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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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1

Introduction

1.1 CONTEXT AND MOTIVATION

Immigration is not a new phenomenon. The United States has been a nation of immigrants1 throughout its history. Nonetheless, the issue of immigration has often risen to the fore, and today many Americans view immigration as one of the top policy issues facing the nation.2 Perhaps this should come as no surprise given that the percentage of foreign-born in the U.S. population has been steadily growing, increasing from 4.7 percent in 1970 (the lowest ever measured for the United States) to 11.1 percent in 2000, and further rising to 13.3 percent in 2014 (approaching the historical highs attained 100 years ago). An even higher percentage of households have at least one family member who is foreign born. According to the

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1 In general in this report, the term “immigrant” is used synonymously with the term “foreign-born.” In doing this, the panel follows common statistical practice for referring to the foreign-born population counted in a census or estimated by a survey as “immigrants,” even though the category includes foreign students, temporary workers on H-1B and other visas, and migrants who entered the country surreptitiously or overstayed legal visas. Further, in portions of the report, such as in the fiscal analyses in Chapters 8 and 9, we distinguish between immigrant generations: the first generation (who are foreign-born), the second generation (those born in the United States to at least one foreign-born parent), and the third-and-higher generations (those born in the United States to native-born parents). For brevity, the report uses “third-plus generation” to refer to the latter group. In Chapter 2, Section 2.10 (Counting Immigrants) addresses these and other definitional issues.

2 In the 2015 edition of the Pew Research Center’s annual policy priorities survey, 52 percent of Americans rated immigration a “top priority for the president and Congress.” (Pew Research Center, 2015b).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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Census Bureau, more than 20 percent of married couples in the United States include a spouse born in another country. And nearly one-quarter of the U.S. population is either foreign born themselves or has at least one foreign-born parent (Pew Research Center, 2015a, p. 120). Moreover, the largest increases in the percentage of foreign-born in recent years have taken place in states—many of them in the South—unaccustomed to immigration.3 Hence, immigration is undeniably a key factor shaping many communities and households. In workplaces, classrooms, and neighborhoods across many parts of the country, daily interaction among the native-born, earlier immigrants, and new arrivals is the norm, and these interactions raise awareness of immigration across the population more broadly.

Immigration is also constantly in our purview because it is an ongoing process. And, given divergences in demographic trends and economic opportunities that persist across regions of the world, it is one that is likely to continue. The stream of arrivals—at times a relative trickle and at times rapid—not only affects the environment in which we live, learn, and work, but also interacts with nearly every policy area of concern, from jobs and the economy, education, and health care to the federal budget deficit. Thus, immigration factors into a nearly endless list of social and economic questions whose answers will shape the nation’s future.

This study assesses the impact of dynamic immigration processes on economic and fiscal outcomes for the United States, a major destination of world population movements. Related topics, such as the occupational, educational, and other assimilation issues faced by immigrants themselves, necessarily enter the discussion along the way.4 The report is organized into three major sections: Part I (Chapters 1-3) provides background and context by placing immigration to the United States in historical perspective and statistically describing the economic assimilation of immigrants in recent history. Part II (Chapters 4-6) assesses economic impacts of immigration, focusing on wages, employment, and labor markets generally, as well as on broader economic activity and long-run growth. Part III (Chapters 7-10) estimates fiscal impacts over recent past periods for federal and state governments and presents illustrative future immigration scenarios for the federal level.

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3 The states where the proportion of foreign-born has risen by one-third or more since 2000 are Alabama, Arkansas, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Nebraska, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, and Wyoming. This calculation is based on Decennial Census and American Community Survey data presented in Grieco et al. (2012).

