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A Conversation with Pia Orrenius: The Economics of Immigration

Congress is considering various proposals for immigration reform this year. Pia Orrenius, a Dallas Fed senior economist and immigration expert, discusses the economic aspects of the growing number of foreign-born workers, including their effects on the U.S. economy, government budgets, and native-born Americans’ jobs and earnings.

Q: What can you tell us about the size of the immigrant population in the United States?

A: Immigrants make up about 12 percent of the overall population, which means about 36 million foreign-born live in the United States. The commonly accepted estimate for the undocumented portion of the foreign-born population is 11 million. Immigrants come from all parts of the world, but we’ve seen big changes in their origins. In the 1950s and 1960s, 75 percent of immigrants were from Europe. Today, about 75 percent are from Latin America and Asia. Inflows are also much larger today, with 1 million to 2 million newcomers entering each year. What’s interesting about the United States is how our economy has been able to absorb immigrants and put them to work. U.S. immigrants have high employment rates compared with other developed countries. This is partly because we don’t set high entry-level wages or have strict hiring and firing rules. In this type of flexible system, you have more job openings. You have more opportunities. You also have lower entry-level wages, but immigrants at least get their foot in the door.

Being in the workforce allows immigrants to interact with the rest of society. They learn the language faster, pay taxes and become stakeholders.

Q: Where do immigrants fit into the U.S. economy?

A: Our immigrants are diverse in economic terms. We rely on immigrants for both high- and low-skilled jobs. Some immigrants do medium-skilled work, but more than anything else they’re found on the low and the high ends of the education distribution.

The economic effects are different depending on which group you’re talking about. We have an extremely important group of high-skilled immigrants. We rely on them to fill important, high-level jobs in technology, science and research. About 40 percent of our Ph.D. scientists and engineers were born in another country. We also employ many high-skilled immigrants in the health sector.

High-skilled immigration has good economic effects—it adds to GDP growth. It also has beneficial fiscal effects—the impact on government finances is large and positive. People tend to focus on illegal or low-skilled immigration when discussing immigrants and often do not recognize the tremendous contribution of high-skilled immigrants.

Q: What about the low-skilled immigration?

A: With low-skilled immigration, the economic benefits are there as well but have to be balanced against the fiscal impact, which is likely negative.

What makes the fiscal issue more difficult is the distribution of the burden. The federal government reaps much of the revenue from immigrants who work and pay employment taxes. State and local governments realize less of that benefit and have to pay more of the costs associated with low-skilled immigration—usually health care and educational expenses.

Q: Does it matter whether the immigration is legal or not?

A: If you’re making value judgments about immigrants, or if you’re discussing national security, you probably need to distinguish between those who come legally and those who don’t. From an economic perspective, however, it makes more sense to differentiate among immigrants of various skill levels than it does to focus on legal status.

The economic benefits of low-skilled immigrants aren’t typically going to depend on how they entered the U.S. Illegal immigrants may pay less in taxes, but they’re also eligible for fewer benefits. So being illegal doesn’t mean these immigrants have a worse fiscal impact. In fact, a low-skilled illegal immigrant can create less fiscal burden than a low-skilled legal immigrant because the undocumented don’t qualify for most benefits.

Q: How does immigration affect jobs and earnings for the native-born population?

A: We focus a lot on that—for example, exactly how immigration has affected the wages of Americans, particularly the low-skilled who lack a high school degree. The reason we worry about this is that real wages have been falling for low-skilled U.S. workers over the past 25 years or so.

The studies tend to show that not much of the decline is due to inflows of immigrants. The consensus seems to be that wages are about 1 to 3 percent lower today as a result of immigration. Some scholars find larger effects for low-skilled workers. Still, labor economists think it’s a bit of a puzzle that they haven’t been able to systematically identify larger adverse wage effects.

The reason may be the way the economy is constantly adjusting to the inflow of immigrants. On a geographical basis, for example, a large influx of immigrants into an area tends to encourage an inflow of capital to put them to use. So you have a shift out in labor supply, but you also have a shift out in labor demand, and the wage effects are ameliorated. At the same time, the native labor supply is changing. We have fewer and fewer low-skilled workers, largely because older workers, who are more likely to lack a high school degree, are retiring and leaving the labor force. In that way, low-skilled immigrants are filling a disappearing niche in our native labor force. So that, too, might work against finding large wage impacts.

Q: Is it all about wages?

