The Economic and
Fiscal Consequences of
Immigration
Panel on the Economic and Fiscal Consequences of Immigration
Francine D. Blau and Christopher Mackie, Editors
Committee on National Statistics
Division of Behavioral and Social Sciences and Education
A Report of
THE NATIONAL ACADEMIES PRESS
Washington, DC
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This activity was supported by Grant No. 13-103091-000-CFP from the John D. and Catherine T. MacArthur Foundation, with additional support from the National Academy of Engineering Independent Fund, the National Academy of Medicine Independent Fund, and the National Academy of Sciences Independent Fund. Support for the work of the Committee on National Statistics is provided by a consortium of federal agencies through a grant from the National Science Foundation (award number SES-1024012). Any opinions, findings, conclusions, or recommendations expressed in this publication do not necessarily reflect the views of the organization or agency that provided support for the project.
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Suggested citation: National Academies of Sciences, Engineering, and Medicine. (2017). The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: https://doi.org/10.17226/23550.
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PANEL ON THE ECONOMIC AND FISCAL CONSEQUENCES OF IMMIGRATION
FRANCINE D. BLAU (Chair), Department of Economics, Cornell University
MICHAEL BEN-GAD, Department of Economics, School of Arts and Social Sciences, City, University of London
GEORGE J. BORJAS, Malcolm Wiener Center for Social Policy, John F. Kennedy School of Government, Harvard University
CHRISTIAN DUSTMANN, Department of Economics, University College London
BARRY EDMONSTON, Department of Sociology, University of Victoria, BC
ISAAC EHRLICH, Department of Economics, State University of New York at Buffalo
CHARLES HIRSCHMAN, Department of Sociology, University of Washington, Seattle
JENNIFER HUNT, Department of Economics, Rutgers University
DOWELL MYERS, Sol Price School of Public Policy, University of Southern California
PIA M. ORRENIUS, Research Department, Federal Reserve Bank of Dallas, TX
JEFFREY S. PASSEL, Pew Research Center, Washington, DC
KIM RUEBEN, Urban-Brookings Tax Policy Center at the Urban Institute, Washington, DC
MARTA TIENDA, Woodrow Wilson School, Princeton University
YU XIE, Princeton Institute of International and Regional Studies, Princeton University
GRETCHEN DONEHOWER, University of California, Berkeley (consultant to the panel)
RYAN EDWARDS, Queens College, City University of New York (consultant to the panel)
SARAH GAULT, Urban Institute (consultant to the panel)
JULIA GELATT, Urban Institute (consultant to the panel)
CHRISTOPHER MACKIE, Study Director
CONSTANCE F. CITRO, CNSTAT Director
ESHA SINHA, Associate Program Officer
ANTHONY S. MANN, Program Coordinator
COMMITTEE ON NATIONAL STATISTICS
LAWRENCE D. BROWN (Chair), Department of Statistics, The Wharton School, University of Pennsylvania
FRANCINE BLAU, Department of Economics, Cornell University
MARY ELLEN BOCK, Department of Statistics (emerita), Purdue University
MICHAEL CHERNEW, Department of Health Care Policy, Harvard Medical School
JANET CURRIE, Department of Economics, Princeton University
DONALD DILLMAN, Social and Economic Sciences Research Center, Washington State University
CONSTANTINE GATSONIS, Department of Biostatistics and Center for Statistical Sciences, Brown University
JAMES S. HOUSE, Survey Research Center, Institute for Social Research, University of Michigan
THOMAS MESENBOURG, U.S. Census Bureau (retired)
SUSAN MURPHY, Department of Statistics and Institute for Social Research, University of Michigan
SARAH NUSSER, Office of the Vice President for Research, Iowa State University
COLM O’MUIRCHEARTAIGH, Harris School of Public Policy Studies, University of Chicago
RUTH PETERSON, Criminal Justice Research Center, Ohio State University
ROBERTO RIGOBON, Sloan School of Management, Massachusetts Institute of Technology
EDWARD SHORTLIFFE, Department of Biomedical Informatics, Columbia University and Arizona State University
CONSTANCE F. CITRO, Director
BRIAN HARRIS-KOJETIN, Deputy Director
Acknowledgments
This report is the product of contributions from many colleagues, whom we thank for their time, generosity, and expert guidance. The project was sponsored by the John D. and Catherine T. MacArthur Foundation. We thank Tara Magner and Valerie Chang, who represented the MacArthur Foundation, for their roles in initiating the study and for their insights during the development and early stages of the project. Supplemental support was provided by the National Academy of Engineering Independent Fund, the National Academy of Medicine Independent Fund, and the National Academy of Sciences Independent Fund.
