Nativists Fail to Grasp Economics of Immigration Reform

shutterstock_45062725This week, the New York Times gave voice to the nativist argument that legalizing unauthorized immigrants would drain the federal budget because newly legalized immigrants will start using public benefits. However, this flawed fiscal accounting overlooks the myriad ways in which immigrants, just like the native-born, contribute to the U.S. economy over the course of their adult lives. As workers, they add value to the economy through their labor. As taxpayers, they fund government services and programs at the federal, state, and local levels. As consumers, immigrants purchase goods and services from U.S. companies, big and small, sustaining U.S. jobs in the process. And, as entrepreneurs, many immigrants create jobs through the businesses they establish. In other words, the economic contributions of any person, immigrant or native-born, come in many forms and span a lifetime.

This is a fact that seems to be lost on the nativists who are attempting to derail immigration reform. As a general rule, nativists discount the economic value of the work that immigrants perform, ignore their economic roles as entrepreneurs and consumers, and gloss over the fact that immigrants are actually taxpayers. Rather than acknowledging that immigrants wear many economic hats, just like everyone else, nativists pretend that immigrants are financial vampires who merely drain federal and state governments of costly services and public benefits. This is a simplistic view that bears no relationship to reality and reflects no understanding of how an economy actually works.

The essence of the argument expressed in the New York Times story is that, since most unauthorized immigrants earn low wages, they will go on “welfare” as soon as they are able and further strain the already stretched federal budget. Conveniently absent from this scenario is any acknowledgement that granting legal status to unauthorized immigrant will bring all of them into the tax system—that legal status will enable them to earn higher wages over time and therefore pay more in taxes—that higher wages also translate into higher consumer purchasing power and more jobs created in U.S. businesses—and that legal status combined with higher incomes will enable more immigrants to go into business for themselves, thereby creating even more jobs.

For instance, Raúl Hinojosa-Ojeda and his fellow researchers at UCLA estimate that in just the first three years following legalization, the “higher earning power of newly legalized workers translates into an increase in net personal income of $30 to $36 billion, which would generate $4.5 to $5.4 billion in additional net tax revenue. Moreover, an increase in personal income of this scale would generate consumer spending sufficient to support 750,000 to 900,000 jobs.” The study concluded that “removing the uncertainty of unauthorized status allows legalized immigrants to earn higher wages and move into higher-paying occupations, and also encourages them to invest more in their own education, open bank accounts, buy homes, and start businesses.”

Similarly, a study by Manuel Pastor and his colleagues at the University of Southern California found that California’s unauthorized Latino population lost out on $2.2 billion in wages each year because of their lack of legal status. Were they to earn this additional $2.2 billion, the “rise in income would spur direct consumption spending by about $1.75 billion dollars per year, which would ripple throughout the state economy, generating an additional $1.5 billion in indirect local spending. Such an increase in direct and indirect consumer spending of about $3.25 billion would generate over 25,000 additional jobs in the state.” Moreover, “if unauthorized Latino workers were granted legal status, the state government would benefit from a gross increase of $310 million in income taxes and the federal government would gain $1.4 billion in paid income taxes each year.”

The point is that people with legal status have more economic power than people who do not have legal status. And when people have more economic power, they earn more, pay more in taxes, spend more, and sustain more jobs throughout the U.S. economy. The simplistic fiscal arithmetic being used by nativists misses all of this.

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  • An even broader reform would bring all elements of the informal economy into the open:

  • Stuart

    • Granting any legal status to illegal aliens unfairly rewards law-breaking.
    • Granting amnesty to illegal aliens will not “solve the problem once and for all.” We learned this after the 1986 amnesty. Instead, granting amnesty will do nothing but encourage more illegal immigration. Will Congress once again be calling amnesty the solution to illegal immigration in another 10 years?
    • Granting amnesty to illegal aliens is fundamentally unfair to individuals all over the world who are patiently waiting in line to come to the United States legally.
    • Granting amnesty to illegal aliens unfairly adds millions of legal workers to the domestic workforce when 22 million Americans are either unemployed or underemployed. Moreover, those workers that are hurt the most are often legal immigrants working in low-skill, low-wage jobs.
    • Granting amnesty to illegal aliens will not secure our borders, will not improve national security, will not end fraud in the immigration system, and will not fix the problem of visa overstays.

    • Caitlin

      You are naïve. Bad laws should be changed. Laws are written, some times they are good sometime they are bad. When we fix bad laws then are we rewarding law breakers? Should we go back and say that ending slavery is just rewarding all those runaway slaves.
      When did we as a nation decide that immigration was a bad thing… I’m guessing that your parents are Cherokee?
      I’m not just saying allow immigration for “illegal immigrants” open back up Ellis Island and let any one who can pass a criminal back ground check in.
      I’m sure we as Americans would be annoyed if Japan decided that Americans are no longer good enough to run a cooperation or work in their country.

      Just sayin…..

  • Ray Ables

    “removing the uncertainty of unauthorized status allows legalized immigrants to earn higher wages and move into higher-paying occupations”

    This is a big reason some business owners spend money lobbying against immigration reform. They like the status quo with an exploitable underclass.

  • Joshua

    I would love to sit down to have a discussion with the author of this article.

    Your theory that allowing for the legalizing of the 12 million undocumented workers is very flawed. You believe it seems that in doing so will only strengthen our nation as opposed to draining more money from our social services. There is no way that you could be accurate in your belief.

    The effect that illegals have on the increased demand for goods and services have already been realized. Legalizing 12 million people will not create a greater need for retail, food, or services as their numbers have already been included. Instead what you will have is greater competition for the jobs that are currently held by legal citizens/residents of this country.

    Illegals currently are widely thought to hold jobs that Americans do no not want. This in theory should mean that the majority of the jobs held by illegals would cause them to be classified as low income and thus eligible for every economic benefit once legalized. You state that they could then climb the economic ladder thus creating more revenue for our government when in reality they would only be taking a job that an American citizen/resident would have been able to secure.

    It might be true that there are some fields like agriculture that many Americans do not consider because of the low wages, but if we are already talking about bringing in further immigrants through work visas then these jobs would no longer be filled by the current illegals but rather that they would now be eligible to take those jobs currently held by Americans.

    This is not the early 19th or 20th century. We do not need a greater labor force by any means especially as a result of globalization and the current high unemployment rates.

  • Tomato Cain

    If this be the case, then perhaps person requesting amnesty should be required to get a sponsor, someone who will agree to pay all their living expenses should assistance be required. Heck I know somone I might be willing to sponsor who was dropped here illegally by his parents.

    But the case is that illegal immigration is incredibly expensive to all citizens (law enforcement, welfare, etc…) and LEGAL immigration is expensive usually only for the immigrant.

    My preference: All legal immigrants should be welcomed with open arms by their new communities and I hope they are, but I am particularly impressed with those from Eastern Europe who really appreciate the USA the most for its freedom and opportunity.

  • Caitlin

    Most Immigrants love the USA as their country more than Natural born Citizens. Imagine loving your country so much that you would risk going to jail just so you wouldn’t have to leave. When many “Americans” leave the US just so they don’t have to go to jail for REAL CRIMES.