How Would Immigration Reform Help the U.S. Economy?

shutterstock_83971036A growing consensus has emerged among both liberals and conservatives that immigration reform would serve as a stimulus to the U.S. economy. Reform would not only raise the wages—and therefore the tax payments and consumer purchasing power—of newly legalized immigrants, but would ensure future flows of immigrant workers, taxpayers, and consumers that are sufficient to meet the labor-force needs of our rapidly aging society. Conversely, trying to enforce our way out of a dysfunctional immigration system only wastes taxpayer dollars while exacting a high toll in both human lives and missed economic opportunities.

These themes were central to the rollout of a new report from the Bipartisan Policy Center (BPC) and the research firm Macroeconomic Advisers, titled Immigration Reform: Implications for Growth, Budgets, and Housing. The report takes as its starting point the potential economic impact of the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), which was passed by the Senate in June. Like the analyses prepared by the Congressional Budget Office (CBO) in June and July, the BPC report concludes that immigration reform in general, and S. 744 in particular, would be a boon to the economy:

“Effective immigration reform can be a powerful instrument of economic revitalization. By increasing the overall population and particularly the number of working-age labor force participants, reform can help expand the economy, contribute to higher overall average wages, generate more consumer spending, and spur new demand for residential housing construction. By supporting stronger economic growth, immigration reform can also reduce the federal budget deficit substantially.”

Specifically, the BPC report estimates that S. 744 would, over the course of two decades, have the following economic impact:

  • Increase economic growth by 4.8 percent, as measured by Gross Domestic Product (GDP).
  • Lower the federal deficit by $1.2 trillion ($180 billion during the first decade, and $990 billion during the second decade).
  • Increase demand for housing, spurring additional spending on residential construction of roughly $68 billion per year.
  • Increase the size of the labor force by 8.3 million workers (an increase of 4.4 percent).
  • Offset the aging of the native-born workforce by adding 13.7 million, primarily younger people to the population. Only 6 percent of these people would be age 65 or older, compared to 20 percent of U.S. residents as a whole.
  • Raise wages in the long term by 0.5 percent (although wages would initially fall by about 0.2 percent during the first decade due to the influx of new workers).

The report also presents five alternate scenarios with assumptions different from those underlying the CBO analysis of S. 744. For instance, the first scenario posits a higher level of unauthorized immigration, while the third posits that immigration will be more employment-based than family-based. The most telling scenario, though, is the fifth one: which analyzes the impact of an enforcement-only approach in which all unauthorized immigrants are removed from the country within 10 years and all future unauthorized immigration is prevented. All other aspects of the immigration system remain the same as they are now. The economic impact of this scenario is severely negative: a 6.4 percent decrease in the size of the labor force, a 5.7 percent decline in the size of the economy, $100 billion per year less in residential housing construction, and an $800 billion increase in the size of the federal deficit. In other words, enforcement without reform is a losing strategy in a fiscal and economic sense.

These points were emphasized not only in the report itself, but in a panel discussion accompanying its release. The event was hosted by the U.S. Chamber of Commerce and included economic heavyweights like Keith Fontenot, visiting scholar at the Brookings Institution and former associate director for Health Programs at the Congressional Budget Office; Doug Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office; and Joel Prakken, senior managing director and co-founder of Macroeconomic Advisers. It is noteworthy that Holtz-Eakin emphasized on more than one occasion that the only recent study to claim immigration reform would be a net economic drain was a hopelessly flawed analysis released in May by the Heritage Foundation. That analysis inexplicably, and inaccurately, neglected to consider the ways in which immigration reform would increase tax revenues and economic growth. As the BPC report notes, when the full range of economic variables is considered, it becomes clear “that immigration reform will contribute to our nation’s future economic prosperity.”

Immigration enforcement without immigration reform is an economic dead-end. But a carefully crafted overhaul of the immigration system as a whole, such as that proposed in S. 744, could offer the nation a much-needed economic boost. This is a viewpoint shared by researchers and analysts across the political spectrum—the feeble protestations of the Heritage Foundation notwithstanding.

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