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Harry J. Holzer’s Testimony on the Economic Impacts of Immigration

Cite as "AILA InfoNet Doc. No. 06042563 (posted Apr. 25, 2006)"

Does Immigration Help or Hurt Less-Educated Americans?

Testimony of Harry J. Holzer
Judiciary Committee, U.S. Senate
April 25, 2006

The vast majority of economists in the U.S. believe that, on average, immigration is good for the U.S. economy. By helping reduce the costs of producing certain goods and services, it adds to our national output, and makes consumers better off. Business owners also profit very clearly from immigration.

At the same time, it is possible that some native-born Americans - especially the less-educated Americans who might have to compete with immigrants for jobs - might be made worse off. Certain costs - especially for public education and services to the poor - might rise. And there are various noneconomic considerations, both positive and negative.

On these various issues, what does the evidence show? And what does the evidence imply for immigration policy?

Effects on Earnings of Native-Born Americans

For many years, most studies of the U.S. labor market (e.g., Card, 1990; Friedberg and Hunt, 1995; Card, 2001) have shown little or no negative effects of immigration on the wages or employment of native-born workers - including minorities and those with little education. More recently, another few studies (Borjas, 2003; Borjas and Katz, 2005) that use different statistical methods from the earlier ones find somewhat stronger negative effects. According to these more recent studies, immigration during the period 1980-2000 might have reduced the earnings of native-born high school dropouts by as much as 8%, and those of other workers by 2-4%.

However, some strong statistical assumptions are required to achieve these results (e.g., Krueger, 2005; Bohn and Sanders, 2005). And, even in these latter studies, the long run negative effects of immigration (i.e., after capital flows have adjusted across sectors to the presence of immigrants) are reduced to only 4-5% for dropouts and virtually disappear for labor overall.

There seems little doubt, then, that any negative effects of immigration on earnings are modest in magnitude and mostly short-term in nature. To the extent that high school graduates as well as dropouts in the U.S. have fared poorly in the labor market in recent years - especially among men - other factors are much more likely responsible (such as new technologies in the workplace, international trade, and disappearing unionization).

Native-born minority and especially African-American men face many labor market problems besides immigration - such as poor education, discrimination, and the disappearance of jobs from central-cities. In recent years, their high rates of crime and incarceration, as well as child support obligations for non-custodial fathers, have worsened their situation (Holzer et al., 2005).

Does immigration also worsen their plight? There are certain sectors - like construction, for example - where direct competition from immigrants might reduce employment opportunities for black men. But in many other occupational categories (e.g., agriculture, gardening, janitorial work) such competition is more limited or nonexistent, as the native-born men show little interest in such employment at current wage levels. In the absence of immigration, it is possible that wages would rise and maybe entice some native-born men to seek these jobs that they consider dirty and menial; but the wage increases needed would likely never materialize in many cases, as employers would either replace these jobs with capital equipment (Lewis, 2005) or enter other kinds of business as wages rose.

Two additional points are important here. First, the potential competition to less-educated American workers from immigrants depends in part on the overall health of the economy. Immigration rates have been fairly constant to the U.S. over the past few decades. In the very strong labor markets of the late 1990's, these rates of immigration did not prevent us from achieving extremely low unemployment rates and real earnings growth, even among the least-educated Americans. In the more sluggish labor markets since 2001, the same rate of immigration generates more concern about job competition (Sum, 2004; Camarota, 2004). But, even in this latter period, the very weak earnings growth of most American workers cannot possibly be attributed to the arrival of a million or so new immigrants annually (Holzer, 2005).

Second, the illegal status of perhaps one-third of immigrants might well magnify any competitive pressures they generate for less-educated native-born workers. The reduced wages and benefits associated with their illegal status offer employers one more incentive for hiring them instead of native-born workers, who might be interested in some of these jobs and might be more appealing to employers at equal wages.

Other Economic Effects

There is virtually no doubt that immigration reduces the prices paid by consumers on many goods and services. There remains much uncertainty about the magnitudes of these effects, and on exactly who benefits the most. For instance, higher-income Americans might benefit the most from child care and other private household services, gardening, and food preparation services in restaurants. But lower-income Americans likely benefit disproportionately from lower prices on food, housing and even some medical services that are associated with immigrant labor in agriculture, construction and health support occupations respectively.

Over the next few decades, the contributions of immigrant labor to certain key sectors will likely grow more important. For example, the scientists and engineers needed to keep our nation competitive in scientific innovation and new product development will depend to a growing extent on foreign graduate students who choose to remain here after finishing their schooling (Freeman, 2005), even though their presence might reduce the incentives of some native-born students from entering these fields. In other sectors, the retirements of "Baby Boomers" may also generate stronger labor demand. A variety of labor market adjustments (such as delayed retirements, new technologies, greater foreign "offshoring" of work, etc.) will likely mitigate the impacts of these retirements in the aggregate (Freeman, 2005a). But in certain key sectors - especially health care and elder care - these adjustments are less likely to meet the necessary demand, and the need for immigrant (and other) labor may remain quite strong.