A: Economic models say people move in response to wage differentials, and that’s pretty much it. When wage differentials shrink, migration should slow. Sociologists have long pointed out, however, that other dynamics affect immigration, such as family reunification, risk diversification, security and access to financial markets.

Workers are more likely to migrate if patterns have been established to help them make their way to the foreign workplace. In Mexico over the past 15 years, for example, we’ve seen increased migration to the U.S. even as living standards in Mexico improved slightly. Because of the networks and migration flows in place, it’s going to take longer before a small shrinkage in the wage gap results in a decline in immigration.

Q: What about the American Dream of immigrants coming to this country, working hard and prospering? Is it still alive?

A: Most immigrants start out behind the native-born because they don’t have the advantages of growing up in this society. As they learn, their wages grow. Within the same generation, you should find that immigrants assimilate to natives with similar characteristics— job, age, education and such. So a high school dropout immigrant will likely achieve the wage outcomes of a native high school dropout. However, if you don’t take into account education, you don’t see the same economic assimilation. Mexican immigrants who lack a high school degree don’t achieve the average wages of natives once they come to the U.S., even after 10 to 15 years.

What we want over generations is for the children of immigrants to achieve the same education and incomes as average natives. You do see that for many groups. Our biggest concern is with Hispanic immigrants, because they’re the ones coming in with the lowest education levels.

While the great majority of children of Hispanic immigrants do well, their summary statistics aren’t as favorable. This is because in the second and third generation they still have twice the high school dropout rate as other natives. So a fraction of these immigrants and their children aren’t assimilating even over generations. They’re not achieving overall U.S. averages in educati

on and wages as much as they’re assimilating to Hispanic averages, which are lower.

Q: What are the likely economic effects of a guest-worker program?

A: A guest-worker program would likely have two components, addressing existing and new migrants. Incorporating illegal immigrants who are already here and working, while controversial, would not have large economic effects. These immigrants have already had a labor-market impact. They’ve already had a fiscal impact. Because they’ve been working here, we’re not going to suddenly have a big wage impact or see native workers displaced.

What might change is that they would get temporary legal status in the U.S., and they’d be able to get driver’s licenses and open bank accounts. It would make their lives easier. It really wouldn’t worsen the fiscal situation because, as guest workers, the immigrants presumably wouldn’t be eligible for more public benefits than they are now.

The economic effects of legalizing new migrant workers is more complicated. If the program simply institutionalizes the existing stream of undocumented workers, economic and fiscal effects will be much what they are today. In fact, depending on how it’s implemented and how employers are impacted, a guest-worker program combined with stricter enforcement could actually serve to reduce the demand for immigrant labor.

If the program comes with fees on employers and workers or if employees who were off the books are now going to be contributing employment taxes, the program would raise the cost of immigrant workers. This would increase the relative demand for native-born workers. If there is no cap on the number of new workers coming in or other measures to limit the guest-worker inflows, then increases in labor supply could negate any benefit for natives.

Southwest Economy

Issue 2, March/April 2006
Federal Reserve Bank of Dallas

On The Record

http://www.dallasfed.org/research/swe/2006/swe0602e.html

In a letter to the legislature posted at the Center for Public Policy Priorities earlier this week, guru of education justice Scott McCown called the first school funding bill radical and urged the legislature to be not so shortsighted.

According to McCown, the legislature is attempting to retreat from ‘recapture’ or the so-called ‘Robin Hood’ formulas that have for the past decade somehwat equalized the abilities of rich and poor districts to raise money for schools.
McCown doesn’t say that the logic of the entire West Orange Cove initiative has been heading this direction ever since the wealthier school districts of Texas banded together and filed the lawsuit that created the court mandate for this special session on school funding.

But we can say it: because the impoverished neighborhoods of Texas could see this coming, they tried to intervene. One distressing pattern in this round of struggle is the refusal of the Texas courts to take the intervenors more seriously, thus granting a kind of tacit permission for the turn now being taken. Under these circumstances we have a right to worry whether Texas has begun an historical reversal of the Robin Hood principles in school funding reform.

The situation is not improved by news reports that headlined recent court decisions as explicit rejections of Robin Hood principles. Those headlines may have created expectations that Robin Hood reversal is what the legislature is supposed to be doing.

McCown stays the optimistic course by arguing that any retreat from Robin Hood equality will surely be rebuked by the courts. But we wonder if legislators have a sense that court politics ain’t likely to return to the logic that Judge McCown brought to the bench when he was reviewing school funding cases. Judicial trends cannot be isolated from their political environments. And we have a right to wonder if the forces for progressive education policy will be able to stage a movement meaningful enough to compel the logics of elected judges.

