Economists are making the case politicians are afraid to: Immigration is great for the U.S.

Economists are making the case politicians are afraid to: Immigration is great for the U.S.

Economists are making the case politicians are afraid to: Immigration is great for the U.S.

Moneybox
Commentary about business and finance.
Sept. 2 2010 5:26 PM

Give Us Your Tired, Your Poor. Really. We Mean It.

Economists are making the case politicians are afraid to: Immigration is great for the U.S.

U.S.-Mexico border. Click image to expand.
The U.S.-Mexico border

If you pay attention only to politics, you'd be forgiven for thinking that the current debate about immigration in America is limited to how severely it should be restricted—whether we need only to seal the border or actually change the birthright citizenship clause in the Constitution.

But among economic pundits, the discussion is heading in exactly the opposite direction. Pro-immigration arguments are booming, and reached a zenith this week with the publication of a paper by the San Francisco Federal Reserve Bank, arguing among other things that immigrants, despite popular misconception, do not displace American workers. This has led a number of economic bloggers to make the very rational argument that one of the best things America could do now to fix our sagging economy is to encourage more people to come here and work.

According to the econo-blogosphere lately, immigration is a cure-all for America's economic ills. We'll get to the question of whether anyone is listening, but here is a guide to the virtues-of-immigration arguments that have been making the rounds in recent weeks.

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Immigrants will solve our housing crisis. One major reason why housing prices remain in the doldrums and sales remain slack is that there are simply too many houses for sale. The National Association of Realtors reported that in July, there were 3.98 million existing homes on the market, representing a 12.5-month supply at the current pace of sales. That's an exceptionally high number (a normal market has a six-month supply). Until hundreds of thousands of those homes sell, the market is likely to stagnate. So, goes the argument, let's open the borders to immigrants who promise to buy a house.   Every year tens of thousands more people apply for the highly coveted H-1B visas than receive them, and even the rejected applicants tend to be highly educated and highly skilled.  Expand the number of visas granted, make them contingent on buying a house, and the newcomers will make a fast and substantial dent in the glutted market.

Immigrants are needed to replenish the American workforce.  While the American labor force continues to grow, the rate at which it grows has been slowing down for decades. The Bureau of Labor Services projects that by 2020, the growth rate will be just 0.4 percent per year, and by 2030 just 0.3 percent per year.  Some of this is attributable to baby boomers moving into retirement homes, and some is attributable to declining birth rates. If there aren't enough native-born Americans to fill jobs, they will be filled by immigrants. This is already happening. In recent years, most of the growth in the workforce has been attributable to immigrants, both legal and undocumented. In California, one worker in three was foreign-born in 2008. Hence, the continued flow of immigrants has important implications for propping up the American economy and keeping Social Security solvent. 

Immigrants make the economy better. Not only does the San Francisco Fed paper—written, appropriately, by an Italian economist, Giovanni Peri—argue that immigrants don't hurt the economy, it actually makes the case that immigrants are putting money in the pockets of native-born workers. Specifically, it says that "total immigration to the United States from 1990 to 2007 was associated with a 6.6 percent  to 9.9 percent increase in real income per worker." How does that happen? Businesses, Peri claims, adjust to the growing population by upgrading and expanding their facilities. In addition, both less-educated and more-educated immigrant workers tend to work in different categories than their native-born counterparts. For example, Peri says, "among more-educated workers, those born in the United States tend to work as managers, teachers, and nurses, while immigrants tend to work as engineers, scientists and doctors." The resulting specialization leads to higher productivity and thus to economic expansion.

So is it really that simple—open the borders and our problems will be solved? Not quite. For one thing, scale might matter. Most of the pro-immigration arguments are comparing the difference between, say, having 1 million new immigrants a year and having zero. Not all of the positive effects of immigration would necessarily stay the same or improve if it went, say, to 10 million a year. Moreover, these pro-immigration advocates for the most part aren't addressing the issues typically raised by anti-immigration forces, such as the demand that illegal immigration puts on taxpayer-funded resources. (If you believe the Center for Immigration Studies, taxpayers are already paying billions for the health care of illegal immigrants, though you can find much lower estimates, too.)

The political viability of the pro-immigration case, then, depends in part on what questions you're trying to answer. But the public discussion of immigration in America is apparently able to incorporate questions as sensational as whether to give dialysis to 38 undocumented aliens with kidney failure, and as absurd as whether or not Mexicans constitute a dangerous "fifth column" preparing to take over the United States. It would be nice if there were room enough to include some genuine, informed examination into immigration's economic impact.

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James Ledbetter is the editor of Inc. and the host of Panoply’s podcast Inc. Uncensored.