4 The integration of immigrants into American society—specifically, their outcomes in terms of educational attainment, occupational distribution, income, residential integration, language ability, and poverty—is the focus of a companion report, The Integration of Immigrants into American Society (National Academies of Sciences, Engineering, and Medicine, 2015).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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The last major report from the National Academies of Sciences, Engineering, and Medicine to take on these topics comprehensively was The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, released in 1997 (National Research Council, 1997). One conclusion of that report was that immigration flows were unlikely to have a very large effect on the earnings of the native-born or on per capita gross domestic product (GDP). However, the report recognized that immigration can have sizable effects on segments of the workforce and on specific geographic areas with high concentrations of immigrants. Similarly, fiscal impacts overall were found to be modest but highly variable at the margin, mainly due to the great variety in age, education, and experience brought by new arrivals. One reason for revisiting these topics is to reconsider how findings about economic and fiscal impacts may have changed in the past 20 years, given the very different political, economic, and demographic context of the present relative to the 1990s. A key underlying question is: “How is what is known now about the consequences of immigration different from what was thought before, either because of expanded and improving research or because of changed circumstances?”

The following short “then and now” list summarizes how the context has shifted and why a reassessment is warranted.

  1. Between the mid-1990s and 2014, the total number of immigrants living in the United States increased by more than 70 percent, from 24.5 million in 1995 to 42.3 million in 2014 (based on published data from the 1995 Current Population Survey and the 2014 American Community Survey). Over the same period, the number of unauthorized immigrants estimated to be in the United States roughly doubled from about 5.7 million in 1995 to about 11.1 million (Passel and Cohn, 2016).
  2. Regarding inflows, legal immigration has increased somewhat. During the 1980s, just under 600,000 (577,000 annual average over 1980-1989) immigrants were admitted legally each year (received green cards); after the Immigration Act of 1990 took effect, legal admissions increased to just under 800,000 per year.5 Then, from

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5 Approximately 785,000 green cards, granting lawful permanent residency, were issued per year over the 1992-2000 period. The vast majority of these went to foreign-born individuals qualifying as family of a U.S. citizen or lawful permanent resident, admitted through employer sponsorship, granted protection as refugees or asylum seekers, or originating from countries with low immigration rates to the United States (also known as diversity immigrants or green-card lottery immigrants). A small percentage of individuals and their dependents during this period also benefited from the Immigration Reform and Control Act of 1986, which legalized certain seasonal agricultural workers as well as unauthorized individuals who entered the United States before January 1, 1982, and met a set of standard naturalization conditions.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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  1. 2001 on, legal admissions averaged more than 1 million per year (1,043,000 for 2001-2014).6 Another major change, beginning in the 1990s, has been the increased entrance of immigrants via temporary foreign worker visas—including through the H-1B program, which allows U.S. companies to temporarily employ foreign workers in high-skilled, specialty occupations. Since the category was created in 1990, the number of H-1B visas made available each year has been limited to an annual statutory cap of 65,000; however, higher caps (115,000 or 195,000) were put in place from 1999-2003 and, since 2006, 20,000 additional visas have been available for foreign professionals who graduate with a master’s degree or doctorate from a U.S. university.

  2. Growth of the unauthorized immigrant population averaged about 500,000 per year between 1990 and 2007 as a result of large inflows of new unauthorized immigrants offset by smaller outflows of those already here. In the early 1990s, inflows were averaging 400,000-500,000 per year. By the first 5 years of the 21st century, average annual inflows of new unauthorized immigrants reached more than 800,000 every year. After 2007, the pattern changed dramatically; the unauthorized immigrant population decreased by about 1 million over the next 2 years as outflows increased substantially and inflows of new unauthorized immigrants dropped from the high levels of the early 2000s. Since 2009, the unauthorized immigrant population has remained essentially constant as inflows and outflows have reached a rough balance. During this period, 300,000-400,000 new unauthorized immigrants have arrived each year and about the same number have left the United States.
  3. With respect to overall economic conditions, The New Americans (National Research Council, 1997) was released in the midst of a period of prolonged real GDP growth, with annual rates ranging from 2.7 to 4.0 percent between 1992 and 1996 and from 4.1 to 4.8 percent between 1997 and 2000. Since 2000, the United States has experienced a major 2-year slowdown and a rebound, followed by the Great Recession (which reached its nadir with a −2.8 percent GDP decline in 2009) and a long slow recovery.

