Posted on July 22, 2004

Foreign Labor: For US, Too Much Of A Good Thing?

David R. Francis, Christian Science Monitor, Jul 22

Immigration is changing America, diversifying it, enriching it with new foods and traditions as well as geniuses and day laborers. But there’s also a cost associated with this influx — and the latest economic analyses show it’s higher than most Americans think.

These recent findings, at odds with earlier studies that characterize immigration’s effect on the economy as either a net gain or a wash, put the drain in the billions of dollars. Why? Historically high levels of immigration, these economists posit, are depressing wages, exacerbating the income gap between rich and poor, and requiring government to support and educate the many newcomers who subsist at the bottom of the economic ladder.

There are plenty of arguments — from Albert Einstein to Yao Ming — for letting people move to the United States. But economics, this argument goes, is not one of them.

“There is simply no economic reason to import foreign workers,” says Mark Krikorian, an economist at the Center for Immigration Studies, a think tank that advocates stricter limits on immigration.

One big negative, several studies find, is wages.

More than one-third of all people who ever immigrated to the US have come in the past three decades. Most have been men looking for jobs, legally or illegally, who compete directly with native- born men. George Borjas, a Harvard University economist and expert on immigration economics, estimates that between 1980 and 2000 immigration reduced the average annual earnings of native-born men by $1,700, or roughly 4 percent.

Because most immigrants in those 20 years had relatively little education, the impact of their arrival was greatest on natives who didn’t graduate from high school, Borjas found. By adding to the supply of less-educated labor, immigration reduced their wages by 7.4 percent (see chart opposite).

Though immigrants tend to cluster in a few geographic areas, such as Los Angeles and New York, a flow of jobs and natives from immigrant concentrations to other parts of the country has meant that workers elsewhere do not escape this wage impact.

Immigration also exaggerates the gap between the rich and poor, Borjas determined. For example, while the poor and less educated in the US see their wages fall sharply because of the influx of new workers, the well-to-do and some businesses benefit from the cheap supply of gardeners, house cleaners, factory workers, day laborers, and so on. So wealth — in the “tens of billions of dollars” a year — is redistributed from labor to buyers of immigrant services, he estimates.

Then there’s the drain on government budgets. Providing immigrants with things such as welfare, education, criminal justice, and emergency medical care costs taxpayers a net $11.4 billion to $20.2 billion, a 1997 National Research Council (NRC) report found. That’s the total after accounting for the added taxes that immigrants pay into the system. And it surpasses the NRC estimate of $1 billion to $10 billion in benefits to natives — primarily the well-to-do — accruing from having so many immigrants in the labor markets.

James Smith, chair of that study and an economist with RAND Corp., in Santa Monica, Calif., agrees that immigration pushes income up the ladder. But he holds that the positive gain from reduced costs for the goods and services of immigrant labor still exceeds negative costs. “Some people lose, some people gain,” he says.

A more recent Columbia University study pegs the net cost of immigration at $52 billion a year, or about half of 1 percent of gross domestic product, the nation’s total output of goods and services.

“Generally, people don’t want to hear these results,” says David Weinstein, economist and coauthor with Donald Davis of the Columbia study. “They want to hear why immigration is good for America. We get a big number [for costs]. That makes it politically charged.”

Using a different technique than the NRC study, professors Weinstein and Davis also find that homelands of immigrants were better off once they left. For one thing, the homelands get huge remittances from immigrants.

Such studies, though mathematically sophisticated, don’t measure the benefits seen by immigration advocates. Perhaps the US gains politically or in economic globalization from having a bigger population. Immigrants bring new ideas, new inventions, and useful and enriching cultures. Supporters of immigration can cite a host of key innovators who have advanced science, technology, literature, and other arts in the US. Business often sees immigration as a battle for the more talented people of the world, through H1-B and other visas.

“A conclusion that there are economic costs to US natives need not imply that immigration is bad,” note Davis and Weinstein.

But many economists see as “voodoo economics” the argument that US-born Americans won’t take the unskilled jobs that immigrants typically occupy. With fewer immigrants, economists say, wages for the tough jobs in farms, factories, or elsewhere would rise and pay enough to attract US-born Americans. Or Americans might need to mow their own lawns or pay more for these services.

“On balance, [immigration] has been historically good for the country,” says Michael Fix, head of immigration studies at the Urban Institute. “But better controls make some sense.”