The Economics of Immigration

By: Alper D. Karakas

Among the myriad of controversial arguments about immigration policy, there are some undeniable economic truths. What are these, and how can they help us understand the debate in a broader context?

The issue of immigration is of political controversy in the modern world, and its effects are discussed more and contentiously in Europe and the United States. From politicians debating to American musicals singing “Immigrants, we get the job done,” there are many concerns, from countless perspectives, about the effects of immigrants on a nation’s culture, security, employment levels, productivity and more. In this article, I don’t attempt to establish how different immigration policies will affect all of these facets of life. However, I will make the case that, all else being equal, immigration positively contributes to long-term economic growth.

Immigrants spur the economy most substantially by adding to the labor supply. A nation’s GDP increases when its labor force grows, but why? Well, first of all, businesses will invest more in capital when they anticipate a reliable supply of capable workers. According to a UC Berkeley study, companies end up expanding, so there is no overcrowding, and productivity grows: “capital per worker was higher when immigration was at its peak in 2007 than it was in 1990 before the immigration boom began.”  Furthermore, this study helps to explain that immigration not only spurs GDP, but GDP per capita which includes native Americans.

With an influx of new workers, it is important to note what skills they bring and how those skills facilitate economic growth. Statistically, based on Diana Furchtgott-Roth’s research for the Manhattan Institute for Policy Research, many immigrants from foreign countries are professionally trained in different fields than most Americans. As seen in the graph below, it is clear that immigrants tend to fill in the gaps of America’s educational background pool—shown in Figure 1.

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Where typical Americans lack skills, immigrants excel; they complement, rather than subvert, the abilities of American workers. Where immigrants complement Americans on the high side of educational background, the Partnership for a New American Economy found in 2011 that 75% of patents from the top-ten patent producing universities belonged to immigrants. On the other side of the educational spectrum, there are many immigrants with the skill set and willingness to do manual labor.  The article from UC Berkeley goes on to state that as businesses and sectors hire more manual-labor-working immigrants, they develop a high demand for jobs that natives are more eligible for due to their nativity with the language: “jobs requiring coordination, communication, and interaction” (Giovanni Peri) which usually have high paying salaries. Consequently, “this dynamic specialization according to skills pushes natives to upgrade their jobs to better paid, communication-intensive occupations and protects their wages from competition from immigrants” (Giovanni Peri), and GDP per capita for natives and immigrants increases.

Florence Jaumotte, Ksenia Koloskova, and Sweta Saxena, in their IMF Blog post, noted that “1 percentage point increase in the share of migrants in the adult population increases GDP per person in advanced economies by up to 2 percent in the longer term.” This increase occurs primarily because immigration tends to maximize the workforce-to-population ratio. Additionally, as the following chart shows, immigration’s effect on the workforce-to-population ratio benefits the income per person of the entire country.

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In fact, researchers Jason Furman and Danielle Gray found that increases in earnings for Americans with a high school degree or higher are directly related to immigration: “Between 1990 and 2004, increased immigration was correlated with increasing earnings of Americans by 0.7 percent and is expected to contribute to an increase of 1.8 percent over the long-term, according to a study by the University of California at Davis.” Immigration benefits the economic situation of Americans themselves not only by increasing their earnings, but also by increasing demand for local businesses as they assimilate into communities.

Furthermore, immigrants are more willing than Americans to move from job to job, so they have high participation in the labor force (see Figure 4 below). Giovanni Peri, of UC Berkeley, states that “immigration, as a consequence, has served to smooth out local booms and busts; by moving away from declining regions and into booming areas, immigrants help stabilize the economy and reduce the ‘mismatch’ between local demand for labor and its supply.” Their willingness to move slows down real wage decline in fields that are losing attention, and also serves as a catalyst for booming fields receiving increasing attention, making firms more productive in both cases. Furchtgott-Roth’s research shows that immigrants will do the jobs Americans do not want to: “Immigrants choose different jobs from native-born Americans. Low-skill immigrants come to be fruit pickers, as well as janitors and housekeepers, jobs native-born Americans typically do not choose as careers.” The graph below shows the participation of immigrants in the labor force compared to native workers, illustrating their contribution to productivity and their tendency to keep the supply of labor high.