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6 There is no strong trend after 2001. There was a drop in 2003 due to increased security checks and start-up delays for the U.S. Department of Homeland Security, but these delays were offset by increases in 2005-2006.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
×
  1. The nation’s federal public debt, expressed as a percentage of GDP, was in the 4446 percent range in 1997 and by 2001 had declined to 31 percent of GDP. The debt has been increasing since 2001 and has remained at more than 70 percent of GDP since the end of 2012. Indeed, total public debt, adding in state and local debt held by the public, is now greater than 100 percent of GDP. The increases of the past decade have occurred largely as a result of and in response to the Great Recession.7
  2. Growth in the size of the civilian labor force has slowed from around 1.2 percent annually in the 1990s to 0.7 percent in the 2000s and to a projected 0.5 percent annual growth for this decade. This trend reflects current demographics (mainly an aging Baby Boom cohort reaching retirement age), more young people going to college, and a decline in labor force participation rates of working-age adults (including a leveling off of the decades-long trend of rising labor force participation by women). Workforce size and participation carries implications for fiscal balances and the sustainability of government retirement and health care programs because benefits are largely funded by taxes paid by current workers. Likewise, the number of workforce exits (mainly retirements)—which has increased from 18.8 million in the 1990s to 23.4 million in the 2000s and to a projected 27.3 million in the 2010s—has a major impact on the fiscal health of these programs.
  3. The portion of the labor force that is foreign born has grown from about 11 percent to just over 16 percent in the past 20 years. The vast majority of current and future net workforce growth—which, at less than 1 percent annually, is very slow by historical standards—will be accounted for by immigrants and their U.S.-born descendants (Myers et al., 2013).
  4. Population aging figures more prominently on today’s political agendas than it did 20 years ago, driven by a number of factors including rising health care costs (since the mid-1990s, the nation’s total expenditures on health care, as a share of GDP, have increased from roughly 13% to 18%) and concerns about the long-term viability of Social Security insurance as Baby Boomers retire. What an aging population portends for future workforce trends is highly uncertain. Much depends on incentives for seniors to remain in the labor force; on educational investments in youth, including the children of immigrants; and on the skill composition of future immigrants.

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7 Federal Reserve Bank of St. Louis. Total Public Debt as Percent of Gross Domestic Product. Available: https://research.stlouisfed.org/fred2/series/GFDEGDQ188S [November 2016].

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
×
  1. Geographic patterns of immigrant settlement have changed in the past two decades, with immigrant families increasingly settling in “nontraditional” receiving states and communities. None of the traditional gateway states (California, Florida, New Jersey, and New York), where immigrants make up roughly 20 percent or more of the population, were among the top seven states with the highest growth rates over 1990-2010. Over that 20-year period, Arkansas, Georgia, Kentucky, Nevada, North Carolina, South Carolina, and Tennessee, each experienced growth rates over 300 percent—albeit from low initial immigrant populations at the beginning—in their immigrant populations.

Intertwined with many of the trends identified above was the Great Recession, extending officially from December 2007 to mid-2009, which had devastating consequences for middle- and low-income households, particularly those whose members were among the 8 million workers who lost their jobs and whose wealth was based on inflated housing prices (Economic Policy Institute, 2012). Although the recession officially ended in June 2009, the labor market response has been sluggish, unlike trade and industrial growth, which has direct implications for economic opportunity. As in the “jobless recovery” after the 2001 recession (Bernstein, 2003), employment growth has been slow and highly uneven by skill level, industry sector, and occupation (Carnevalle et al., 2015). Even with unemployment falling from its recession peak of 10.0 percent (October 2009) to its current rate of around 5 percent during the slow recovery, the addition of 6.8 million nonfarm payroll jobs in the 42 months since February 2010 when payrolls bottomed out is below the number lost during the market contraction.8 However, the job growth picture is mixed: Median earnings for full-time, full-year workers have at least returned to and possibly now exceed pre-recession levels; growth in low-wage jobs also has restored recession losses; and the gap between the earnings of young and experienced workers has widened. Some of these trends have potentially exacerbated wage gaps by skill level.

In addition, rising immigration is far from being just a U.S. trend. The rise in the share of foreign-born populations is an international phenom-

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8 These figures come from Pew Research Center analysis of Bureau of Labor Statistics data. Available: http://www.pewresearch.org/fact-tank/2013/09/25/at-42-months-and-counting-current-job-recovery-is-slowest-since-truman-was-president [November 2016].

