Chapter 22 Immigration McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Objectives Legal and illegal immigration Economic immigration as human capital investment Effects of immigration Effects of illegal immigration Reform of immigration law 22-2

Immigration Facts Economic immigrants Legal immigrants –Averaging 1 million per year –Quotas, refugees, and H1-B provision –One-third of population growth –One-half of labor force growth 22-3

Immigration Facts Illegal immigrants –Estimated from Census data –350,000 per year on average –High proportion from Mexico and Central America –Total of 12 million residing in 2007, half from Mexico 22-4

Immigration U.S. Immigrants by Country of Origin, 2007, measured in 1000’s Mexico China Philippines India Columbia Haiti Cuba Vietnam Dominican Republic El Salvador Source: U.S. Citizenship and Immigration Services 22-5

Decision to Migrate Earnings opportunities –Increase value of human capital Moving costs Distance –Follow beaten path Age Other factors 22-6

Economic Effects Personal gains –Economic benefits exceed costs Other issues –Uncertainty and imperfect information –Backflows –Skill transferability –Self-selection 22-7

Migration Model Understand economic outcomes Assumptions –U.S. and Mexico –Labor demand greater in U.S. –No long-term unemployment –Labor quality the same –Migration has no cost –Wage differentials key factor –Migration is legal 22-8

Migration Model Wage Rate United States Mexico Quantity of Labor (Millions) Quantity of Labor (Millions) DuDu DmDm a A b dD B WeWe Wage Rate WeWe cfFC WuWu 00 WmWm Immigration impacts wages, employment, and output g G 22-9

Migration Model Wage rates will equalize In the U.S.: –Wage rate falls –Employment up –Output up In Mexico: –Wage rate rises –Employment down –Output down 22-10

Migration Model Overall effects: –World output up –Efficiency gains Other effects –Brain drains –U.S. natives lose wage income –U.S. businesses gain income 22-11

Migration Model Complications and modifications Migration costs not zero Remittances redistribute income Backflows: temporary migration Immigrant workers as complementary vs. substitute labor Expansion of capital in some industries 22-12

Migration Model Unemployment in Mexico –Which workers migrate? Fiscal impacts –Fiscal burden > taxes paid Wages will not equalize Research findings are mixed 22-13

Illegal Immigration Employment effects Two extreme views Fixed number of jobs in economy –Immigrant employment decreases domestic employment 1-for-1 Immigrant work undesirable –No domestic workers displaced 22-14

Illegal Immigration Wage effects –Substitute labor vs. complementary labor –Unskilled labor wages stay low Price effects –Cheap labor keeps prices low Fiscal impacts can be sizeable Other concerns 22-15

Immigration Reform Long history of immigration quotas Immigration Reform and Control Act of 1986 Legal immigration limit up to 700,000 per year 2007 proposal to reform immigration law defeated Remains controversial issue 22-16

Key Terms economic immigrants legal immigrants illegal immigrants H1-B provision human capital beaten paths backflows skill transferability self-selection efficiency gains from migration brain drains remittances complementary resources substitute resources negative self-selection compensating wage differential 22-17

Next Chapter Preview… International Trade 22-18