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The Economic Benefits of Immigration

issue brief

The Economic Benefits of Immigration

Diana Furchtgott-Roth February 5, 2013
Urban PolicyOther

America's economic growth is hovering around 2 percent, public debt is $16 trillion and rising, and job creation and labor market participation remain low. Embracing a more flexible legal immigration system can dramatically improve this situation. This paper describes the link between economic growth and immigration, the need for policy change, the misguided history of America's political opposition to immigration, and a rational immigration policy.

Immigrants increase economic efficiency by reducing labor shortages in low- and high-skilled markets because their educational backgrounds fill holes in the native-born labor market. However, the share of immigrants in the U.S. workforce has declined since its 1991 peak. Increased immigration would expand the American work-force, and encourage more business start-ups. Businesses ranging from Apple Corporation to apple growers would be able to find the workers they need in America.

Current law has inhibited such positive developments.

H-1B temporary visas for new skilled immigrant workers, limited at 85,000 annually, do not meet demand. This quota represents just over one twentieth of one percent of the overall labor force. Acquiring permanent residency (a "green card") is a lengthy and potentially costly process. When immigrant talent, such as the 51 percent of engineering doctorate earners and the 41 percent of physical sciences doctorate earners who are foreignborn, are forced to leave the United States, private and taxpayer investment in research loses value.

Such limitations have been the result of opposition, based largely on false premises, to more open immigration.

Opposition to immigration is as old as immigration itself. American anti-immigrant groups have long feared the possibility that immigrants drive nativeborn workers out of jobs. However, this occurs only in the negligible proportion of occupations where native-born and immigrant skill sets overlap. Many economists have shown that immigration increases the wages of native-born Americans.

A growth-oriented immigration policy would allow a greater number of immigrants to legally enter, stay, and work in the United States. Arlene Holen, using Congressional Budget Office methodology, has estimated that if no green card or H-1B visa constraints had existed in the period 2003–07, an additional 182,000 foreign graduates in science and technology fields would have remained in the U.S. Their contribution to GDP would have been $14 billion in 2008, including $2.7 to $3.6 billion in tax payments. Three hundred thousand H-1B visa holders would also have remained in the U.S. labor force, earning $23 billion in 2008 and generating $34—$47 billion in tax revenue over the next decade.

An immigration policy focused on increasing economic growth would seek ways to admit more immigrants with the advanced education levels desired by domestic employers. One approach to increasing legal immigration in a growth-oriented way, suggested by economists Pia Orrenius and Madeline Zavodny, is to auction permits to employers with demand-based minimum prices. This would raise public revenues while creating a market for permits and guaranteeing that immigrants would arrive with employment. Differing prices could be charged for workers with particular skill sets, given demand. Initial revenues could be as much as $6 billion, which could be invested in services that immigrants use.

Such policy innovations would require, as well, resolution of the status of the estimated 11 million undocumented "illegal immigrants" now living and (generally) working in the U.S. The Brookings-Duke Institute Roundtable has suggested that a solution to the problem of undocumented immigrants would begin with the establishment of a workplace verification system, proven to be effective, which allows employers to know promptly whether a potential employee has the right to work in the United States. This would be followed by a series of steps toward legalization—including payment of back taxes, a mandatory fine, employment and background checks, and a citizenship-type test for those wanting to remain in America. These steps were the basis of the 2005 and 2007 McCain-Kennedy comprehensive immigration proposals, and form the core of the Senate bipartisan agreement announced in January. Provisional visas and a path to permanent residency and citizenship could be provided for immigrants without criminal records, provided all requirements are completed.

Immigration benefits the economy, and America must adopt more flexible immigration policies that spur growth.