Costs and Benefits of an Immigration Overhaul

By Miriam Jordan

Lawmakers on both sides of the aisle agree that immigration overhaul is overdue. But there is no consensus on the economic effects of legalizing millions of people who have been working in the U.S. for years either with false papers or off the books.

About 11 million of the U.S.’s 40.4 million immigrants are here illegally. Mainly young and motivated to migrate for work, the vast majority of them participate in the U.S. labor market.

If they are legalized, “there will be benefits and costs,” said Pia Orrenius, a senior economist at the Federal Reserve Bank of Dallas.

Most economists, demographers and other experts who have studied the potential impact of a legalization program don’t expect it to affect the economic recovery.

They agree that it would benefit individual immigrants and their families because their work conditions would improve. The immigrants would become more likely to invest in education for themselves and their children because they would feel settled. Greater stability promotes integration and assimilation, both of which help the country’s economy.

However, it is hard to assess the cost to the federal government and states of providing public services to legalized residents who eventually become eligible for them.

Beneficiaries of legalization who are blue-collar workers could end up receiving more government benefits than they pay in taxes, “just like poor, low-skilled natives,” says Ms. Orrenius, who last year co-wrote a paper on the economic consequences of legalization. Initially, states would incur most of the costs because they offer many public services, she said.

Giovanni Peri, an economics professor at the University of California, Davis, says undocumented immigrants could bolster government coffers, at least in the short term, if required to pay a fee to change their status. “The program could be configured as a good source of government revenue,” he says.

Some opponents of legalization say an amnesty would adversely affect U.S. workers by creating new competition for jobs. Undocumented immigrants, almost half of whom didn’t complete high school, are concentrated in blue-collar work.

“Any effect on the U.S. labor market has already happened because these people have been here for years,” says Mr. Peri, whose research focuses on the labor-market effects of immigration.

Steve Camarota, research director of the Center for Immigration Studies, a Washington group that calls for restricting immigration, said in a recent report that returning “a large fraction” of illegal workers to their countries would enable an “ample supply of idle workers to replace them, particularly workers who have relatively little education.”

The U.S. last launched a large-scale immigration overhaul in 1986, the Immigration Reform and Control Act, or IRCA. In all, 2.7 million immigrants were legalized.

Latin American immigrants who secured green cards under IRCA saw their wages increase between 6% and 13%, according to several studies of those workers. “There is a payoff for society at large when people earn higher wages and pay more taxes and those who work off the books come onto the tax roll,” says Ms. Orrenius, who co-wrote a paper in 2012 about the consequences of a legalization program.

However, earnings gains might be substantial only for well-educated immigrants likely to move into higher-paying jobs more in line with their skills.

Researchers at the Public Policy Institute of California, a nonpartisan think tank, found in a 2010 study that educated immigrants who were legalized in 2003 experienced a 10% wage gain and upward occupational mobility after their status was changed.

By contrast, low-skilled immigrants didn’t experience wage or occupational growth attributable to their new legal status.

This finding suggests that employers pay these low-skilled workers the same wage, regardless of whether they are legal or not, according to Laura Hill, a demographer at the Institute who co-wrote the study.

Here’s why: Many undocumented workers began acquiring false identification to secure work after IRCA set fines for employers who knowingly hire illegal immigrants. Employers are unlikely to detect if someone presents fake identification, unless they use an electronic worker-eligibility system, called E-Verify. However, use of E-Verify is mandatory only in some states and for federal contractors.

“We know there are more and more deductions that can’t be matched to a real person, suggesting a lot of false documentation is in use,” says Ms. Hill, referring to the Social Security Administration’s “suspense file,” which contains billions of dollars in illegal immigrants’ contributions to payroll taxes and wage withholdings.

A version of this article appeared February 4, 2013, on page A2 in the U.S. edition of The Wall Street Journal, with the headline: Costs and Benefits of an Immigration Overhaul.

follow us on facebook and twitter

Be the first to comment

Leave a Reply

Your email address will not be published.