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
×

enon among the developed countries,9 although the experiences of each nation are sufficiently disparate that claims about the consequences of immigration are unlikely to hold across all places at all times.

The drivers behind migration patterns to the top destination countries are also diverse. Geographic proximity is a factor in most but not all cases. For example, there are close to 12 million Mexican-born individuals living in the United States, but there are also 3 million U.S. residents born in India and 1.9 million born in the Philippines. And 4.7 million UK-born individuals are living in Australia. Differences in the restrictiveness embedded in a nation’s policy objectives affect the size and composition of immigrant inflows. The primary entry-purpose designations are “economic,” “family reunification,” “asylum and humanitarian,” and “student.” Family reunification is the largest avenue through which individuals qualify for admission and for lawful permanent residence in the United States, and those entering under this designation represent more than 60 percent of all legal entries. The United States is somewhat unusual in this respect, as most other countries use entry categories other than family reunification at higher rates.10

Economic incentives motivate much of the world’s population movements. The Australian government (as well as others, such as the UK government) has formalized this objective—albeit from the receiving country’s perspective—instituting a point-based system in 1989 designed to grant visas based on the personal attributes of applicants indicating their ability to contribute to society, defined primarily by their occupational category. An extreme example is the United Arab Emirates. As a result of massive guest worker programs, more than 80 percent of its population consists of foreign-born individuals,11 the vast majority of whom are excluded from

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9 The Migration Policy Institute has a comprehensive and easily understood set of interactive maps, charts, and other visuals on international migration statistics, showing trends over time and across countries. Available: http://www.migrationpolicy.org/programs/datahub/international-migration-statistics [November 2016]. See also the International Migration Outlook 2015 (OECD, 2015).

10 The events surrounding the resettlement of people fleeing turmoil in Syria since the onset of the civil war there in 2011 has put pressure on the United States to increase the number of refugees it accepts above the current annual cap of 70,000. A plan by the Obama administration would increase the number of refugees (people who can prove they are escaping war or persecution) to 100,000 by 2017—still a small fraction of foreign-born admitted to the United States and a very small number compared with the millions of Syrians living in Jordan, Lebanon, and Turkey, and now Germany and other parts of Europe. (Through the first half of 2015, Germany had received nearly 100,000 Syrian refugees.) Debate about these different immigration policy paths by the candidates has played a prominent role in the run-up to the 2016 presidential election.

11 Temporary workers such as these generally are not considered immigrants as defined in Chapter 2.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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citizenship and access to government programs. China is a major sending country, mainly due to its enormous overall population but also because of its many students studying abroad (mainly in the United States).

Beyond these broad developments in the national and global environment, there have been changes over the past two decades in the characteristics of immigrants (and the native-born) in the United States and in the environments to which they arrive. Trends—in age, education, occupation, country of origin, and opportunities and constraints—that directly shape immigrant integration are documented in much greater detail in Chapters 2 and 3, as are historical developments in the policy environment. Together, these first three chapters set the context for the subsequent chapters, which analyze how these variables interact to affect wage, employment, and other economic and fiscal outcomes.

1.2 ECONOMIC IMPACTS

The consequences of immigration for individuals already established in a receiving country, particularly those involving wage and employment prospects, are a long-standing concern to a range of stakeholders. The headline questions are: Do immigrants take jobs away from natives; do they lower the wages of natives? Do immigrants complement native-born workers or are they more often substitutes? What occupational niches do immigrants fill for the benefit of the rest of the economy? What is the role of immigrants in driving productivity change and long-term economic growth? And what is their role in contributing to vibrancy in construction, agriculture, high tech, and other economic sectors?

A deep though not fully unified literature addresses these concerns. The panel’s review and assessment of this literature, which deals with labor markets specified in a number of different ways (e.g., by skill group, by occupation, by geographic area), reached a number of conclusions. As explored in detail in Chapter 5, wage and employment outcomes resulting from immigration are closely tied to the extent to which new arrivals complement or substitute for workers already established in the labor market. For cases in which immigrants and natives specialize in different occupational activities—perhaps the former as construction workers or scientists and the latter as supervisors or financial analysts—wage gains and job creation become likely outcomes. When new arrivals compete with those already in the labor force—for example, if unskilled immigrants and native-born teenagers (or earlier immigrants) are applying for the same fast food restaurant jobs—wages and job opportunities for the latter may be negatively impacted, at least in the short run.

