Immigration and Poverty in the United States Steven Raphael and Eugene Smolensky Goldman School of Public Policy University of California, Berkeley

Chapter outline Document poverty trends among the native and foreign born Examine the relationship between immigrant poverty and time in the U.S. The compositional effect of immigration on U.S. poverty rates The effect of immigration on native poverty via labor market competition

Basic Poverty Trends Overall poverty declines between 1970 and 2000, with a slight increase between 2000 and 2005 Native poverty at the end of the study period lies below the poverty rate at the beginning. ◦ Declines observed among all racial/ethnic groups with largest declines among Hispanics and African-Americans

Immigrant poverty trends Poverty among immigrants increases between 1970 and 2005 with largest increases for recent immigrants Within country-of-origin groupings, poverty is stable or declines Previous two patterns suggest that the composition of new immigrants has shifted decisively towards higher poverty source countries

The Distribution of the immigrant population has shifted to higher poverty groups

Immigrant poverty and time in the U.S.: constructing synthetic cohorts Calculate poverty rates for specific arrival cohorts across census years ◦ e.g. poverty among those arriving in 65 to 70 in 1970, 1980, 1990 and 2000 Compare poverty rates across years

Table 5 Synthetic Cohort Analysis of Immigrant Poverty Rates by Census Year and by Year of Arrival Census Year Year of First Arrival Immigrants 18 to 34 in Census Year Immediately Following Arrival

Mexican Immigrants Census Year Year of First Arrival

Central American Immigrants Census Year Year of First Arrival

South American Immigrants Census Year Year of First Arrival

East Asian Immigrants Census Year Year of First Arrival

Southeast Asian Immigrants Census Year Year of First Arrival

Qualifications to these synthetic cohort results (Lubotsky 2007) Selective return migration Measurement error pertaining to year of arrival

Contribution of immigration to poverty: compositional impact w it – proportion of the U.S. population at time t accounted for by group i poverty it – poverty rate for group i in time t

Decomposing the change in the national poverty rate

Contribution of immigration to poverty: labor market competition with natives Assume Immigrants and natives are perfect substitutes Capital is fixed

Wages Employment D0 S0 S1 W0 W1 E2 E0 E3

Are immigrants and natives perfect substitutes? Discussion of substitutability and complementarity among factors of production Language and cultural differences Differences in formal educational attainment Differences in position in the earnings distribution

Table 8 Distribution of Educational Attainment by Immigration States and by Race/Ethnicity for Adults, 18 to 64 Years of Age, 2000 Foreign-BornNative-Born American Citizens Non-Hispanic White Non-Hispanic BlackNon-Hispanic AsianHispanic Education level MenWomenMenWomenMenWomenMenWomenMenWomen < 9 year21.61%19.57% %4.18%2.93%2.09%1.63%8.15%7.22% 9 to 12, no diploma High school grad Some college Bachelors degree Masters or higher

Is capital fixed? Immigration decreases the capital-labor ratio, increasing the return to capital. Capital stock should grow due to domestic savings and foreign investment

Wages Employment D0 D1 S0 S1 W0 W2 W1 E2 E0 E3

Simulating the effects of immigration between 1970 and 2005 on native poverty rates Using PUMS data for 1960 through 2005, estimate a CES production function that permits ◦ Imperfect substitution between capital and labor ◦ Imperfect substitution between labor of different education levels ◦ Imperfect substitution between labor of different experience levels within the same education group ◦ Imperfect substitution between immigrant and native labor within the same education-experience groupings. ◦ Endogenous capital accumulation Use the estimated own-factor and cross-factor price elasticities to simulate the effect of immigration shock on the national wage distribution Simulate the impact on household income and construct counterfactual poverty rates

Relationships between substitution elasticities and poverty rates The effect of immigration on native poverty will be higher … the higher the degree of substitutability between immigrants and natives in similar skill groups the lower the degree of substitutability between workers of difference educational attainment levels the lower the degree of substitutability between workers of different experience levels within educational group. The more sluggish the response of capital supply to immigration-induced changes in the return to capital

Figure 1A: Scatter Plot of the Native-Immigrant Log Wage Differential Measured by Year (1960 through 2005), Education, and Skill Groups Against the Corresponding Log Supply Differentials

Summary of findings Immigrants are poorer now than in the past, though this is driven largely by changes in source- country composition Poverty rates decline quickly with time in the U.S. for most immigrant groups ◦ Can’t distinguish between assimilation and selective return migration Immigration has increased the national poverty rate through a compositional effect (by about half a percentage point). Labor market competition between immigrants and native has had no discernable impact on native poverty rates