McCown’s important letter is archived below:

April 20, 2006

Re: House Bill 1

Dear Representative:

Supporters describe HB 1 as the bare minimum to satisfy the Texas Supreme Court, a “Get-Out-of- Dodge bill.” In fact, HB 1 is a radical change in the law, more of a “Rob-the-Dodge-Bank” bill.

HB 1 is a Radical Change in the Law
HB 1 compresses the property tax rate from $1.50 to $1.33. It continues the current law guaranteed yield at $27.14, meaning that for every penny of property tax, the state guarantees a local school district $27.14 per student.

HB 1 then takes the radical step of eliminating recapture above $1.33, dramatically increasing the revenue gap between rich and poor school districts. For example, Highland Park Independent School District could raise $127 more per student merely by going to a tax rate of $1.34, and $2,163 per student by going to a tax rate of $1.50. In contrast, 820 school districts could only raise $27.14 more per student at $1.34, and only $461 more per student by going to $1.50. On average, the wealthiest 10% of the districts could raise $841 more per student at $1.50.

Limiting Recapture Will Hurt Your Schools and Communities.
As a matter of good policy, you want to keep all school districts in the herd tethered together. If you assign a small number of school districts exclusive rights to lush pastures with green, high grass, once the pastures assigned to the other districts no longer yield enough for their herds, they will be unable to get the political support needed for more money for better pastures. Without money for schools, their communities will suffer. Economic development flows to districts that can have great schools at low tax rates rather than those districts forced to suffer with mediocre schools at high tax rates. Recapture is good policy because it makes our individual interest our common interest, thereby ensuring fair and adequate school funding for all.

The Law Doesn’t Require Limiting Recapture
Nothing the Supreme Court has ever said requires the Legislature to limit recapture. The Court found recapture to be constitutional in Edgewood IV and speaks of it as an important feature of the system in its latest ruling in West Orange-Cove II. Supporters of HB 1 argue that the Court raised a concern about the amount of recapture. Not so. The Court discussed the amount of recapture only as a factor in determining whether districts have meaningful discretion, meaning something like 10% tax capacity for supplementation.
As long as districts have meaningful discretion, the amount of recapture is of no legal concern. West Orange Cove II at 81. Indeed, if you strip the provisions limiting recapture from HB 1, but still compress the property tax rates by 15 cents or so, thereby giving districts meaningful discretion, the amount of recapture falls automatically and is of no legal concern.

In Fact, Limiting Recapture Will Get You in Trouble with the Law.
The Court has cited recapture favorably as maintaining the very marginal equity in the current system. West Orange-Cove II at 72. Under HB 1, however, in the words of the Supreme Court, first written in Edgewood IV and just repeated in West Orange-Cove II, limiting recapture “destroys the efficiency of the entire system.” West Orange-Cove at 73 and 84-85. If the Legislature provides vast amounts of unequal supplementation for rich districts thereby destroying the efficiency of the entire system, the poor districts must go back to the Supreme Court and ask it to close the schools.

What to Do
You should compress property tax rates. However, the very same bill that compresses property tax rates should also raise the guaranteed yield and the equalized wealth level (the point at which recapture begins) in a way that 1) reduces the revenue gap between the rich and the poor as much as you can afford, and 2) takes as many districts out of recapture as you can afford.

Interpreting the Governor’s Call
If the Governor’s call allows consideration of HB 1, which limits recapture, then it allows raising the guaranteed yield and the equalized wealth level. All three regulate the same thing. Conversely, if you cannot raise the guaranteed yield or the equalized wealth level under the Governor’s call, then you cannot limit recapture.

Don’t Be Short-Sighted
Those of you not in the House pre-Edgewood probably cannot imagine how inadequately and unfairly the Legislature funded schools. Your predecessors had to fight hard for what little money they got for their schools. Whatever you estimate your school districts might temporarily gain under HB 1, if you limit recapture, thus returning the law to the pre-Edgewood era, in the future they will get nothing. Unless our individual interest remains our common interest, the wealthy 10% will eat the high, green grass, and the rest will eat weeds, if they eat anything at all.

Any Calendar Rule that Limits the Ability of the House to Express Its Will Must Be Defeated
Any Calendar Rule that prohibits you from amending HB 1 to strip out the recapture limitation, raise the guaranteed yield, or raise the equalized wealth level must be defeated if the will of the House is to prevail. We urge you to do right for Texas.