The definitiveness of the panel’s conclusions is tempered by the fact that measurement of the impacts created by flows of foreign-born individuals

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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into labor markets is difficult. The effects of immigration have to be isolated from innumerable, simultaneously occurring influences that shape local and national economies. Beyond this measurement challenge, the relation between immigration labor inflows and market outcomes is not a constant; it varies across places and immigration episodes, reflecting the skill set of incoming immigrants and natives in destination locales, a given market’s mix of industries, the spatial and temporal mobility of capital and other inputs, and the overall state of the economy. Although a labor market emphasis has created a rich economics literature on immigration, there are still a number of unresolved empirical questions, which this report explores.

Much of the wage and employment research reviewed in Chapters 4 and 5 involves essentially static marginal analyses answering the question, “if x new arrivals are added to the labor supply, what are the likely short-run market impacts?” Many fiscal analyses—for instance, the impact on state, local, or federal budgets this year or the projected life-cycle fiscal impacts for the nation—are similarly oriented toward assessing marginal effects. However, it is also important to consider the dynamics underlying an expanding economic pie, dynamics that operate over long time periods. Thus, to the labor market discussion we attempt to overlay a critical issue that is sometimes overlooked: the relationship between immigration and economic growth. Once it becomes clear that immigration contributes to long-term economic expansion in a way that accommodates a larger population, assessments of short-term adjustments and societal costs can be placed in a more complete context.

Long-run growth requires infusions of labor, various forms of capital—both physical and human—and technology. Given native fertility rates and age profiles in the United States and in many other industrialized nations, immigrants are the most likely candidates for generating net labor force growth. Likewise, they contribute to capital formation and innovation, which also shapes the way and the pace at which growth unfolds. Easterlin (1980) wrote about the impact of immigrants and family formation on cycles of growth in the American economy before the restrictive immigration regulation in the 1920s. Cutler et al. (1990) and many others have discussed the implications of population aging on secular stagnation in Japan and Europe while finding the United States less affected because of higher immigration rates. Population aging is a major policy issue in part because of slowing labor force growth and a declining ratio of workers to dependents but also because, relative to other adult age groups, older people purchase fewer houses and durable goods, which drive a significant component of economic demand. The demographic profile of immigrants factors into these trends in obvious ways: One-half of the foreign-born are between the ages of 18 and 44 (about 80% are between the ages of 18 and 64), compared with about one-third of the native-born (about 60% are between 18 and 64).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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An essential piece of the long-run economic analysis investigated in Chapters 5 and 6 involves immigrants and their contributions to human capital development, scientific advancement, and innovation. For this reason, researchers are increasingly interested in documenting trends of the foreign-born among students studying and professionals working in science, technology, engineering, and mathematics (STEM) fields; their roles in business creation, patenting and other activities related to innovation, productivity, and growth are also being examined. To the extent that immigrants can add disproportionately to cutting-edge science activities occurring in universities and research labs, the U.S. economy is likely to benefit. The National Science Foundation’s 2010 National Survey of College Graduates suggests that this is indeed the case. For example, 60 percent of foreign graduate students were enrolled in STEM fields, and although the foreign-born represent only 14 percent of all employed college graduates, they account for 50 percent of those with doctoral degrees working in mathematics and computer science occupations.12 Immigrants are also overrepresented in Silicon Valley high-tech firms; roughly one-fourth of high tech startups during the period 1995-2005 included at least one immigrant among the firm’s founders. Beyond science and technology, immigrants have historically played a key role in small-scale retailing, which can help to revitalize urban (and sometimes rural) areas, expanding nascent business sectors by lowering the cost of goods and services; examples include nail salons, ethnic restaurants, child and elder care, and lawn care and gardening. Recent studies (e.g., Fairlie, 2012) indicate that immigrants display entrepreneurial rates above those of the native-born population.13

1.3 FISCAL IMPACTS

Part III of this report (Chapters 7-10) assesses the impact that immigration has on fiscal trends at the federal and state levels of government. Along with wages and employment consequences, the fiscal impact is the other major factor determining the extent to which immigrants are or will

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12 National Science Foundation’s National Center for Science and Engineering Statistics, Science and Engineering Indicators 2012. Available: http://www.nsf.gov/statistics/seind12/pdf/c02.pdf [November 2016]. Interestingly, as pointed out by Teich (2014), whereas the H-1B visa program is often viewed as the mechanism whereby science and engineering and, in turn, innovation can be strengthened—and scientists and engineers engaged in research and development are indeed brought in or allowed to extend stays under the program—the majority of H-1B visa recipients are in computer programming and other information technology fields. Many immigrants working under H-1B visas do so for firms that outsource information technology services overseas.

13 However, due to a smaller average size of new businesses started by the foreign-born, their relative contribution to job creation is less clear (Fairlie, 2012).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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be net economic contributors to the nation. The headline questions here include the following: What are the fiscal impacts of immigrants for state and federal governments; do they cost more or less than they contribute in taxes? How do the fiscal impacts change when traced over the life cycle of immigrants and their children? How does their impact on public finances compare with others in the population?

In formulating immigration policy, information about public finances—specifically the added tax burden or benefit to those already in the country created by new immigrants—is of central interest.14 In addition, immigration affects the growth rate of government outlays. By adding workers and beneficiaries to the economy at different rates relative to the native-born, immigration affects the long-term financial health of programs such as Social Security and medical care programs. Answering such questions about long-term implications requires calculating how fiscal impacts change when traced over the life cycle of immigrants, their children, and future generations.

Recent studies suggest an increasing recognition of the need to understand the fiscal challenges of immigrant integration in an environment characterized by a mismatch between the federal government’s revenues and spending. The 2010 report Choosing the Nation’s Fiscal Future assessed the options and possibilities for a sustainable federal budget (National Research Council and National Academy of Public Administration, 2010). That study considered a range of policy changes that could help put the budget on a sustainable path, including reforms to reduce the rate of growth in spending for Medicare and Medicaid, options to reduce the growth rate of Social Security benefits or to raise payroll taxes, and changes in many other government spending programs and tax policies. Among the policy recommendations the study considered was the option of expanding the numbers of immigrants, especially skilled workers, with the expectation that this could boost the working portion of the U.S. population, thus helping to pay for benefits to the elderly. However, the report concluded that because immigrants obviously grow old, too, any budget fix from increased immigration would be a temporary one; even if immigration doubled or tripled from current rates, only a small long-term contribution to aggregate income and to federal revenues could be expected (National Research Council and National Academy of Public Administration, 2010, p. 31). By

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14 That the Congressional Budget Office produces estimates of these impacts indicates the high degree of political interest. For example, in a recent analysis of the 2013 Senate immigration reform bill by the Executive Office of the President (2013), the Congressional Budget Office estimated that the bill’s enactment could reduce the federal budget deficit by nearly $850 billion over the next 20 years, in large part due to increased work by otherwise unauthorized immigrants who would become authorized under the bill, along with greater ability to tax their earned income.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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contrast, Myers (2012) used Census Bureau projections to conclude that, if immigration slows the process at a critical time, it does not have to stop population aging completely in order to be beneficial. He demonstrated that the critical fiscal problem now facing the United States is linked to the sharp increase (by roughly two-thirds) in old-age dependency on federal benefit programs that would occur between 2010 and 2030. Immigration can reduce the program deficit impact in that critical period, even though “immigrants grow old, too” in later decades.15 The fiscal projections in Chapters 8 and 9 of this report illustrate how highly dependent public expenditures and tax revenues are on the population age structure.

As with estimates of employment and wage impacts, estimating the fiscal impacts of immigration is a complex calculation that depends to a significant degree on what the questions of interest are, how they are framed, and what assumptions are built into the accounting exercise. The first-order net fiscal impact of immigration is the difference between the various tax contributions immigrants make to public finances and the government expenditures on public benefits and services they receive. The foreign-born are a diverse population, and the way in which they affect government finances is sensitive to their demographic and skill characteristics, their role in labor and other markets, and the rules regulating accessibility and use of government-financed programs.

