Immigration Reform 2013: 5 Ways It Will Affect Our Economy

Economics has been a central battleground in America's debate over immigration reform. Supporters and allies of the immigration bill proposed by the Senate's so-called "Gang of Eight" argue that granting legal status to the illegal immigrations currently in the nation and providing them with a path to citizenship would help America's overall economy and reduce the deficit. The latter goal would be accomplished by creating a new group of taxpayers and the former would occur because the newly legalized immigrants could become educated, acquire marketable skills, and then pursue higher-paying jobs than the ones they currently hold. Opponents of the Gang of Eight bill paint a scarier picture, arguing that the massive influx of cheap labor into jobs traditionally held by Americans will lower wages throughout the economy. The truth lies, as it usually does, somewhere in between. Here are five salient facts about the immigration reform bill and the economy.

1. Wages will go up for most, but down for some:

The graph above shows the results of two different studies about immigration's effects on native worker's wages. The purple bars are from a 2007 study by George Borjas and Robert Katz, while the blue bars are from a 2008 study by Gianmarco Ottaviano and Giovanni Peri. In both studies, the overall effect is positive, but the Borjas-Katz results show significant wage depression among high school dropouts as a result of immigrant labor. By legalizing millions more immigrants, this pressure would likely be exacerbated as immigrants move into unskilled service-sector jobs like grocery clerk and Wal-Mart greeter that were off-limits when they were illegal immigrants.

2. Immigrants can take jobs away from native workers:

While their effects on wages is debatable, immigrants undeniably do take jobs that would otherwise be held by native-born workers. As the Pew Hispanic Center, a pro-immigration yet intellectually honest think tank, wrote in a 2010 report, "In the year following the official end of the Great Recession in June 2009, foreign-born workers gained 656,000 jobs while native-born workers lost 1.2 million … the unemployment rate for immigrant workers fell 0.6 percentage points during this period while for native-born workers it rose 0.5%." Though correlation does not equal causation, this data does support a zero-sum view of immigration's effects on employment, particularly when combined with the study's other findings that immigrant workers experienced a 4.5% drop in pay while native-born workers experienced less than a 1 percent drop. This indicates that corporations were leveraging the lower costs of immigrant labor to avoid hiring more expensive native-born employees.

3. But everyone gets lower costs in return:

While immigrants can take jobs away from some workers, their willingness to accept lower pay for their work results in lower costs, particularly in immigrant-intensive sectors like housekeeping and gardening. According to a 2008 study by University of Chicago professor Patricia Cortes, the large influx of mostly Hispanic immigrants from 1980 to 2000 resulted in a 9-11% decrease in the cost of most low-wage services.

4. Immigrants are Innovators

Conservative columnist George F. Will is fond of writing that "immigration is a fundamentally entrepreneurial act." The people who are willing to take the risk of leaving their native culture to pursue opportunity in America are people willing to take the risks of starting the new businesses that hire new employees. This helps offset the damage that immigration can cause to native-born employment rates. Additionally, immigrants who have graduated from post-graduate institutions are over three times as likely to file for a patent as their American-born counterparts. While the immigrants legalized by the pending legislation will be mostly uneducated, some of them will be highly educated workers or students who are here illegally because they overstayed their visas. If they regain the ability to file for patents, they can go about designing new products that will make all Americans’ lives better.

5. America’s economy can't assimilate immigrants like it used to:

Previous waves of immigrants were incredibly successful at assimilating into America's economy. Though they usually faced bigotry and employment discrimination, the second and third generations of these immigrants were more successful than their native counterparts. This success was largely due to the mass production economy America had during the era of European immigration. Immigrants could come to our shores without much in the way of skills and find a job in a factory, as a longshoreman, or in countless other occupations that relied more on brawn than brain. These jobs were difficult, and sometimes even fatal, but they paid a living wage and didn't require an education. That economy is long gone. The modern American economy requires education to succeed, and immigrants are likely to be uneducated. Among the 23% of the nation's college-age population, Latino immigrants and their children earn only 9% of the college degrees. While this percentage could increase in future generations, UCLA sociologists Edward Telles and Vilma Ortiz found that educational progress of post-1965 Latino immigrants is basically stagnant after the third generation.