1. Immigrants in the U.S. Economy: A Host Country Perspective Pia Orrenius, Ph.D. Federal Reserve Bank of Dallas Disclaimer: The views expressed herein are those of the presenter; they do not necessarily reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System. Sam Houston State University Huntsville, Texas April 12, 2008

2. Overview Immigration Population, labor force growth Population, labor force growth Changing characteristics of foreign born Changing characteristics of foreign born Reasons for coming: Cyclical, regional effects Reasons for coming: Cyclical, regional effects U.S. workers U.S. workers Taxpayers Taxpayers Policy Policy

3. U.S. Immigrants: How many are there?

4. The foreign-born population is larger than ever before Source: Census Bureau

5. And foreign-born share of population headed to historic peak Source: Census Bureau

6. U.S. Immigrants: What do they do?

7. Percent Foreign-born share of employment growth substantial 2003-2006 Source: BLS

8. Percent Foreign-born share of employment growth by selected occupations 2003-2006 Source: BLS

9. U.S. Immigration: How has it changed?

10. Increasingly bimodal education distribution of foreign-born workers Percent Source: Ottaviano & Peri, 2005

11. Illegal inflows rival legal Source: Jeffrey Passel and Roberto Suro, Pew Hispanic Center (2005)

12. Three out of ten foreign-born are undocumented Source: Pew Hispanic Center (2005)

13. U.S. Immigrants: Why do they come?

14. Why do they come? Economic conditions Destination Destination Origin Origin Family reunification Social or political conditions War War Persecution Persecution

15. Real-time migration, U.S. and Mexican business cycles Thousands, SA Source: CBP, Department of Homeland Security Migrant apprehensions

16. Apprehensions a function of labor demand (Detrended employment, apprehensions lagged 6m) Apprehensions Employment Thousands, SA Source: BLS, DHS

17. Among Mexican immigrants, illegals more mobile than legals Percent Source: Bean et al, 2007

18. U.S. Immigrants: Where do they go?

19. Growth in the foreign-born population 1990-2006 Percent Source: Census, ACS 0 - 99 100- 199 200- 299 300- 434

20. FB growth + GSP + FB growth + GSP - FB growth – GSP + FB growth – GSP - Source: Census, ACS, BEA State GDP growth drives foreign- born population growth

21. U.S. immigration: How are natives affected?

22. Effects of immigration on natives Immigration has effects similar to trade GDP rises, GDP per capita rises GDP rises, GDP per capita rises Who benefits? Immigrants Immigrants Bulk of GDP increase goes to them Natives get $30 to $60 billion Consumers Consumers Prices of certain goods and services fall Capitalists (investors, producers, homeowners) Capitalists (investors, producers, homeowners)

23. Effects of immigration on natives Who loses? Wage effects Wage effects Low-skilled native workers Prior immigrants Fiscal effects Fiscal effects Certain taxpayers

24. Source: BLS Wages of less-skilled workers in long-run stagnation Real median weekly earnings by education level High school diploma, no college

25. Source: BLS Wages of less-skilled workers in long-run stagnation Real median weekly earnings by education level High school diploma, no college

26. Wage Effects of Immigration Models with large adverse effects (Borjas 2003) Assume perfect substitutability, no change in capital Assume perfect substitutability, no change in capital 3% drop in native earnings on average 3% drop in native earnings on average 9% drop for natives who are low-skilled 9% drop for natives who are low-skilled Other models (Ottaviano & Peri 2006) Allow imperfect substitutability, change in K Allow imperfect substitutability, change in K

27. Native-born labor force change, by education Source: 1996-2006; BLS, Haver Analytics Thousands

28. Native and foreign-born labor force change, by education Source: 1996-2006; BLS, Haver Analytics Thousands

29. Wage Effects of Immigration Models with large adverse effects (Borjas 2003) Assume perfect substitutability;no change in K Assume perfect substitutability;no change in K 3% drop in native earnings on average 3% drop in native earnings on average 9% drop for natives who are low-skilled 9% drop for natives who are low-skilled Other models (Ottaviano & Peri 2006) Allow imperfect substitutability, change in K Allow imperfect substitutability, change in K 2% rise in native earnings on average 2% rise in native earnings on average 1% drop for low-skilled natives 1% drop for low-skilled natives Big declines for prior immigrants Big declines for prior immigrants

30. Fiscal impact of immigration Fiscal impact Tax contributions minus transfer payments and cost of public services received, expressed in net present value Tax contributions minus transfer payments and cost of public services received, expressed in net present value Tax contributions include Payroll, income, sales, property taxes Payroll, income, sales, property taxes Majority of illegal immigrants have payroll taxes withheld Public transfers and services include Education, health care, welfare (EITC, TANF), police and fire Education, health care, welfare (EITC, TANF), police and fireEstimates Gold standard: National Research Council (1997) Gold standard: National Research Council (1997) Recent work: Robert Rector’s piece for Heritage Recent work: Robert Rector’s piece for Heritage Household-level analysis

31. NRC: Immigrants have positive fiscal impact when including their descendants Level of Education 1996 Dollars, NPV Source: National Research Council, The New Americans (1997)

32. NRC: But immigrants have a negative fiscal impact in their lifetime 1996 Dollars, NPV Source: National Research Council, The New Americans (1997)

33. U.S. immigration policy: Where are we headed?

35. Walls on the Southern border not new

36. Where is policy headed? More interior enforcement No-match program, Real ID Act, worksite raids, higher employer fines No-match program, Real ID Act, worksite raids, higher employer fines E-verify: immigration status verification E-verify: immigration status verification Local, state enforcement of immigration laws Local, state enforcement of immigration laws Local, state ordinances reg. illegal immigrants Local, state ordinances reg. illegal immigrants

37. Worksite enforcement jumps in ‘06, ‘07

38. No-match letter program: forthcoming safe harbor guidelines could have big impact SSA sends no-match letters to employers with workers whose SS numbers don’t match names Under original proposed rules, employers have to fire workers within 90 days If caught, employers assumed to have ‘constructive knowledge’ and may face stiff penalties If implemented without comprehensive reforms, no-match could impact millions of workers & grow shadow economy

39. Where do we go from here? Implications of no-match, interior enforcemnt Relative demand for illegal workers falls Relative demand for illegal workers falls Segmented labor markets More employment off-the-books; Decline in tax receipts More employment off-the-books; Decline in tax receipts Lower wages, worse working conditions for illegals Turnover, lost benefit coverage Turnover, lost benefit coverage Move from large to small employers Move from large to small employers Greater inequality; slower assimilation Reallocation of workers across states, localities Reallocation of workers across states, localities Less illegal immigration, all other things same Less illegal immigration, all other things same

40. Conclusion Foreign-born important role in economic growth Benefits of immigration extensive Labor market impacts limited; fiscal impact sizable Current policies & unintended consequences

42. Where undocumented immigrants live Source: Pew Hispanic Center (2005)