The potential to alter a nation’s or state’s fiscal path is greatest when the sociodemographic characteristics of arrivals differ distinctly from those of the overall population—and particularly when these characteristics are linked to employment probability and wage levels. In the United States, immigrants have historically exhibited lower skills and education and, in turn, lower income relative to the native-born. However, as described in Chapter 3, after 1965 substantial numbers of the foreign-born are now in high-skilled occupations as well. Age at arrival is another important determinant of fiscal impact: The very young and the very old typically create net costs to government programs. Immigrants arriving while of working age—who pay taxes almost immediately and for whom per capita social expenditures are the lowest—are, on average, net positive contributors. This value gradually declines with higher age at entry, as the projected number of years remaining in the workforce becomes smaller. For immigrants with lower levels of education, the net present value of expected contributions is much smaller initially and turns negative at a much earlier

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15 Population projections by the Pew Research Center (2015a) indicate that post-2015 cumulative immigration is likely, by 2050, to reduce the ratio of seniors to the overall population by one-fourth relative to what it would be without immigration. Myers (2012) contended that the logical error stems from focusing only on the endpoint commonly used in Social Security population projections—85 years out—when the greatest problem is the sharp age increase from 2020 to 2030.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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age. Those arriving after age 21 also typically do not add to the largest state and local cost of immigration—the cost of public education in the receiving country—although their children will. These age and life-cycle variations in fiscal impacts are only realized over the course of many years.

When considering alternative scenarios, it can be important to differentiate immigrants by country of origin and legal status, as individuals grouped by these characteristics experience different outcomes in the labor market and different take-up rates for government services. As just one example of how heterogeneity may affect fiscal impacts, Camarota (2012) found that for the top immigrant-sending countries in 2010, the share of immigrant households participating in means-tested programs (e.g., food assistance and Medicaid) was highest for households headed by immigrants from Mexico (57%), followed by Guatemala (55%) and the Dominican Republic (54%). The lowest rates were for households headed by immigrants from Canada (13%), Germany (10%), and the United Kingdom (6%). Thus, the net fiscal impact of immigration for a particular state or the nation as a whole is driven by a rich set of contextual factors.

A comprehensive accounting of fiscal impacts is further complicated by secondary effects on the native-born population. For example, because new additions to the workforce may alter the wages or employment probabilities of those already employed, the impact on taxes paid directly by immigrants is only part of the picture. Moreover, revenues generated from the native-born who have benefited from economic growth and job creation attributable to immigrant innovators or entrepreneurs would also have to be included in a comprehensive evaluation, as would indirect impacts on property, sales, and other taxes and on per capita costs of the provision of public goods.

Accounting exercises such as those presented in Chapters 8 and 9 create combined tax and benefit profiles by age and education to decompose the timing and source of fiscal effects—and they typically deal only with the direct, not the secondary, effects. Forward-looking projections build scenarios to demonstrate alternative assumptions about how public expenditures—e.g., for public education and various programs (Aid to Families with Dependent Children; Medicaid; Special Supplemental Nutrition Program for Women, Infants, and Children; Supplemental Nutrition Assistance Program; Supplemental Security Income; etc.)—and revenues change by generation and affect a baseline fiscal estimate.

Part III explores a number of methodological approaches to address different accounting objectives. For some policy questions, multigenerational costs and benefits attributable to an additional immigrant or to the inflow of a certain number of immigrants may be most relevant. For others, the budget implications for a given year associated with the current immigrant population or for recent changes in the foreign-born population residing

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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in a particular state or in the entire nation may be of interest—this is often the focus of state legislators, for example. Sometimes the question is about absolute net fiscal impacts; sometimes it is about the fiscal impact of an immigrant relative to that of an additional native-born person. Although these approaches require very different kinds of aggregations and calculations, the program (expenditure) and tax (revenue) fiscal components are largely the same.

