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C. Public Consequences of Immigration | matthewsimmigration

C. Public Consequences of Immigration

Having walked through the economic empirics of the private sector, it is also necessary to examine immigration’s effects on the public coffers.  The public effects of immigration involve the fiscal net cost or benefit accruing to the United States government, determined by the difference between the amount migrants deposit into the state treasury through income, Social Security, Medicare, sales and property tax payments and what they withdraw from the state treasury through unemployment, social security, and other benefits as well as their collective access to public goods such as schools, hospitals, police services, roads and highways.  Other infrastructure externalities such as overpopulation and congestion often enter the equation although pure public goods, those for which government expenditures would remain constant irregardless of migrant "use" such as national defense spending (which experiences significant gains from the addition of immigrant soldiers, as is currently being demonstrated in Iraq), generally do not.  As basest rationality would presume, those migrants who pay the least in taxes would be the most likely to impose net external costs on natives.  Thus, another important reason why countries regulate immigration is to protect the public treasury from the fiscal burden that certain classes of migrants may represent. 98

 

For immigration into the United States before 1980, migrants generally were major net taxpayers, not a fiscal drain. 99  Douglas Massey (Professor of Sociology at Princeton University) has shown how Mexican migrants, for example, are less likely than natives to use public services.  While 66 percent of Mexican migrants report the withholding of Social Security taxes from their paychecks and 62 percent say that employers withhold income taxes, only 10 percent say they have ever sent a child to U.S. public schools, seven percent indicate they have received Supplemental Security Income, and five percent or less report ever using food stamps, welfare or unemployment compensation. 100  Despite the evidence, however, there is a pervasive restrictionist perception that with the international migration increases of the 1980s and 1990s, migrants currently use government social services disproportionately.  This suspicion was the basis for the Personal Responsibility and Work Opportunity Reconciliation Act 101 (hereinafter, "PRWORA") of 1996, which made even legal immigrants ineligible for some forms of public assistance, 102 and for California’s controversial Proposition 187 in 1994, which was designed to deny undocumented migrants access to social services, health care and public education.

 

The full fiscal effects of a new immigrant occur over a long period of time, inclusive of the immigrant’s remaining lifetime and the lives of his or her descendents, 103 so many studies look at the effects of the set of immigrants that are in the United States at a single point in time.  For example, Borjas examined the fiscal effects of all immigrants in the country in 1990, who, at that time, comprised eight percent of the national population.  Borjas calculates that immigrants in 1990 received approximately $24 billion in public assistance.  They earned $285 billion of income and paid income, sales and other taxes, which were estimated to have been paid at a reasonable average tax rate of 30 percent of gross income.  Therefore, immigrants paid approximately $85 billion in taxes in 1990, thereby making a net fiscal contribution of approximately $61 billion.  And over the next 50 years, it is estimated that legal immigrants will add $407 billion to the United States Social Security system. 104

 

The NRC, in its seminal study and as outlined by James Smith (Senior Economist at RAND Corporation) and Barry Edmonston (Director of the Population Research Center at Portland State University), found that the average immigrant with less than a high school education imposes a net fiscal cost whereas the average immigrant with more than a high school education pays enough in taxes to produce a net fiscal benefit.  Taking the immigrant’s descendents into account (the cost of their public education less their future payments in taxes as working adults), the average immigrant with less than a high-school education imposes a net fiscal cost of $13,000.00 whereas the average immigrant with only a high school education produces a net surplus of $51,000.00 and the average immigrant with more than a high school education produces a net surplus of $198,000.00. 105  These findings indicate that the fiscal effects of immigrants depend very much on their levels of labor skills.  The final conclusion of the NRC is that immigrants and their descendents are likely to pay more in taxes than they will consume in public benefits and that this was the case even prior to the enactment of PRWORA.  The NRC estimate that the average immigrant will produce a net fiscal benefit of $80,000.00 is striking because this calculation encompasses all immigrants, including low-skilled immigrants, unauthorized migrants and refugees. 106  An interim analysis, therefore, confirmed by both economic reason and the most reputable data in the literature, is that the mix of current low- and high-skilled migrants in the United States results in net positive gains to the private sector and net positive gains to the public treasury, and that the latter gains are fluid ones which fluctuate alongside the average skill levels of immigrants.

 

Economic theory prescribes free trade as the modus operandi that maximizes global economic welfare, and economists also recommend trade liberalization as a policy likely to produce maximized gains for each individual trading state.  The gains from free trade arise from the fact that different countries will produce various goods at different costs.  When countries restrict trade, the price of a good will be low in countries that can produce the good at low cost, but its price will be high in countries that can produce the good only at higher cost.  Therefore, liberalized trade allows both countries to gain: the high-price country can import the good at a price less than what it would cost to produce the good domestically, while the low-price country can export the good and receive a higher price than it otherwise would under conditions of autarky.