The panel thanks the following individuals who attended open meetings and generously gave of their time to present material to inform the panel’s deliberations. Ronald Lee (University of California, Berkeley) reviewed methods for producing intergenerational population and fiscal impact projections. Gordon Hanson (University of California, San Diego) discussed the role of immigrants in innovation. Ian Preston (University College London) gave a presentation about immigration and public finances in the United Kingdom. Alan Auerbach (University of California, Berkeley) shared his deep expertise on tax and fiscal policy and on intergenerational estimates of fiscal impacts. Matthew Hall (Cornell University) described his research on interstate migration and the assimilation of U.S. immigrants. Brian Cadena (University of Colorado Boulder) described how immigrants affected the spatial allocation of labor across localized markets during the Great Recession. Audrey Singer (Brookings Institution) discussed the comparative skill and educational profiles of immigrants and the native-born in the United States, as well as policy and public responses to immigration. David Card (Uni-
versity of California, Berkeley) engaged the panel on a wide range of labor market topics, including wage impacts and employment effects across skill and other groups, and on variation in the capacity of industries to absorb immigrants. Ethan Lewis (Dartmouth College) presented on immigrant and native substitutability in the labor market and on the impact of immigration on production technology and economic growth. Ted Mouw (University of North Carolina) discussed evidence from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics on worker displacement in high-immigration industries. Rob Fairlie (University of California, Santa Cruz) described findings from his research on the impact of immigrants on entrepreneurship and job creation. Magnus Lofstrom (Public Policy Institute of California) likewise discussed entrepreneurship and job creation and the role of state policies affecting these processes. Sarah Bohn (Public Policy Institute of California) discussed the role of immigrants in informal labor markets in California. Annette Bernhardt (University of California, Berkeley) presented on how unauthorized status plays out in the workplace—its correlation with higher rates of unemployment and labor law violations, and how current immigration policy shapes the bargaining between employers and undocumented workers. Laura Hill (Public Policy Institute of California), with input from Hans Johnson (Public Policy Institute of California), provided an overview of state and local policy issues affected by immigration in California, and of methods using administrative IRS data and indirect survey methods for measuring the extent of unregulated/unauthorized work. Nancy Folbre (University of Massachusetts Amherst) provided information to the panel about immigration and nonmarket and care work. Giovanni Peri (University of California, Davis) presented on labor market issues ranging from the role of immigrants in stimulating local labor markets to the impact of foreign science, technology, engineering, and mathematics workers on native wages and employment in U.S. cities. Dan Lichter (Cornell University) discussed Hispanic boomtowns and how immigration affects population change and racial diversity in rural America. Klaus Zimmermann (University of Bonn) presented evidence to the panel on the economic and fiscal impacts of circular migration. Lynn Karoly and Francisco Perez-Arce (RAND Corporation) presented a framework for benefit-cost analyses of state-specific immigration policies (e.g., in-state tuition, e-verify, driver’s licensing, etc.). These presentations stimulated extensive discussion of the issues covered in this report.
The panel also wishes to thank Joan Monras (Columbia University), Joan Llull (Center for Monetary and Financial Studies), and Patricia Cortés (Boston University) for their help with the Chapter 5 analysis of the effect on native wages of an inflow of immigrants into the labor market.
