Immigration and the U.S. Economy: Labor-Market Impacts, Illegal Entry, and Policy Choices

Since the 1960s, the United States has undergone a surge in immigration. The share of the U.S. population that is foreign born surpassed 10% in 2000, with new immigrants accounting for nearly half of recent U.S. population growth. Three policy issues are central to the current debate about immigration. One is what should be the level and composition of legal immigration. The United States admits relatively large numbers of immigrants with low levels of education and other discernible skills. Rising immigration of the less skilled may lower wages of native workers. A second issue is what to do about illegal immigration. Illegal aliens account for one third of new U.S. immigrants. An open question is whether U.S. policy should attempt to replace illegal immigration with large-scale temporary immigration of foreign workers. A third issue is whether immigrants should be eligible for public assistance. Denying eligibility could reduce immigration and lower fiscal transfers from natives to immigrants. In this paper, we examine immigration in the United States over the last several decades in order to gauge the potential for and the consequences of changes in U.S. immigration policy. Our study has six main sections, following an introduction. In section 2, we review U.S. immigration policy and trends. Current U.S. policy sets a quota on overall immigration, with first priority for admissions given to family members of U.S. citizens and legal residents. In recent years, fewer than 15% of new immigrants have been admitted based on their skill level. Whether intended or not, this policy favors immigrants with relatively little schooling. Recent immigrants tend to concentrate in specific regions and industries, and tend to earn much less than natives. In section 3, we consider how U.S. regional economies adjust to immigrant inflows. Despite the geographic concentration of recent immigrants, wages have not fallen perceptibly in the gateway communities in which immigrants settle. Regions have adjusted to immigrant inflows through other mechanisms, including skill upgrading of the native labor force, outmigration of native workers, and shifts in output mix towards immigrant-intensive industries. If education levels of the U.S. labor force stabilize, as they are expected to do, the wage impacts of immigration may be more pronounced. In section 4, we examine the factors that influence U.S. illegal immigration. Most illegal immigrants enter the country either by crossing the Mexico-U.S. border or by overstaying entry visas. Mexico is the largest source country for illegal immigration and illegal entry tends to surge following economic downturns in the country. The U.S. government impedes illegal immigration by policing borders and monitoring employers, with the vast majority of resources dedicated to border enforcement. These efforts appear to have had limited success, as the inflow of illegal immigrants continues unabated. In section 5, we examine the fiscal impact of immigration. Prior to U.S. welfare reform in 1996, immigrants were more likely than natives to receive public assistance. New laws restrict immigrant access to many benefits, one important exception being costly public education. For some types of public assistance, individual U.S. states have the discretion to offer benefits after an individual has been in the country for at least five years. Excluding immigrants from public assistance has been subject to numerous judicial challenges. Despite immigrant use of public assistance, the net fiscal transfer from natives to immigrants appears to be very small at the national level, though it is higher in a few specific states that have both generous welfare benefits and large immigrant populations. In general, the older and the less educated the adult immigrant population is, the larger are native-to-immigrant net fiscal transfers. In section 6, we examine the political economy of U.S. immigration policy. We find that individual opinions about immigration policy are influenced by expectations about its impact on outcomes in the labor market and on public services and the welfare state. In particular, less-skilled workers and political conservatives are among those most opposed to freer immigration. Congressional representatives seem to respond to these concerns in their districts when voting on legislation. In section 7, we conclude by discussing current policy choices facing the United States. Key decisions for U.S. policy makers include whether to replace family-based immigration with skills-based immigration, whether to continue to exclude immigrants from access to public assistance, whether to expand temporary immigration, and how to balance border and interior policing in enforcing against illegal immigration.