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In addition, immigrants with higher levels of education contribute to major research and create patents, startups, businesses and innovations. They work in areas of advanced expertise, undermining potential shortages of mathematicians, engineers, and scientists. In fact, the US Census reported that “immigrants represent 33 percent of engineers, 27 percent of mathematicians, statisticians, and computer scientists, and 24 percent of physical scientists.” According to Furman and Gray, high-skilled migrants are 30% more likely to start a business, and 7.5% of foreign born workers are self-employed, meaning they create their own jobs and jobs for others, including Americans themselves. In fact, immigrants create an average of 4.7 million jobs and $776 billion per year. Furthermore, Forbes’s Stuart Anderson presents that “87 startup companies valued at $1 billion or more found that 44 (more than half) had at least one immigrant founder… and according to a report by the Small Business Administration, ‘They generate nearly one-quarter of all business income in California – nearly $20 billion – and nearly one-fifth of business income in New York, Florida, and New Jersey.’” And in addition to generating revenue and increasing America’s GDP, these businesses are innovative. Immigrants have started 25 percent of public U.S. companies that were backed by venture capital investors, including Silicon Valley giants Google and Intel. The data below shows that the technology-based economic benefit of immigrant entrepreneurs is not just seen in Silicon Valley, but across the country.

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According to  The Economist, immigrants make up around half of the founders of Silicon Valley startups. Many new jobs with high salaries have been created around the country.  Tech businesses are only a portion of what kind of economic gains immigrants grant, though. From the academic breakthroughs and innovative startups, to the janitors and agricultural labor, immigrants to the United States demonstrate the great increase in productivity that foreigners can offer. They provide unique professional skills, they do the jobs that the native population does not, and their desire to be a part of the workforce strengthens the economy for both natives and foreigners. They start innovative companies which offer jobs and spur more innovation in the country. Their willingness to transition between jobs diversifies sources of revenue and robustly builds up domestic product. Cesar Maximiliano Estrada states that based on data from 2016  “the Institute for Taxation and Economic Policy, or ITEP, projects that implementing DACA, expanded DACA, and DAPA would increase state and local tax revenue by $805 million each year. On top of that, these initiatives would grow the U.S. economy by $230 billion over 10 years. Such economic expansion would raise wages for all workers and create thousands of new jobs each year.”

The data and arguments presented in this paper suggest that increases in levels of migration create jobs, foster innovation and help the economy grow. Obviously, immigration is a relevant topic on moral and political grounds, and this paper cannot hope to objectively contribute to those conversations. It can, however, illustrate that from a purely economic standpoint, immigration seems to be a reliable and substantial force for good. Therefore, whatever non-economic problems immigrants create should be weighed against the benefits they bring to society.

 

Works Cited

Anderson, S. (2016, October 03). 3 Reasons Why Immigrants Are Key To Economic Growth. Retrieved December 05, 2017, from https://www.forbes.com/sites/stuartanderson/2016/10/02/3-reasons-why-immigrants-key-to-economic-growth/#8eea9377dabd

Estrada, C. M. (2016, July 14). How Immigrants Positively Affect the Business Community and the U.S. Economy. Retrieved December 05, 2017, from https://www.americanprogress.org/issues/immigration/news/2016/06/22/140124/how-immigrants-positively-affect-the-business-community-and-the-u-s-economy/

Furchtgott-Roth, D. (2013, February 05). The Economic Benefits of Immigration. Retrieved December 05, 2017, from https://www.manhattan-institute.org/html/economic-benefits-immigration-5712.html

Furchtgott-Roth, D. (2013, February). THE ECONOMIC BENEFITS OF IMMIGRATION. Retrieved December 5, 2017, from https://www.manhattan-institute.org/pdf/ib_18.pdf

Furman, J., & Gray, D. (2012, July 12). Ten Ways Immigrants Help Build and Strengthen Our Economy. Retrieved December 05, 2017, from https://obamawhitehouse.archives.gov/blog/2012/07/12/ten-ways-immigrants-help-build-and-strengthen-our-economy

Jaumotte, %., Koloskova, K., & Saxena, S. (2017, April 14). Migrants Bring Economic Benefits for Advanced Economies. Retrieved December 05, 2017, from https://blogs.imf.org/2016/10/24/migrants-bring-economic-benefits-for-advanced-economies/

Korsen, D., & Ray, R. (2016, September 21). New Report Assesses the Economic and Fiscal Consequences of Immigration. Retrieved December 06, 2017, from http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=23550

Peri, G. (2015, September 24). IMMIGRATION: The Economic Benefits of Immigration. Retrieved December 05, 2017, from https://clas.berkeley.edu/research/immigration-economic-benefits-immigration

The jobs machine. (2013, April 13). Retrieved December 05, 2017, from https://www.economist.com/news/business/21576101-start-ups-founded-immigrants-are-creating-jobs-all-over-america-jobs-machine