A Free Voice

The Economic Contribution of Illegal Immigration
June 9, 2008, 8:15 am
Filed under: Illegal Immigration

The economic contribution of both legal and illegal immigration is a really debatable subject. Many advocate for mass immigration insist that “immigrants” are crucial to our economy. ( I placed the term immigrants in quotations because many of their advocates tend to lumb legal and illegal together.) Also, those who favor lesser (or no) immigation say that they are a economic drain.

To be honest, I never really believed that illegal immigration was all that critical to the economy. I never did and don’t now. But it would be intelectually dishonest of me not to do the research myself and just go on supposing my  own assumptions.

A study entitled ”Deporting the Undocumented“ released by the Center for American Progress makes the claim near its finnish that the cost of deporting illegals insists near the end of the study that deportation would cause a shock to the economy because of the instant loss of illegal labor. — That said, this study cites another study from the American Immigration Law Foundation (AILF) when it makes that statement.

But having read the other study for myself it cites ( See “Economics of Necessity“) I know that it only talks about the contributions of the “foreign-born” and not necessarily illegal immigrants themselves. At one point it does mention in passing that the Undocumented immigrants contribute, but it never gives any statistics as to how much. Also, it mentions the estimate that legal immigrants would contribute $407 billion to Social Security over fifty years after 2005. — It is true that low skilled legal immigrants do in fact contribute to Social Security, but a comprehensive study done by the Heritage Foundation shows that low skilled immigrants (60% legal and 40% illegal together on average) contribute, on average, $2,900. But the benefits they receive exceed the FICA taxes they pay. –The AILF report only mentions benefits of immigration while ignoring the costs.

Also, another study done by the Center for Immigration Studies (which only focuses on illegal immigrants) that Illegal Immigrants contribute $7 billion a year to Social Security, but take more than they contribute because of government services they use.  Based on this, it would be a huge mistake to say that illegal immigrants, or all low skilled immigrants, are a net gain because of Social Security contributions.

The impact of illegal immigrants on the economy isn’t what most people on either side of the debate imagine. — Many on my side insist that they are an all out economic drain, while the illegal apologists insist that the economy would fall if it weren’t for illegal labor.

You may not believe this, and at first I didn’t either, but the truth seems to be that the actual impact to the economy seems to actually be trivial.

One economic benefit because of low-paid illegal labor is that prices get driven down.  But what so many illegal apologists neglect to mention is the actual price impact of the products they produce. I’ve heard it said that if it weren’t for illegal labor then I would pay $10.00 for a piece of fruit. This is an exaggeration.

According to an article written by Business Reporter Drew DeSilver in the Seattle Times entitled “Low-paid Illegal work force has little impact on prices,”

If illegal workers disappeared from the apple harvest and wages for the remaining legal workers rose by 40 percent in response — and that entire wage increase were passed on to the consumer — that still would add less than 3 cents to the retail price of a pound of apples.

Less than 3 cents rise in price with a 40% pay raise for legal workers? Well, I’d say this would be more beneficial than keeping illegal workers. — Drew DeSilver also goes on to talk about the prices of avarage houses if illegal workers were to disappear,

If the supply of illegal workers were cut off, wages for those low-skilled jobs presumably would have to rise enough to attract legal workers into them. If, hypothetically, wage levels rose by a third, that would either add around $1,600 to the cost of the typical house or shave half a percentage point off the builder’s 12 percent average profit margin.

He later quotes someone who says, “If I’m buying just one home, there’s not that big an impact. But if I’m building a lot of homes and I can save a few thousand on each one…. “ I.e, the impact isn’t great. It just would become noticeable if you were to keep buying a lot of stuff. But this is far away from the great impact that supporters of illegal immigration are describing.

Also, Harvard Professor and economist George Borjas in his research paper found that increasing the labor force through immigration lowered wages on an average of 3.7%.  He found that, for high school drop outs, they were lowered by 7.4% because of immigration. He then concludes that if illegal immigrant workers were just as low-skilled as their legal counterparts, then illegals would be responsible for half of that particular loss. But if their skills were yet lower than the low-skilled legal immigrants, then they are responsible for even more of the wage loss of high school dropouts.

Another paper published in Region Focus in the summer of 2006 says that,

The overall gains to the economy from unauthorized migrants do not appear to be huge, nor do the losses. Perhaps the only thing that can be said with certainty about immigration’s economic impact is in identifying its main beneficiaries: They are the immigrants themselves. (Emphasis mine)

The main beneficiaries to the economic contribution of illegal immigrants are the same immigrants. So the more accurate conclussion is that they pay for themselves, not us. So we aren’t so dependent on their contribution so much.

Adam Davidson, business correspondent for National Public Radio, says that illegal immigrants have both positive and negative impacts on the economy. He also mentions that most economists believe that they give only a very small net benefit to American wealth (less than 1%). Then he says that the economic impact of illegal immigration is much smaller than other trends in the economy. (See Q&A Illegal Immigrants and the U.S. Economy)

Edwin S. Rubenstein, the president of the ESR Research Economic Consultants of Indianapolis on his blog on VDARE.com sarcastically says,

Everyone knows the economy needs illegal alien labor, except economists. They think its contribution is fairly trivial.