The panel could not have conducted its work efficiently without the capable staff of the National Academies of Sciences, Engineering, and Medicine. Connie Citro, director of the Committee on National Statistics, and
Robert Hauser, executive director of the Division of Behavioral and Social Sciences and Education, provided institutional leadership and substantive contributions during meetings—Connie also contributed to the writing of the report as well. Kirsten Sampson-Snyder, Division of Behavioral and Social Sciences and Education, expertly coordinated the review process. Robert Katt provided meticulous, insightful, and thorough final editing that improved the readability of the report for a wide audience. Esha Sinha provided highly capable data analyses for the panel and helped coordinate panel meetings. We also thank program associate Anthony Mann for his well-organized and efficient logistical support of the panel’s meetings.
On behalf of the panel, I would like to express our deep gratitude to our study director, Christopher Mackie. He did a superb job in keeping us on track and coordinating all our myriad activities from our review of the existing literature to our original data analyses. He helped organize our meetings and develop the structure of the panel’s final report, contributed to our literature review and the drafting and reworking of the report’s chapters, and shepherded the report through the final review process. We all benefited enormously from his superlative organizational skills, insightful input into the report, and resourcefulness, as well as his patience and good humor. Speaking personally, it has been a great pleasure to collaborate with Chris on this important endeavor.
We thank the consultants to the panel who were absolutely critical to the extensive data analyses underlying major parts of this report. Collaborating with members of the panel, Gretchen Donehower (University of California, Berkeley) and Ryan Edwards (Queens College and University of California, Berkeley) produced the national-level fiscal impact estimates. Sarah Gault (Urban Institute) provided data analysis for the state and local fiscal impacts estimates. Julia Gelatt (Urban Institute) provided a range of data analyses of educational and occupational profiles of the population.
Finally, and most importantly, a note of appreciation is in order for my fellow panel members. Despite their many professional commitments, every panel member donated countless hours and shared extensive expertise to make this report possible. As a result, the report reflects the collective expertise and commitment of all panel members: Michael Ben-Gad, City, University of London; George J. Borjas, Harvard University; Christian Dustmann, University College London; Barry Edmonston, University of Victoria; Isaac Ehrlich, State University of New York at Buffalo; Charles Hirschman, University of Washington, Seattle; Jennifer Hunt, Rutgers University; Dowell Myers, Sol Price School of Public Policy at the University of Southern California; Pia Orrenius, the Federal Reserve Bank of Dallas; Jeffrey S. Passel, Pew Research Center; Kim Rueben, Urban Institute; Marta Tienda, Princeton University; and Yu Xie, Princeton University. This group—deliberately chosen for their varied perspectives, diverse back-
grounds, and deep subject-matter knowledge—displayed rigor and creativity, and also patience when dealing with one another to produce this report.
This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise. The purpose of this independent review is to provide candid and critical comments that assist the institution in making its reports as sound as possible, and to ensure that the reports meet institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process.
The panel thanks the following individuals for their helpful reviews of this report: Alan J. Auerbach, Department of Economics, University of California, Berkeley; Claire D. Brindis, Bixby Center for Global Reproductive Health and Adolescent and Young Adult Health-National Resource Center, University of California, San Francisco; Steven Camarota, Center for Immigration Studies, Washington, DC; David Card, Department of Economics, University of California, Berkeley; Gordon Hanson, Center for Emerging and Pacific Economies, School of International Relations and Pacific Studies, University of California, San Diego; Laura Hill, Public Policy Institute of California; Ronil Hira, Department of Political Science, Howard University; Ronald Lee, Department of Demography, University of California, Berkeley; Ethan G Lewis, Economics Department, Dartmouth College; Douglas S. Massey, Department of Sociology, Princeton University; Alejandro Portes, Department of Sociology, Princeton University; Audrey Singer, Metropolitan Policy Program, Brookings Institution; and Madeline Zavodny, Department of Economics, Agnes Scott College.
