Archive for August 2012

Immigration and Economics

This post outlines some of the ways in which immigration results in a net gain for the U.S. economy.

Highly skilled immigrants improve productivity:  Highly-skilled immigrants often represent the very top achievers in their countries, and they arrive here with an extremely high level of education.  Their technological skills improve the productivity of the United States.

With their diverse skills, immigrants not only create a wider range of products, but also more jobs for complementary labor, while allowing comparative advantage benefits:  Many immigrants supply skills different from those already available, thereby increasing the supply of diverse labor and contributing to gains in efficiency. They enable the economy to produce a wider variety of goods than it would if the work force were limited. They also increase the demand for labor that complements their skills. It is said, for example, that new immigrant chefs increase the demand for waiters.  One study found that every high-skilled immigrant worker generates three to five supporting or complementary positions.  Society benefits because immigrants efficiently produce goods with low relative prices, allowing Americans to focus on the industries or occupations in which they have a comparative advantage.

Improved demographics: Our current immigration policies favor the young, the risk-takers, the hard-working, and the highly qualified.  Most immigrants are young and single or have young families. This alters U.S. demographics and increases the tax and social security base, supporting our aging population with younger workers who currently require no assistance.  In the long run, revenue generated through taxation of the younger immigrant population will help balance the U.S. budget and reduce the annual deficit and the overall debt without necessarily increasing tax rates.

Benefits from more business investments and trade: Many firms need foreign talent and, if unable to employ foreign workers here, will outsource the work. Keeping this work in the U.S. by admitting immigrant workers will retain investments and jobs in the U.S., create work for support staff, and keep money in the U.S. If trade in goods is advantageous, there is no reason why trade in labor is not advantageous as well, and there is little evidence of adverse cultural results.

Increase consumption: Immigrants need food, shelter, and other goods and services. They become part of the consuming public, adding to the overall consumption and GDP.

Even unskilled workers improve the economy: Unskilled workers allow industry to obtain reasonably-priced labor for work that many Americans are not willing to do or interested in doing. They also improve the supply of labor and generate goods and services at costs consumers can afford, while keeping inflation pressure down.

Studies confirm the benefits: Gauging the effect of immigration is difficult, since we cannot know for sure what might have happened had there been no immigration. Researchers have, however, compared states that accept more immigrants to those that do not, after making allowances for other variables.  In California, where the number of immigrant workers as compared to the entire working population increased by 10%, the average income per worker also increased by 2.6% in real terms over the same period.  Similar results were found in Texas and in New York. Throughout the U.S., and in the long term (defined as approximately ten years), for every inflow of immigrants equal to 1% of the working population, income increases by 0.26%.  Thus, between 1990 and 2006, when immigrants’ share of employment increased 11%, they caused a 2.86% real-wage increase for the average U.S. worker.

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