 

This same theory applies equally to trade in goods and to trade in services, and is the basis for United States trade policies manifested in the 1947 General Agreement in Tariffs and Trade 107 (hereinafter, "GATT") (the GATT was updated in 1994, at which time the World Trade Organization [hereinafter, "WTO"] institutional body was established) and the 1994 General Agreement on Trade in Services 108 (hereinafter, "GATS").  Together, these agreements have standardized the freer flows of goods and services between states, providing for dramatic increases in worldwide production.  Moreover, the U.S. has negotiated smaller bilateral and multilateral trade agreements in an effort to achieve lower trade barriers and concerted rules that cover international trade.  During the 108th Congress, U.S. officials negotiated and Congress approved four bilateral free-trade agreements, with Chile and Singapore (each of which entered into force on January 1, 2004), Australia (which entered into force on January 1, 2005), and Morocco (which entered into force on January 1, 2006).  The United States is also a party to four previously negotiated agreements: the U.S.-Israel Free Trade Agreement (effective 1985), the Canada-U.S. Free Trade Agreement (effective 1989), the North American Free Trade Agreement (effective 1994), and the U.S.-Jordan Free Trade Agreement (effective 2001).

 

Current U.S. negotiating strategy is based on a concept known as "competitive liberalization."  As explained by the Bush Administration, this strategy is designed to push forward trade liberalization on multiple fronts: bilateral, regional and multilateral.  It is meant to further trade negotiations by liberalizing trade with countries willing to join free trade agreements and to put pressure on other countries to negotiate in the WTO.  The Administration cites the negotiation of free trade agreements in multilateral, regional and bilateral settings as an integral part of its strategy to enhance prosperity and freedom for the rest of the world.  In its September 2002 National Security Strategy, the Administration seemed to equate the concept of free trade with a basic freedom or moral principle as "the freedom for a person or a nation to make a living."  According to this document, free-market economic and trade policies, more than development assistance, provides nations with the ability to lift themselves out of poverty and to insure stability. 109

 

The result of the competitive liberalization strategy is that the United States is involved in an unprecedented number of trade negotiations.  Multilaterally, the United States and the other 148 countries of the WTO are participating in the Doha Development Agenda.  Regionally, the United States has engaged with 33 other Western Hemisphere countries in an effort to create a Free Trade Area of the Americas, and has conducted free trade agreement negotiations with countries in South America (Colombia, Peru, and Ecuador), Southern Africa (Botswana, Lesotho, Namibia, South Africa, and Swaziland), Panama, Thailand, Oman and the United Arab Emirates.  Of these, agreements have been concluded with Peru, Colombia, and Oman, and others have been ratified with Bahrain, the Dominican Republic and the countries of the Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua).  Implementing legislation for these agreements has been passed by the United States, but the agreements have not yet entered into force with all countries. 110

 

The theoretical foundations of these agreements and the competitive liberalization strategy underlying them are Smithian and Ricardian in nature, drawing upon states’ respective absolute and comparative advantages in production and thereby maximizing national and international economic efficiency through trade.  In contrast, the setting up of trade barriers such as tariffs and quotas on goods and services restrict trade and thereby sacrifice the concomitant national and global gains from trade.  This protectionism imposes costs by increasing the price for a given good or service and, as a result, domestic consumption of the protected good or service decreases while its domestic production increases.  This creates a situation of economic loss and inefficiency as supply and demand fall outside of the point of equilibrium at which total gains are maximized.  The gain to native producers of the protected good or service through higher prices is a pure transfer from native consumers who must pay the higher prices.  Moreover, because trade restrictions cause distortions in domestic production and consumption, consumers lose more than domestic producers gain, and the national economy as a whole suffers a net loss as a result of protectionism.

 

In this same vein, immigration barriers in the form of restrictionist policies interfere with the free flow of labor internationally and thereby cause wage rates for the same class of labor to diverge widely between states.  For any given class of labor, natives of high-wage countries could gain by employing more immigrant labor, and residents of low-wage countries could gain by selling more of their labor to employers in high-wage countries.  Labor market protectionism imposes costs by increasing the price for a given good or service (due to increased labor costs) and, as a result, domestic consumption decreases while domestic production increases.  As with trade in goods and services, this creates a situation of economic loss and inefficiency as supply and demand fall out of synch with one another.  The gain to native workers through higher wages is a pure transfer from native producers who must pay the higher wages and from native consumers who must pay the higher prices.  Because immigration barriers cause distortions in domestic production and consumption, employers and consumers lose more than domestic workers gain, and the national economy as a whole suffers a net loss as a result of protectionism.  President Bush stated this succinctly in his 2006 State of the Union speech:

 