Perhaps the most serious economic costs imposed by immigrants on native-born Americans - at least in those few states that serve as the primary "ports of entry" to immigrants - are those associated with public education, health care and other income transfers to the poor. While these costs are no doubt significant in those states, they have been reduced by legal changes in the welfare system that reduced immigrant eligibility for such transfers (Borjas, 2002). Over time, immigration might modestly improve the fiscal status of Social Security and Medicare, as it helps replenish the falling ratios of workers to retirees.

By far the greatest benefits of immigration to the U.S. accrue to the immigrants themselves, whose earnings here are often vastly higher than they would be in their home countries. Both foreign policy and humanitarian considerations might lead us to approve of this, even though the direct economic benefits to native-born Americans are more limited.

Policy Implications

If immigration is largely good for the overall U.S. economy, should we simply "open the floodgates" and remove all legal restrictions on it? Most Americans would be reluctant to do so, especially since there are some significant costs to immigration, and at least some workers who are made worse off. The noneconomic implications of such a move (e.g., for the national character and makeup of our communities) might also be troubling to many people.

But, if our ability to restrict immigration legally is imperfect, what shall we do? Efforts to improve the enforcement of existing laws in humane ways (e.g., without creating felonies for illegal immigrants and those who hire or assist them, or building costly fences along the Mexican border) may be worth trying, though their effectiveness may be limited. On the other hand, generating pathways by which illegal immigrants in the U.S. can achieve full citizenship (by paying fines, back taxes etc.) makes a lot of sense, given that their illegal status imposes hardships on them and their children while likely exacerbating the competition they pose to native-born Americans. It seems unlikely that any such move would dramatically raise the incentives that illegal immigrants currently have to enter the country, given the gains in their standards of living that occur even when they enter illegally.

Guest worker programs have some major limitations, particularly in terms of enforcing legal rights for these workers and ensuring that they maintain some bargaining power relative to their employers (Krueger, 2005). Since most guest workers stay permanently, the benefits of such an approach seem dubious. But some legal changes that encourage greater immigration of highly educated workers over time would likely generate greater benefits to the U.S. economy, as Borjas (2005) argues.

Finally, if we really want to improve opportunities for less-educated Americans in the labor market, there are a variety of approaches (such as improvements in education and training, expansion of public supports like health insurance and child care, and supporting protective institutions such as minimum wage laws and unions) that would likely be more effective than restricting immigration.

References

Bohn, Sarah and Seth Sanders. 2005. "Refining the Estimation of Immigration's Labor Market Effects." Unpublished, University of Maryland.

Borjas, 2003. "The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market." Quarterly Journal of Economics.

Borjas, George. 2002. "Welfare Reform and Immigration." In R. Blank and R. Haskins eds. The New World of Welfare. Washington DC: The Brookings Institution.

Borjas, George. 2005. "Immigration Policy and Human Capital." Presented at the Urban Institute Conference on "Workforce Policy for a Changing Economy." November.

Borjas, George and Lawrence Katz. 2005. "The Evolution of the Mexican-American Workforce in the U.S." NBER Working Paper.

Camarota, Steven. 2004. "A Jobless Recovery? Immigrant Gains and Native Losses." Washington DC: Center for Immigration Studies.

Card, David. 1990. "The Impact of the Mariel Boatlift on the Miami Labor Market." Industrial and Labor Relations Review.

Card, David. 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration." Journal of Labor Economics.

Cortes, Patricia. 2005. "The Effect of Low-Skilled Immigration on US Prices: Evidence from the CPI Data." Unpublished, MIT.

Freeman, Richard. 2005. "Does Globalization of the Scientific/Engineering Workforce Threaten US Economic Leadership?" NBER Working Paper.

Freeman, Richard. 2005a. "Is A Great Labor Shortage Coming? Replacement Demand in the Global Economy." Presented at the Urban Institute Conference on "Workforce Policy for a Changing Economy." November.

Friedberg, Rachel and Jennifer Hunt. "1995. "The Impact of Immigrants on Houst Country Wages, Employment and Growth." Journal of Economic Perspectives.

Holzer, Harry. 2005. Testimony to the Subcommittee on Immigration, Border Security and Claim. U.S. House of Representatives. May 4.

Holzer, Harry et al. 2005. "Declining Employment among Young Black Men: The Role of Incarceration and Child Support." Journal of Policy Analysis and Management, Spring.

Krueger, Alan. 2006. "Two Labor Economic Issues for the Immigration Debate." Washington DC: Center for American Progress.

Lewis, Ethan. 2005. "Immigration, Skill Mix and Choice of Technique." Working Paper, Federal Reserve Bank of Philadelphia.

Moss, Philip and Chris Tilly. 2001. Stories Employers Tell. New York: Russell Sage Foundation.

Ottaviano, Gianmarco and Giovanni Peri. 2005. "Rethinking the Gains from Immigration: Theory and Evidence." NBER Working Paper.

Sum, Andrew. 2004. "Foreign Immigration and the Labor Force of the U.S.: The Contributions of New Foreign Immigration to the Growth of the Nation's Labor Force and its Employed Population, 2000 to 2004." Center for Labor Market Studies, Northeastern University, Boston.

 
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