1.4 CHARGE TO THE PANEL

The changing patterns of immigration and the evolving consequences for American society, institutions, and the economy continue to fuel public policy debate that plays out at the national, state, and local levels. The National Research Council has published a number of studies over the past 20 years that have been influential in these debates.16 The foremost of these studies, The New Americans: Economic, Demographic, and Fiscal Effects of Immigration (National Research Council, 1997), was prepared in response to a request from the congressionally chartered Commission on Immigration Reform, which required a scientific foundation for policy making on immigration. The New Americans—parts of which are updated with more recent information by this report—focused on the effects of immigration on the future size and composition of the U.S. population, the influence of immigration on the U.S. economy, and, in particular, the fiscal impact of immigration on federal, state, and local governments.

Questions concerning immigrant integration were explored in a 2006 study focusing on the impact of the growing role of Hispanics in the United States. Multiple Origins, Uncertain Destinies: Hispanics and the American Future (National Research Council, 2006b) made important contributions to understanding the process of immigrant integration and its effects on families, education, the labor force, and health.

Since The New Americans, a growing body of research and improved sources of data—most notably, the American Community Survey, the New Immigrant Survey, and a longer series of Current Population Surveys—have made it possible to fruitfully update that report’s findings. Remaining, significant data gaps notwithstanding (described in Chapter 10), it is now more possible than ever to assess the consequences of immigration for the

___________________

16 Among these reports are The New Americans: Economic, Demographic, and Fiscal Effects of Immigration (National Research Council, 1997); The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration (National Research Council, 1998); America Becoming: Racial Trends and Their Consequences (National Research Council, 2001); Hispanics and the Future of America (National Research Council, 2006a); and Multiple Origins, Uncertain Destinies: Hispanics and the American Future (National Research Council, 2006b).

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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American economy in a shifting demographic, social, and political landscape. Given this backdrop, the Panel on the Economic and Fiscal Consequences of Immigration was formed by the National Research Council and tasked with assessing the fiscal and economic impacts of immigration. The Statement of Task guiding the panel’s work is reproduced in Box 1-1.

The findings and conclusions in this report are intended to help inform basic policy conversations such as the following: How many immigrants to admit? What should be the composition of those admitted? What is the economic impact of enforcement dealing with immigration that takes place within and outside authorized channels? Which individuals and government levels benefit, in the short run and in the long run, from new immigration? Priorities and policy decisions depend in part on the kinds of information

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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about economic and fiscal impacts contained in this report; they may also depend in part on other objectives—for example, the value (economic and noneconomic) to people of unifying families or of providing safe refuge for those fleeing oppression. How each of these objectives is weighted is a political matter, which is not addressed here. Nonetheless, an informed discussion of policy options does depend on accurate information; the panel hopes that this report provides such information for the economic and fiscal domains. The audience for the report begins with policy makers and lawmakers at the federal, state, and local levels but extends to the general public, nongovernmental organizations, the business community, educational institutions, and the research community.

Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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Suggested Citation:"1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2017. The Economic and Fiscal Consequences of Immigration. Washington, DC: The National Academies Press. doi: 10.17226/23550.
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The Economic and Fiscal Consequences of Immigration finds that the long-term impact of immigration on the wages and employment of native-born workers overall is very small, and that any negative impacts are most likely to be found for prior immigrants or native-born high school dropouts. First-generation immigrants are more costly to governments than are the native-born, but the second generation are among the strongest fiscal and economic contributors in the U.S. This report concludes that immigration has an overall positive impact on long-run economic growth in the U.S.

More than 40 million people living in the United States were born in other countries, and almost an equal number have at least one foreign-born parent. Together, the first generation (foreign-born) and second generation (children of the foreign-born) comprise almost one in four Americans. It comes as little surprise, then, that many U.S. residents view immigration as a major policy issue facing the nation. Not only does immigration affect the environment in which everyone lives, learns, and works, but it also interacts with nearly every policy area of concern, from jobs and the economy, education, and health care, to federal, state, and local government budgets.

The changing patterns of immigration and the evolving consequences for American society, institutions, and the economy continue to fuel public policy debate that plays out at the national, state, and local levels. The Economic and Fiscal Consequences of Immigration assesses the impact of dynamic immigration processes on economic and fiscal outcomes for the United States, a major destination of world population movements. This report will be a fundamental resource for policy makers and law makers at the federal, state, and local levels but extends to the general public, nongovernmental organizations, the business community, educational institutions, and the research community.

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