The American economy is preeminent, but we cannot afford to be complacent.  In a dynamic world economy, we are seeing new competitors, like China and India, and this creates uncertainty, which makes it easier to feed people’s fears.  So we’re seeing some old temptations return.  Protectionists want to escape competition, pretending that we can keep our high standard of living while walling off our economy.  Others say that the government needs to take a larger role in directing the economy, centralizing more power in Washington and increasing taxes.  We hear claims that immigrants are somehow bad for the economy - even though this economy could not function without them.  All these are forms of economic retreat, and they lead in the same direction - toward a stagnant and second-rate economy. 111

 

Economic efficiency in the global labor market would call for unrestricted migration, which would allow labor to move freely to the country where it earns the highest return.  Market forces would thus direct labor to the market where its marginal product is highest.  According to Chang, given the large international differences in wages, it should be apparent that the potential gains from international trade in labor (and the costs the United States bears as a result of immigration barriers) are large.  Studies suggest that the gains to the world economy from removing immigration barriers could well be enormous and greatly exceed the gains from removing trade barriers.  In fact, some estimates suggest that the gains from free migration of labor would more than doubleworldwide real income, indicating that immigration controls "are one of the (and perhaps the) most important policy issues facing the global economy." 112

 

Economic theory, as borne out through empirical observation and real-world results in the international marketplace, raises a presumption in favor of a freer movement of labor by revealing that American natives, taken together, will gain from an immigration expansion.  Moreover, the evidence shows that United States immigration has an overall positive impact on the private and public sectors of its economy.  Given the above economic truisms, a formulation of first-best immigration policy specific to the U.S. would manifest as that which perfectly meets migrant incentives at the point of equilibrium where American labor needs reside.  According to available data as presented herein, America will need, at a minimum, between 3,129,000 (based on the product of the projected number of job openings and the current foreign-born percentage of the national labor force) and 4,250,000 (the BLS estimate) migrant workers through 2012 (a six-year period), inclusive of between 2,628,360 and 3,570,000 low-skilled workers, and between 500,640 and 680,000 high-skilled workers.  These needs would be most readily achieved through a first-best open border immigration policy.  Currently, according to estimates from the Pew Hispanic Center, the number of migrants arriving in the United States from 2000 to 2004 averaged approximately 1.3 million per year, which is very close to the estimates used by BLS.  However, more than half of these arrivals - 53 percent - were undocumented.  If this disconnect between the labor force needs of the U.S. economy and current protectionist immigration laws continues, then roughly one in eight new workers joining the U.S. labor force over the coming decade would be undocumented migrants, driven by push-pull supply and demand forces outside of a legal framework that lacks conformity to these economic principles. 113

 

Why, then, when a first-best immigration policy - formulated essentially as an absolute removal of immigration barriers - appears to provide nothing but positive gains for the United States, has it manifested as such a perpetually divisive and controversial issue in the American polity?  The answer, as mentioned at the beginning of this section, is that while the United States as a whole gains, there are distributive attachments to these gains whereby liberalized immigration policies create both winners and losers.  Even in view of evidence showing very minimal losses to the losers, those affected have been quite effectual in raising popular interest in immigration and directing that interest in favor of restrictionist tendencies in a significant if ultimately minoritarian share of the American electorate.  Therefore, again, the issue becomes one of economic efficiency v. labor protectionism and distributive justice, and the economic aspects of the reform debate can be conceptually reduced to a battle between the winners and the losers of liberalized immigration policy.  This battle is waged in the political arena of American liberal democracy, a meaningful treatment of which will shed further light on the political feasibility of popular policy concepts as well as the first-best policy thus far formulated in this piece.  By dissecting and magnifying the component parts of the U.S. political economy and their respective powers in effectuating legislation, final clues will be discovered through which a concluding formulation of equitable moderation can be achieved.

98 Chang, "The Economic Analysis of Immigration," 214.

 

99 Pugel, International Economics, 365.

 

100 Douglas S. Massey, "Five Myths About Immigration: Common Misconceptions Underlying U.S. Border-Enforcement Policy."

 

101 Personal Responsibility and Work Opportunity Reconciliation Act of August 22, 1996 (110 Statutes-at-Large 2105).

 

102 Ibid.

 

103 Pugel, International Economics, 366.

 

104 Ewing, "Economic Report of the President."

 

105 Chang, "The Economic Analysis of Immigration," 215-216 (citing Smith and Edmonston (1997)).

 

106 Ibid.

 

107 General Agreement on Tariffs and Trade, October 30, 1947, 61 Stat. pt. 5, 55 U.N.T.S. 187.

 

108 General Agreement on Trade in Services, April 15, 1994, 33 I.L.M. 1167.

 

109 Ian F. Ferguson, "Trade Negotiations During the 109th Congress" (citing National Security Council, 2002).

 

110 Ibid.

 

111 George W. Bush, "State of the Union: 2006."

 

112 Howard F. Chang, "Migration as International Trade: The Economic Gains From the Liberalized Movement of Labor" (citing Hamilton and Whalley, 1984).

 

113 Paral, et al., "Economic Growth & Immigration."

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