He also dismisses claims that illegals are critical as “bunk.” He then points out that the U.S. economy is extremely large, pumping in an average of $11 trillion a year, and that there are thousands of factors that influence economic growth. -Adam Davidson mentions some of these factors, such as the “increase of automation use in manufacturing, or the growth in global trade” saying that these two factors “have a much bigger impact on wages, prices and the health of the U.S. economy.”

Rubenstein adds that illegal immigrants make about 1% of the GDP, but that this doesn’t account lost wages, displaced native workers, substantial payments from U.S. taxpayers to illegals for education and welfare for anchor babies, and definitely not for emergency room care. He also admits that there may be a job shortage in certain areas if illegal labor were to disappear, but both he and Davidson say that employers can invest in technology to get these jobs done, if in fact, nobody wants to do them. Reubenstein says that people would fuss over a lack of illegal labor, but the worst the economy would go through would only be a hiccup, as he puts it. Also it would lead to higher wages .

(That employers can turn to technology to satisfy worker shortages in without is confirmed by an article in Business Week.)

Rubenstein’s awarding only 1% of the GDP is an overly generous amount. According to a report from the Council of Foreign Relations (CFR) entitle “The Economic Logic of Illegal Immigration” the contribution of low skilled immigrants and illegal immigrants is smaller. Although I have my disagreements with certain things in the report it is still pretty useful and relevant.

It says that the immigration surplus seems to be very small at only 0.2% of the GDP of the year 2004. (The full GDP of 2002 was $10.47 trillion.) This means that all low-skilled immigrants in 2002 contributed $20.9 billion to the economy that year. Later, the U.S. GDP in 2004 was $11.71 trillion.  Therefore because that was the rate of the in 2004 all low skilled immigrants contributed $23.4 billion to the economy. (I’m supposing that the rate was the same two years earlier as well.) The Heritage Foundation estimates that these immigrants cost tax payers $89.1 billion. 

The CFR report then adds,

With unauthorized immigrants accounting for 5 percent of the U.S. labor force, U.S. residents would receive a surplus from illegal immigration of about 0.03 percent of GDP. Combining these two numbers, it appears that as of 2002 illegal immigration caused an annual income loss of 0.07 percent of U.S. GDP. Again, given the uncertainties surrounding this sort of calculation, one could not say with much confidence that this impact is statistically distinguishable from zero.

If this is true, then in 2002 this could mean that illegal immigrants contributed $3.14 million while inflicting a loss of $7.32 million. — Again, if the rate of contributions of illegal immigrants to the economy as well as what they take were consistent, they may have contributed $3.5 million to the economy while inflicting a cost of $8.19 million in 2004. And this is without taking into the Estimated Cost of Illegal Immigration on tax payers which is $45 Billion a year with the tax collections of illegals taken into account. — The obvious reason why the contributions of illegal immigrants seem so small in comparison to their legal low-skilled counterparts is that there are fewer illegals than legal.

Using the CFR report as a basis for the net contribution GDP of illegal immigrants even I was surprised at the small result in dollars. But it should be mentioned that the CFR report isn’t anti-immigration. It seems to advocate making immigration easier.

A reason why I do not buy into the arguments that without unrestricted immigration our economy wouldn’t be well off is because of a historical perspective.  History shows that in times of low immigration our economy has faired well.

I’m going to conclude this post by mentioning that even economist, Howard Baetjer, who in his paper endorses open immigration says,

It is incorrect to think that illegal immigration as such is beneficial to the economy. It is better than no immigration at all, but compared to free immigration, it is worse.

Don’t get me wrong. I actually think open immigration is fundamentally a good idea. My problem really is the Social Services that many poor low-skilled immigrants use. If we were to abolish them, both for immigrants as well as citizens and after that make the immigration process easier (in this order), I wouldn’t have the anti-illegal immigration perspective I do now. I’m the son of a legal immigrants which has also affected my perspective. — For that reason I am against amnesty for illegal immigrants because I see it as an insult to legal immigration. But on the condition that we get rid of the social services I wouldn’t fuss about illegal immigrants staying in the country.


2 Comments so far
Leave a comment

I was doing my own research, looking at both sides of the illegal immigration issue, when I stumbled upon your article. You finding jibe with my intuitive sense of the real situation… it is closer to a zero sum game than a huge impact. Your conclusion that ridding social services would swing you to the pro-open immigration camp is one I had not considered. Much to think about, but you have made the research far easier for me. Thanks!

Comment by Bill Doyle

This report underscores the main issue with immigrants from South America. The issue isn’t illegal immigrants. I am not races for saying this but rather being objective. The issues are:
– The most important one is the high reproductive rate. They have kids as soon as they get out of high school or sometimes before that and they have 3 to 5 kids so by the time they are 40’s, they already become grandparents while most other races get married in their late 30’s.
– Most of them don’t have good education so they don’t pay enough taxes compared to the benefits their children receive such as medical, school grants, etc…

The irony is that they come to America for a better life but if this trend continues, their children and grand children won’t have that because America is just like their own poor countries in the South. If they can limit number of kids they have and not having kids too early so they can build a career and better family for themselves then there will be hope for their

Comment by bryan

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