Although the reviewers listed above provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of the report was overseen by Julie DaVanzo, Center for the Study of Family Economic Development, RAND Corporation, Santa Monica, CA, and Christopher A. Sims, Department of Economics, Princeton University. Appointed by the Report Review Committee of the National Academies, they were responsible for making certain that the independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. We are indebted to them for scrupulously executing their charge. Responsibility for the final content of the report rests entirely with the authoring panel and the institution.
Francine D. Blau, Chair
Panel on the Economic and Fiscal Consequences of Immigration
Contents
PART I: BACKGROUND AND CONTEXT
2 Immigration to the United States: Current Trends in Historical Perspective
2.2 Immigration Trends and Origins from 1820 to 2015
2.3 Immigration Driven by Labor Demand
2.4 The Net International Migration Rate and Its Contribution to Population Growth
2.5 Past and Future Trends in the Stock of First and Second Generation Immigrant Populations
2.6 Immigration and Changes in Race and Ethnic Composition
2.7 Population Aging, the Baby Boom, and the Transition to an Immigrant Workforce
2.8 From Traditional Gateways to New Destinations: The Changing Geography of Immigrant Settlement
2.10 Technical Annex on Counting Immigrants
3 Socioeconomic Outcomes of Immigrants
3.2 Education and Occupation Profiles
3.3 Employment, Wage, and English-Language Assimilation Profiles
3.4 Poverty and Welfare Utilization
3.6 Technical Annex of Tabulations and Regression Results
3.7 Technical Annex on Occupational Categories
4 Employment and Wage Impacts of Immigration: Theory
4.2 A Simple Model with a Single Type of Labor
4.3 Employment Effects of Immigration with Elastic Labor Supply
4.5 Multiple Technologies and Multiple Goods
4.7 The Link Between Immigration and Frictional Unemployment
5 Employment and Wage Impacts of Immigration: Empirical Evidence
5.2 Some Basic Conceptual and Empirical Issues
5.3 Spatial (cross-area) Studies
5.4 Aggregate Skill Cell and Structural Studies
5.5 A Cross-Study Comparison of Immigrants’ Impact on Wages
5.6 High-Skilled Labor Markets and Innovation
5.7 Key Messages and Conclusions
5.8 Annex: Summary Comparison of Selected Wage and Employment Impact Studies for the United States
5.9 Technical Notes for the Cross-Study Comparison of the Magnitudes of Immigrants’ Impact on Wages
6 Wider Production, Consumption, and Economic Growth Impacts
6.2 Impact on Overall Economic Activity (GDP)
6.3 Sectoral and Geographic Impacts
6.4 Impact on Prices of Consumer Goods and Cost of Living
6.5 The Role of Immigration in Long-Run Economic Growth
6.6 Beyond GDP—Nonmarket Goods and Services and the Informal Economy
6.8 Technical Annex on Models of Endogenous Growth in a Closed Economy
7 Estimating the Fiscal Impacts of Immigration—Conceptual Issues
7.2 Sources of Fiscal Costs and Benefits
7.3 Static and Dynamic Accounting Approaches
7.4 Sources of Uncertainty: Assumptions and Scenario Choices in Fiscal Estimates
7.5 Distributive Fiscal Effects—Federal, State, and Local
8 Past and Future Fiscal Impacts of Immigrants on the Nation
8.2 Historical Fiscal Impacts of Immigration, 1994-2013
8.3 Forecasts of Lifetime Net Fiscal Impacts
8.4 Annex: Technical Documentation for the Fiscal Estimates
9 State and Local Fiscal Effects of Immigration
9.3 Geographic and Demographic Distribution of Immigrants
9.6 Net Effects of Immigration on State and Local Budgets
9.7 Alternative Treatments of Education Costs
9.8 Marginal Versus Average Fixed Costs
9.10 Technical Annex: Supplemental Tables
10 Research Directions and Data Recommendations
10.1 Counting and Characterizing Immigrants and Their Descendants
10.2 Information on Legal Status
10.3 Measurement of Immigration and Emigration Patterns