Sincerely yours,

F. Scott McCown
Executive Director
Center for Public Policy Priorities (CPPP)

FOR IMMEDIATE RELEASE

URGENT PRESS ALERT (April 19, 2006)

PRESS CONFERENCE AND RALLY THURSDAY,
APRIL 20 AT 12AM AT 10 W. JACKSON
BLVRD. MIGRA BUIDING.

Religious leaders, workers and community leaders
decry immoral ICE raids
The community organizations calls upon the Bush
Administration and U.S. Immigration and Customs
Enforcement to immediately cease a series of
raids targeting immigrant workers.

On Wednesday, April 19, Immigration and Customs
Enforcement officials began a series of raids on
immigrant workers in what reports describe as a
nationwide crackdown on undocumented immigrants.
The Associated Press has reported raids in Cincinnati,
Phoenix, Houston, and Albany, and Immigration
and Customs Enforcement will likely lay out a new
enforcement strategy tomorrow.

“This is an unjust and immoral attack on immigrant
workers’ rights. Immigrant workers are being
punished for exercising their freedom of speech
and freedom of assembly.” Kim Bobo, Interfaith
WorkerJustice Executive Director.

In the past month, immigrants’ rights groups have
held a series of massive rallies, with turnout of tens
and even hundreds of thousands in over a hundred
cities. Immigrants rights groups are planning
another national day of action on May 1.

Conferencia de prensa y rally ante
el edificio de inmigración.
10 W. Jackson Blvrd. Chicago

El 19 de abril, en diferentes localidades
de los Estados Unidos el Departamento de
Home Land Security a estado haciendo
redadas de inmigrantes indocumetados, todas
enfocadas a dos empresas que tienen localidades
en diferentes estados del país, hoy 19 de abril
lo ha hecho en la ciudad de Chicago asi como
en Cincinnati, Phoenix, Houston y Albany, nos
parece muy peculiar dado que hemos estado
preparando la manifestación del primero de
mayo.

La posibilidad de que muchas de las personas
que han sido detenidas puedan calificar para
algún tipo de regularización el próximo mes,
cuando se reúna nuevamente el Senado de
los Estados Unidos nos parece sumamente injusto
y es un atentado por parte del Departamento
de Home Land Security contra estas gentes y
una manera de acallar nuestras voces, estan
tratando por medio de el temor a la deportación
de hacer que no nos manifestemos mas, que no
se desarrolle mas este movimiento por los derechos
civiles que en Chicago ha nacido.

Las organizaciones comunitarias unidas al Movimiento
10 de Marzo, estaremos dando una conferencia de
presa y rally enfrente de las oficinas de Inmigración
en la calle Jackson el 20 de abril a las 12:00PM

Received via email April 20 from Roberto Calderon’s list “beto – at – unt.edu”, sourced to Rosalio Munoz “rosalio_munoz – at – sbcglobal.net”

Excerpts from an AP report posted at CBS News

In Houston, Jose Rivera, an immigrant from El Salvador, went to one of the company’s Houston operations to search for information about his 22-year-old son, an IFCO Systems employee who was arrested Wednesday. Rivera said a brother, who worked at an IFCO operation in Louisiana, also was arrested Wednesday.

“I really feel angry because this is an injustice,” he said through a translator. “It’s an injustice because one person, who come from another country, why can’t you work?”
U.S. Immigration and Customs Enforcement agents arrested seven current and former IFCO Systems managers on charges they conspired to transport, harbor and encourage illegal workers to reside in the United States for commercial advantage and private financial gain, said Glenn T. Suddaby, the chief federal prosecutor in Albany, N.Y., where some arrests were made.

German-based IFCO Systems describes itself as the leading pallet services company in the United States, focusing on recycling millions of the wooden platforms used to stack and move all manner of goods. It operates about five dozen facilities nationwide and has been expanding steadily, according to the company’s Web site.

Last week, operators of three restaurants in Baltimore pleaded guilty to similar immigration charges, while nine people affiliated with two temporary employment agencies that do business in New Jersey, Ohio and Pennsylvania were charged in a $5.3 million scheme involving the employment and harboring of illegal aliens.

Last year, Wal-Mart stores agreed to pay $11 million to settle allegations concerning the employment and mistreatment of illegal immigrants.

Wal-Mart has maintained that top executives did not know that cleaning contractors were hiring illegal immigrants, who sometimes slept in the back of the stores. An ICE affidavit unsealed as part of that case asserted that two executives were aware of the practice.