the higher return for higher-level work creates incentives for more Americans to become plumbers, electricians, and architects, thus making the entire economy more productive.

Complementarity also affects wage levels. Opponents of immigration ask why employers do not simply pay American workers more and avoid the need for foreign labor. But many industries cannot pay more, because they would be undercut by imports from abroad. Even in sectors such as construction and hospitality, in which the work must be done in the United States, it hardly makes sense to lure an American to a less productive job than he or she is capable of by paying more for less-skilled work. Meanwhile, because they complement rather than compete with most native-born workers (and this in turn attracts additional capital), immigrants raise rather than lower most Americans' wages.

Immigrants do compete with one category of American workers: native-born high school dropouts. But not even the most pessimistic economists think that the resulting downward pressure on wages affects more than ten percent of the U.S. labor force or that the drop in those American workers' earnings has been more than five percent over the last 20 years. Moreover, these unskilled native workers benefit in other ways from immigrant complementarity, because they pay less for goods such as food and housing.

Finally, rather than taking jobs from Americans, immigrants often create jobs where none existed before: look at the explosion of lawn-care businesses or the proliferation of manicure parlors in recent decades. (This is the new, complementary labor force attracting capital and making it productive in new ways.) And even if there were fewer immigrants in the United States, wages for low-skilled work would not necessarily rise. On the contrary, in many instances the jobs would simply disappear as the capital that created and sustained them dried up or the companies mechanized their production.

So how big is the real growth dividend? No one knows, in large part because it is so difficult to measure the extent and effects of immigrant complementarity. A back-of-the-envelope calculation suggests that eight million laborers working 2,000 hours a year at $9 an hour -- an average wage based on employers' reports -- would generate $144 billion worth of economic activity. Add the National Academy of Sciences' conservative estimate of the native-born income these immigrants make possible because they are different -- an additional $10 billion -- and the total contribution comes to $154 billion, or more than the gross state product of Kentucky and 1.2 percent of what is now a $13 trillion U.S. economy. A similar estimate of all immigrants' contributions -- legal and illegal -- comes to $700 billion, or 5.4 percent of GDP. And neither of these figures takes the full measure of the way the newcomers complement American workers.

Perhaps the most telling way to assess the immigrant contribution is to ask what would happen if the influx stopped or if those already here left the country. Those who favor comprehensive reform believe this would be disastrous -- in some regions, they say, whole sectors of the economy could collapse. Restrictionist opponents counter that a cutoff would mean at most a temporary inconvenience for a few employers, who would soon wean themselves from their dependence on foreign workers. Perhaps. But even if some businesses could adjust somewhat, there would be no averting the demographic nosedive to come -- the ever-slowing growth of the native-born work force. And either way, there is no reason to forfeit immigrant-driven economic expansion or the improved standard of living that comes with it for all Americans. Whether the nation benefits a great deal or just a modest amount, the newcomers still make life in the United States better -- and not just with the work they do. They also renew and reinvigorate the country's spirit with their energy, hard work, and old-fashioned values. Surely, rather than go without all of this, it makes sense to find a better way to manage the immigrant influx, so that Americans reap more benefits with fewer costs.

CONTROL WITHOUT A CRACKDOWN

Comprehensive reformers start with these assumptions about the economic benefits of immigration and build out from there to design policy. Their basic idea is that the U.S. immigration system should be market-based. For the past decade or so, market forces have brought some 1.5 million immigrants, skilled and unskilled, to work in the United States each year. But annual quotas admit only about a million, or two-thirds of the total. Enforcement of these limits is poor in part because the nation is ambivalent about how much it wants to control immigration and also because it is all but impossible to make unrealistic laws stick. And as a result, some half a million foreign workers, most of them unskilled and from Latin America, breach the border every year or overstay their visas to remain on a job. It is as if American cars were made with imported steel but the government maintained such restrictive steel quotas that a third of what was needed had to be smuggled in. The only plausible remedy is more generous quotas combined with more effective enforcement.