5-1 Simulated Percentage for Wage Impacts of 1990-2010 Immigrant Supply Shock
5-2 Effect on Native Wages of an Inflow of Immigrants That Increases Labor Supply by 1 Percent
5-3 Recent Studies Using Cross-Area, Occupation, or Industry Approaches
7-1 Domains and Types of Impacts of Immigration That Affect Fiscal Balances
7-2 Multiple Impacts of Granting Eligibility to Undocumented Immigrants for In-State Tuition
8-4 Average Annual Growth in Per Capita Flows, 2012-2087 (under three scenarios, in percentage)
9-11 Census of Governments (COG) State and Local Revenue Flow Types and Allocation Methods
9-12 Census of Governments (COG) State and Local Expenditure Flow Types and Allocation Methods
9-19 Average Household Size per Household Unit, by Immigrant Generation by State, 2011-2013
FIGURES
2-1 Legal immigration to the United States, 1820-2012
2-2 Percentage of first and second generations in the U.S. population, 1850-2030
2-3 Change in age composition of U.S. population from 1960-2030 (projected)
2-4 Rising senior ratio in the U.S. population, with and without projected immigration
3-4 Age and educational attainment of foreign-born residents, 1970 and 2012
3-5 Age and educational attainment of U.S.-born residents, 1970 and 2012
3-10 Poverty rates for all U.S. residents, natives, and immigrants, 1970-2010
3-12 Trends in poverty rate of children, 1994-2009
3-13 Trends in program participation of children, 1994-2009
4-1 Labor market (with inelastic labor supply) response to an influx of immigrant workers
4-2 Capital market (with inelastic labor supply) response to an influx of immigrant workers
4-3 Labor market (with elastic labor supply) response to an influx of immigrant workers
4-4 Capital market (with elastic labor supply) response to an influx of immigrant workers
4-5 Low-skilled labor market response to an influx of low-skilled immigrant workers
4-6 High-skilled labor market response to an influx of low-skilled immigrant workers
4-7 Capital market response to an influx of low-skilled immigrant workers
4-8 High-skilled labor market response to an influx of high-skilled immigrant workers
4-9 Low-skilled labor market response to an influx of high-skilled immigrant workers
4-10 Capital market response to an influx of high-skilled immigrant workers
4-11 The allocations of capital and labor in a two-good economy, before and after immigration
5-2 Scatter between male wages and male immigration across skill groups
5-3 Self-employment rates by nativity, 2000-2012
7-1 Age-specific taxes and benefits, by immigrant generation, United States, 2012
8-1 The U.S. population by age and immigrant status in 1995
8-2 The U.S. population by age and immigrant status in 2011
8-3 Average number of own children in household, by immigrant generation, 2013
8-4 Average years of education across age by immigrant generation in 1994
8-5 Average years of education across age by immigrant generation in 2013
8-6 Employment-to-population ratio across age by immigrant generation in 1994
8-7 Employment-to-population ratio across age by immigrant generation in 2013
8-8 Wage and salary income in 2012 dollars by immigrant generation in 1995
8-9 Wage and salary income in 2012 dollars by immigrant generation in 2012
8-10 Fiscal flows, first generation immigrants to the United States, 2012
8-15 Federal old-age benefits received per capita in 2012, by age and immigrant generation
8-19 Ratio of receipts to outlays for first generation and native-born groups as defined for Table 8-1
8-20 Age profiles of wage and salary income by educational attainment and nativity, 2012
8-21 Age profiles of net fiscal impact by educational attainment and nativity, 2012
8-24 Predicted educational attainment for native-born children
8-25 Predicted educational attainment for foreign-born children
BOXES
2-1 Sources of Data on Measuring First and Second Generation Stocks
8-1 Alternative Scenarios for Attributing Public Expenditures to Immigrants and Natives