The Economic Impact of Immigration on the American Economy Oscar Flores Minnesota State University Moorhead October 10, 2016

Outline I.Historical Trends II. The Impact of Immigration on Wages and Employment a. Theoretical Framework b. Empirical Results

Outline III. Fiscal Impact a.Some conceptual problems b.Current findings IV. Immigration and Crime V. The Changing Face of Immigration— the Future

Illegal Immigrants are estimated to be approximately 12 of the 40 million Foreign-Born. “We make an estimate of how many immigrants are in the country legally. A census or a national survey gives us a measure of how many immigrants (lawful and unauthorized combined) are living in the U.S. Then, we subtract the lawful immigrants from the total.” Jeffrey Passel, Pew Research Center FACTTANK, SEPTEMBER 20, 2016

Important Legislation The Johnson-Reed Act of 1924—Quotas based on National Origins and Asian Exclusion The Hart-Celler Act of 1965—Quotas based on Family Reunification and Skills

Origins of Foreign Born Population in the US Source: Pew Research Center using Census and American Community Survey Data

Where Do Immigrants Live?

Economic Impact of Immigration: Theoretical Framework Simplest framework Immigration increases the supply of labor more competition for jobs hence lower wages and lower employment of “native” workers. Effect on wages and employment depends on employers’ responsiveness to changes in wages (elasticity of demand) Return on capital investment increases (shareholders) Assumes immigrants are perfect substitutes of native workers.

Economic Impact of Immigration: Theoretical Framework (b) In building a house framers, roofers, painters, plumbers, electricians, general contractors work together (complement each other) Immigration of one type of worker increases the employment and possibly pay of others Return on investment capital increases

Economic Impact of Immigration: Theoretical Framework (c) Net impact depends on whether immigrants are mostly substitutes complements neither Employers’ responsiveness to changes in wages

Economic Impact of Immigration: Empirical Studies (studies cited are only representative examples; there are dozens of each type) Spatial Studies Compare locations with low share of immigrants with those with high share of immigrants and control for a number of factors; most study impact on low educated natives.  Altonji and Card (1991),  Orrenius and Zavodny (2007)  Meatpacking in the Midwest, Artz (2012)

Economic Impact of Immigration: Empirical Studies “ Natural” Experiments Study the impact of a large and unexpected inflow of immigrants  Mariel Boatlift—Card (1990), Peri and Yasenov (2015), Borjas (2016b)  Bodvarsson and Van der Berg (2006)**  Mexican Peso Crisis—Monras (2015)

Economic Impact of Immigration: Empirical Studies Skill-Cell and Structural Studies People are divided into skill groups and study the impact of immigration in that cell. Borjas (2003), Card and Peri (2016). Assume a specific production function

The Economic Impact of Immigration: Fiscal Impact What to measure?  The children of immigrants affect local school expenditures. Problem: Indivisibilities.  The children of an immigrant parent and an American born parent?  How many generations?  Short-term or over the life time?

The Economic Impact of Immigration: Fiscal Impact The consensus in the literature is that the fiscal impact of immigration is Federal Level: Positive State and Local: Negative Panel of the National Academy of Sciences (2016) led by Francine Blau

Economic Impact of Immigration: GDP and GDP Growth

Since immigrants tend to be younger, if there were fewer immigrants, the share of the population over 60 would be much higher and there would be proportionally fewer workers. How would this affect GDP and GDP growth.

The Bottom Line Though much new theoretical and empirical work regarding the impact of immigration on growth, entrepreneurship, innovation, as well as the fiscal impact, as of now,

The Bottom Line The net economic impact of immigration is likely insignificant for most native-born persons. It is clear, though, that some groups benefit and some groups lose significantly. Negatively affected—those with little education, for example HS dropouts. Positively affected—some highly educated workers and those significant investments.

Immigration and Crime Three types of studies Individual level Research tends to consistently find evidence of lower offending levels among recently arrived immigrants, but crime and incarceration potential increases over time with increased Americanization. Morenoff & Astor (2006) Rumbaut et al., (2006) Stansfield (2012).

Immigration and Crime Neighborhood Level Research in traditional locales such as Texas, California, and Florida has consistently shown that the presence of new Latino immigrants results in either a negligible or negative effect on crime. Akins et al., (2009) Kubrin & Ishizawa, (2012) Lee et al., (2001) Martinez, (2002) Martinez et al. (2008)

Immigration and Crime At the macro level After controlling for relevant demographic and economic influences, research found that metropolitan areas with a higher level of immigrants have significantly lower homicide rates, but Hispanic immigration coefficients were not significantly associated with measures of robbery, burglary, or larceny. Reid, Weiss, Adelman, & Jaret (2005).

The Changing Face of Immigration—the Future

Immigration from Mexico is Decreasing Lower fertility in Mexico staring in the mid-70s together with a great recession in the US in 2008, more enforcement, and some positive changes in Mexico

Immigration from Mexico is Decreasing

Likely More Immigration Other countries and continents. As always, natural disasters, conflicts, and other such calamities, as well as general economic conditions will play a role. Both legal and illegal. Recent news accounts suggest thousands of Haitian and African immigrants are going to Mexico through South and Central America to go to the US. mil-migrantes-africanos-a-tapachula/

References Altonji J.G and Card, D.E. (1991). The effects of immigration on the labor market outcome of less-skilled natives. In J.M. Abowd and R.B. Freeman (Eds), Immigration, Trade and the Labor Market (pp ) Chicago, IL,: University of Chicago Press Akins et al., (2009) Artz (2012) Bodvarsson, O.B. and Van der Berg, H. (2006). Does immigration affect labor demand? Model and Test. In S.W. Polacheck (Ed), The Economics of Immigration and Social Diversity (pp ) Emerald Group Publishing, 2006 Borjas, G.J. (2003). The labor demand curve is downward sloping: Reexamining the impact of immigration on the labor market. Quarterly Journal of Economics, 118(4) pp Borjas, G.J. (2016). The wage impact of the Marielitos: Additional Evidence. NBER Working paper No Cambridge MA. Card, D. (1990). The impact of the Mariel boatlift on the Miami labor market. Industrial and Labor Relations Review, 43(2) pp Card, D and Peri, G. (2016). Immigration Economics: A Review. Working paper, Berkely, CA Kubrin & Ishizawa, (2012) Lee et al., (2001) Martinez, (2002) Martinez et al. (2008)

References Monras, J. (2015). Immigration and wage dynamics: Evidence form the Mexican peso crisis, Sciences Po. Morenoff & Astor (2006) Orrenius, P.M. and Zavodny, M (2007). Does immigration affect wages? A look at occupation – level evidence. Labour Economics, 14(5) pp Peri, G. and Yasenov, V. (2015). The Labor market effect of a refuge wave: Applying the synthetic control method to the Mariel boatlif. NBER Working paper No , Cambridge, MA. Reid, Weiss, Adelman, & Jaret (2005). Rumbaut et al., (2006) Stansfield (2012)