Immigration certainly is in the news. President Bush recently addressed immigration in a major speech. In Minnesota, the Pawlenty administration released a quickly controversial report on what illegal immigrants cost state and local governments. And immigration is emerging as an issue in some 2006 congressional races.
Attention to immigration is understandable. Some 35 million U.S. residents were born in other countries. This is about 12 percent of the population. The number of foreign-born residents is up some 45 percent over the past 15 years.
That is a lot, although many people don’t realize that the U.S. population as a whole grew by 20 percent over the same period. Both in annual immigrant numbers and as a proportion of the population, immigration is at its highest levels since before World War I.
Our nation is, of course, built on immigration. Immigration levels were high from the colonial era on — but especially between 1880 and 1914. Ancestors of the majority of Minnesotans came over during that period whether from Germany, Sweden, Norway, Croatia or other European countries. Three of my grandparents came during that period.
Immigration over the past three decades differs from that earlier era in that higher proportions of recent immigrants enter the country and take jobs without meeting the legal requirements to do so. We should keep in mind that illegal immigration was not unknown a century ago. Moreover, the legal requirements for immigration were much less stringent over most of our history than they are now.
Immigration involves numerous economic issues that fall into three general groups. First, what are the effects of both legal and illegal immigration on our economy as a whole and on different groups within it? Secondly, do illegal immigrants affect the economy differently than legal ones? Finally, if we wish to control immigration, what are the economic effects of alternative policies?
These issues are too broad to cover in one column. Today, I’ll look at general economic effects of migration. I’ll deal with specific issues of illegal entrants and of immigration policies in subsequent columns.
In economies, the most basic thing we measure is output, and immigrants increase output. It is a simple matter of available resources. Most of the roughly 12 million immigrants since 1990 are of working age and have permanent or temporary jobs. If we took 9 million or more workers out of the labor force, gross domestic product would drop. The U.S. economy would be smaller than it is with these workers.
Don’t read too much into this. Every student of macroeconomics principles learns that output, as measured by GDP, is a very crude indicator. It is not necessarily a measure of a nation’s well-being. But on the basic question of whether immigration has increased the size of the U.S. economy, it clearly has.
Jobs and earnings are the touchiest political issue associated with high immigration levels. One hears simplistic arguments from both sides. Some argue that every job held by an immigrant is one lost to a native-born citizen. The other extreme — voiced both by Bush and Mexican President Vicente Fox — is that immigrants simply do jobs that native-born workers are unwilling to do.
Both arguments are naive. The first is based on an old “fixed lump of labor” fallacy that goes back centuries. It assumes that the number of jobs at any given time is somehow fixed by external factors that do not include the size of the economy or the number of people willing to work.
This has always been wrong. We clearly have many more jobs now than we would have if we had not experienced high immigration levels for 30 years. Whether the increase in jobs equals the number of working-age immigrants is another matter however.
The second argument is equally silly. It ignores the simple fact that the labor supply curve slopes up and to the right. That is an economist’s way of saying that more people are willing to work at higher wages than at lower wages. Bush, Fox and many U.S. employers are right in that there are many jobs native-born people do not want at $6 or $8 per hour. But they conveniently ignore the fact the same people might be glad to have these jobs if they instead paid $10 or $12 an hour.
This leads to the touchy question of how immigration affects wage levels. Freshman-level economics clearly tells us that high immigration levels have some effect on wage rates. An increase in the supply of labor, all other things being equal, has to lower the price of labor or wage rates at least somewhat.
© 2005 Edward Lotterman
Chanarambie Consulting, Inc.