Bipartisan support for immigration reform has been growing in Congress, and legislation has been introduced that will go a long way to bettering the lives of many immigrants and rationalizing U.S. labor market policies.
In spite of a wide range of support, this important effort now faces a stumbling block. Idaho Republican Rep. Raul Labrador tells KTVB-TV that what some see as economic costs to immigration reform may be its downfall. Opponents of the current Senate bill have found these purported costs in a new Heritage Foundation report, which claims that reforming our malfunctioning immigration system will bankrupt the country.
For some time now, Heritage reports have suggested that any efforts to provide a pathway to citizenship for the millions of undocumented workers in this country are a bad idea. The most recent one is clearly designed to make a big political statement.
However, like any research that tries to predict the future, this one makes many assumptions. Two key assumptions inflate costs and ignore benefits.
The Heritage study falsely assumes immigrants use services they are not paying for and fails to consider the potential economic gains that arise from changes to worker and employer behavior under improved immigration laws.
First, the authors of this report assume unauthorized immigrants use public services such as education, fire and police protection, and transportation, but pay little or nothing toward them. These public services are provided primarily by state and local governments, which raise most of their revenue through sales and property taxes. Both authorized and unauthorized immigrants pay these taxes by consuming goods and services and through rent and property ownership.
Furthermore, the study essentially assumes that all immigrants reside in homes with many children and thus have a large need for education benefits. That simply is not the case. Many immigrants don’t bring children to the U.S., not all children are enrolled in public schools, and others’ children have grown up and are no longer in school A more accurate accounting of these education benefits has a huge effect on the so-called costs in this study, reducing them by nearly half.
The second and perhaps more important erroneous assumption in the report is that legalizing currently undocumented workers will have no economic benefit. The authors concede that undocumented immigrants increase gross domestic product by approximately 2 percent but write, “While unlawful immigrants make the American economic pie larger, they themselves consume most of the slice that their labor adds.” Economic theory and historical evidence suggest otherwise.
If undocumented workers do not produce valuable work, why are employers hiring them? Economic theory shows that businesses hire workers and pay them wages such that the marginal value of their production meets or exceeds the marginal costs of employing them. Given the risks undocumented workers are undoubtedly taking, their marginal product must be very high relative to their costs.
A National Bureau of Economic Research report shows that when 29 million people immigrated to the U.S. between 1990 and 2006 (17 million lawfully and 12 million unlawfully) the effect was a rise in the inflation-adjusted wages of native-born workers. Other research using state-level data shows that immigrants expand the economy’s productive capacity, stimulate new investment and boost productivity. States with higher immigrant worker populations have higher rates of output per worker. Adding 2 percent GDP growth and higher wages from productivity benefits during the Heritage study’s 50-year time horizon would eliminate the other half of the so-called costs of immigration reform.
The Congressional Budget Office will ultimately calculate the “official” economic effect of the Senate immigration bill. When the CBO did the same for previous reform efforts, it found that immigration reform would be a net benefit to the economy and reduce the government’s budget deficit over the 10-year forecast period.
Immigration reform is not just the right thing to do for our communities and for the many families in the U.S. living under threat of deportation, but it is also good economic policy. Our elected leaders should not be led astray by reports that make unreasonable cost assumptions and ignore benefits.
Peter R. Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa.