Illegal Aliens: National Net Cost Estimates Vary Widely
Released: 1995-07-25T00:00:00

Letter

Background

Illegal immigration is an important issue, especially in California, New York, Texas, Florida, Illinois, Arizona, and New Jersey—the states estimated to account for over three-fourths of the illegal alien population. Illegal aliens are a concern not only because they are breaking immigration laws but for various other reasons. For example, state and local governments are especially concerned about the effect on their budgets of providing benefits and services to illegal aliens. In addition, there are concerns about whether the presence of illegal alien workers has negative effects on the employment of U.S. workers.

Size of the Population

Public concern about the number of illegal aliens residing in the United States led to the passage of major immigration legislation in the 1980s. In an effort to reduce the size of the nation’s illegal alien population, estimated at 3 to 5 million in 1986, the Congress enacted the Immigration Reform and Control Act of 1986 (IRCA). IRCA attempted to deter the inflow of illegal aliens by prohibiting employers from hiring anyone not authorized to work. IRCA also provided that under certain circumstances, an illegal alien’s status could be adjusted to lawful permanent resident.Almost 3 million illegal aliens acquired lawful permanent residence as a result of IRCA.

Despite a brief drop in the estimated number of illegal entries to the United States after IRCA was enacted, the inflow of illegal aliens has subsequently increased, so that the size of the illegal alien population is now estimated to have increased once more to pre-IRCA levels. INS estimated that there were 3.4 million illegal aliens residing in the country in October 1992. Updating this estimate would place the illegal alien population at about 4 million in 1994. The Bureau of the Census estimated that the size of the illegal alien population was between 3.5 million and 4 million in April 1994.

Eligibility for Federal Benefits

Illegal aliens are not eligible for most federal benefit programs, including Supplemental Security Income, Aid to Families With Dependent Children (AFDC), Food Stamps, unemployment compensation, financial assistance for higher education, and the Job Training Partnership Act (JTPA).However, they may participate in certain benefit programs that do not require legal immigration status as a condition of eligibility, such as Head Start, the Special Supplemental Food Program for Women, Infants, and Children (WIC), and the school lunch program. In addition, they are eligible for emergency medical services, including childbirth services, under Medicaid if they meet the program’s conditions of eligibility. Illegal aliens may apply for AFDC and food stamps on behalf of their U.S. citizen children. Although it is the child and not the parent in such cases who qualifies for the programs, benefits help support the child’s family.

Illegal aliens may not work in the United States or legally obtain Social Security numbers for work purposes. However, many illegal aliens do work and have Social Security taxes withheld from their wages based on falsely obtained numbers. Illegal aliens are not explicitly barred from receiving Social Security benefits; nonetheless, some illegal aliens may not be able to collect benefits because an individual generally must have obtained a valid Social Security number to receive credit for work performed.

Types of Revenues Generated

Illegal aliens generate revenues as well as costs; these revenues offset some of the costs that governments incur. Research studies indicate that many illegal aliens pay taxes, including federal and state income taxes; Social Security tax; and sales, gasoline, and property taxes. However, researchers disagree on the amount of revenues illegal aliens generate and the extent to which these revenues offset government costs for benefits and services.

State Efforts to Estimate Fiscal Impact of Illegal Aliens

Over the past few years, the states with the largest illegal alien populations have developed estimates of the costs they incur in providing benefits and services to illegal aliens. These estimates vary considerably in the range of costs included and methodologies used. Two states, California and Texas, also have estimated the public revenues that illegal aliens generate.

In a recent report, we reviewed California’s estimates of three costs for illegal aliens—elementary and secondary education, Medicaid, and adult incarceration—and various revenues from this population. Although we adjusted the cost estimates based on our assessment of the state’s assumptions, we cited several data limitations that prevented us from developing precise estimates. The even more extensive data limitations on the revenue side precluded us from making any assessment of the revenue estimates.

Most Studies Conclude Illegal Aliens Generate More in Costs Than in Revenues

The literature on the public fiscal impact of illegal aliens reflects considerable agreement among researchers that illegal aliens are a net cost, though the magnitude of the cost is a subject of continued debate. We identified 13 studies issued between 1984 and 1994 that developed estimates of the net costs of illegal aliens. Many of the studies focused on the illegal alien population in specific states, such as California or Texas, or specific areas, such as San Diego County or Los Angeles County. In addition, the range of costs and revenues included in the studies varied depending on the level of government examined: local, state, federal, or some combination of these. All but one study concluded that illegal aliens generated more in public costs than they contributed in revenues to government. (See app. I for a list of the studies.) Only 3 of the 13 studies estimated the fiscal impact of all illegal aliens in the United States on all levels of government.

National Net Cost of Illegal Aliens Uncertain

The three studies that have estimated the national net cost of illegal aliens have generated considerable media attention and public discussion. Each concluded that illegal aliens generate more in costs than revenues at the national level, but their estimates of the magnitude of the net cost varied considerably. The studies faced the difficult task of developing estimates of the public fiscal impact of a population on which little data are available. They generally relied on indirect approaches; as a result, the reasonableness of many of their assumptions are unknown. In addition, the studies differed considerably in the range of costs and revenues they included and their treatment of certain items, which makes them difficult to compare. For these reasons, a great deal of uncertainty remains about the actual national net cost of illegal aliens.

Studies’ Estimates of Net Costs Vary Considerably

Donald Huddle estimated that the national net cost of illegal aliens to federal, state, and local governments was $11.9 billion in 1992. This estimate was followed by an Urban Institute review of Huddle’s work, which adjusted some of Huddle’s cost and revenue estimates and estimated a much lower net cost for 1992—$1.9 billion. Responding to the Urban Institute’s criticisms, Huddle subsequently produced an updated estimate for 1993 that was higher than his initial estimate—$19.3 billion.(See app. II for a list of the costs and revenues included in each of the estimates.)

The net cost estimates in each of the national studies are derived from three major components: (1) the direct costs of providing public benefits and services to illegal aliens, (2) displacement costs—the costs of providing various types of public assistance to U.S. citizens displaced from their jobs by illegal aliens, and (3) public revenues attributable to illegal aliens. A comparison of Huddle’s initial study with the Urban Institute’s study indicates that the major differences were in their estimates of displacement costs and revenues. Their estimates of direct program costs were relatively similar, as shown in figure 1.

In their study, the Urban Institute researchers did not develop a completely independent estimate but instead adjusted some of the cost and revenue estimates in Huddle’s initial study to obtain what they believed to be a more reasonable estimate. The Urban Institute study also added certain revenues that were not included in Huddle’s initial study, such as payroll taxes (Social Security and unemployment compensation) and federal gasoline tax. In developing their own estimate, Urban Institute researchers used some of Huddle’s assumptions. In particular, the Urban Institute study used Huddle’s estimate of the size of the illegal alien population—4.8 million illegal aliens—for purposes of comparability, though the study maintained that this estimate was too high.

Huddle’s update of his earlier study differs substantially from the Urban Institute study in all three components of the net cost estimates, with the largest difference occurring between the estimates of direct program costs (see fig. 1). The reason for this difference is primarily because Huddle’s updated study includes over $10 billion for direct cost items that were not included in either his initial study or the Urban Institute study.

Studies’ Estimates Based on Limited Data on Illegal Alien Population

National data on illegal aliens’ use of public services and level of tax payments generally are not available. Various national databases that contain extensive data on the resident population’s use of public services and household characteristics, for example, do not have data on the immigration status of respondents who are not U.S. citizens. Questions about immigration status are not included on Census surveys because they might provoke untruthful responses and thereby affect the quality of the survey data, according to a Census official.

Because of such data limitations, the national studies relied on indirect approaches to estimate the costs and revenues attributable to illegal aliens. In using these approaches, the studies made assumptions whose reasonableness is often unknown. To estimate direct program costs, for example, the studies multiplied their estimates of the average number of illegal aliens who received a benefit or service times the average annual program cost per illegal alien. However, data generally are not available to assess whether the assumptions used in estimating illegal aliens’ recipiency rates and average costs were reasonable.

For example, for some programs, one or more of the studies assumed that illegal aliens had the same recipiency rate and average cost as the overall population served by the program. Huddle’s updated study made this assumption in estimating costs for Head Start and adult education. For other programs, the studies adjusted the national recipiency rate or average cost upward or downward to reflect a presumed difference in the use of the program by illegal aliens. For example, in estimating the cost of housing assistance, Huddle’s initial and updated studies assumed that the recipiency rate and average cost were higher for illegal aliens than for the overall population served by this program. The Urban Institute’s study assumed that the recipiency rate was higher but that the average cost was the same.

For still other programs, the studies estimated the public service use of illegal aliens by using data on populations that included groups in addition to illegal aliens. For example, in their estimates of the cost of primary and secondary education, the studies used data on the school enrollment rates of populations that included foreign-born children who were legal residents. The studies’ estimates of the enrollment rate of school-age illegal aliens ranged from 70 to 86 percent.

To estimate revenues attributable to illegal aliens, Huddle’s initial study and the Urban Institute’s study started with a preexisting estimate of revenues collected from illegal aliens in Los Angeles County for various federal, state, and local taxes. The studies calculated the per capita payments by illegal aliens in Los Angeles County for each of these taxes. The studies then used different methodologies to adjust these per capita tax estimates to apply them to the national illegal alien population.

In contrast, Huddle’s updated study used a different approach to estimate revenues. The study developed an estimate of the income distribution of the national illegal alien population from data on the foreign-born population and on illegal aliens who were legalized under IRCA. Based on this income distribution, the study used data on the tax payments or tax rates associated with different levels of income for the general population to estimate revenues from illegal aliens.

Studies Difficult to Compare

The national net cost studies vary considerably in the range of costs and revenues they included and their treatment of certain items, making the studies difficult to compare. The variation in the studies reflects an absence of clear standards for determining the items that are appropriate to include in such estimates. A consensus on standards has not yet emerged because the three national studies represent the initial efforts of researchers to develop estimates of the total public fiscal impact of the illegal alien population.

Because the studies attempted to develop comprehensive estimates of the fiscal impact of a population, it is important to determine whether the items they included are appropriate. However, this is difficult to determine because the studies did not always clearly explain the rationale for including items that were excluded by other studies or treating items differently from the way they were treated by other studies. As a result, it is difficult to ascertain whether the large variations in the studies’ estimates for such items stem from their addressing different policy questions or from differing views about how to respond to the same question.

Why National Estimates Vary

A relatively small number of costs and revenues account for much of the variation in the estimates of the national net cost of illegal aliens. Some of these cost and revenue items were included in one study but not the others. In the case of other items, the studies differed considerably in the approaches or assumptions they used to develop their estimates.

Our review focuses on differences between the Urban Institute’s study and Huddle’s updated study. Four areas account for about 88 percent of the difference between the studies’ estimates of total costs: (1) costs for citizen children of illegal aliens, (2) costs for the portion of some services provided to the general public that are used by illegal aliens, (3) Social Security costs, and (4) costs for workers displaced from jobs by illegal aliens. On the revenue side, about 95 percent of the difference in the studies’ estimates is attributable to differences in their estimates of local revenues (see table 1).

Costs for Citizen Children of Illegal Aliens

Huddle’s initial study and the Urban Institute’s study included estimates of costs for U.S. citizen children of illegal aliens for only one program—AFDC. These costs represent cash payments received by illegal aliens on behalf of their citizen children. However, Huddle’s updated study includes estimates of citizen children costs for additional programs: primary and secondary education; school lunch; Food Stamps; and English as a Second Language, English for Speakers of Other Languages, and bilingual education. Huddle’s estimate of these additional items totals $3.9 billion. In all these programs except Food Stamps, the benefits or services are provided directly to citizen children.

The appropriateness of including these additional citizen children costs depends on the policy question under consideration. For example, if the question concerns the overall public fiscal impact associated with illegal immigration, then including these costs would be appropriate because they are a consequence of the failure to prevent aliens from illegally entering and residing in the United States. In addition, it would also be appropriate to include costs and revenues attributable to adult citizen children of illegal aliens (children 18 years old and older). Alternatively, if the question concerns the cost of benefits or services provided only to persons residing unlawfully in the country, then it would not be appropriate to include these costs. None of the three national studies, however, clearly specifies the question it addressed.

Costs for General Public Services

Huddle’s initial study and the Urban Institute’s study included estimates of costs for the portion of some county government services provided to the general public that are used by illegal aliens, such as public safety, fire protection, recreation, roads, and flood control. Huddle’s updated study includes over $5.3 billion in additional costs for miscellaneous public services not included in his initial study or the Urban Institute’s study, including federal and state highway costs and costs for a range of city services, such as police, fire, sewerage, libraries, parks and recreation, financial administration, and interest on debt.

The studies’ inclusion of costs for services to the general public raises two issues: the specific services that should be included and the appropriate methodology for estimating the costs of the services attributable to illegal aliens. With regard to the first issue, the national studies focused on local services provided to the general public; the only such state or federal service that any of them included was highway services. However, because there are other state and federal services provided to the general public that illegal aliens may use or benefit from, it is not clear that the studies’ estimates included all the appropriate items. None of the studies clearly addressed this issue.

A second issue involves the methodology used to estimate the costs of services provided to the general public. Huddle’s updated study calculates the costs of the additional miscellaneous public services on an average cost basis. However, this may yield questionable estimates because the additional cost that governments incur for these services due to the presence of each illegal alien could be substantially lower or higher than the average cost per person of providing the services. Using marginal cost—the cost of providing a service to one additional user—would better reflect the additional costs due to the presence of illegal aliens. For example, in areas where illegal aliens constitute a small percentage of the population, the marginal cost of providing them fire protection could be lower than the average cost. On the other hand, if the number of illegal aliens in an area necessitates the construction of new fire stations, the marginal cost of fire protection for them could be higher than the average cost. While using marginal costs would yield better estimates, the data needed to estimate these costs are difficult to obtain.

Social Security Costs

Social Security (the Old Age, Survivors, and Disability Insurance program) has both a revenue side—payroll contributions from workers and employers—and a cost side—benefits paid out. Huddle’s initial study did not include either Social Security revenues or costs. Huddle’s updated study, in response to the Urban Institute’s study, included both. On the revenue side, the researchers’ estimates are fairly close: Huddle estimates $2.4 billion in Social Security revenues, compared with the Urban Institute’s estimate of $2.7 billion. However, on the cost side, the researchers draw sharply different conclusions: Huddle estimates that illegal aliens generated $3.3 billion in Social Security costs; the Urban Institute estimates that no Social Security costs were generated by illegal aliens.

This difference reflects a disagreement about the conceptual approach to measuring Social Security costs. The Urban Institute study views the Social Security costs for illegal aliens in a given year as the amount of benefits paid to this population in that year. The rationale for this view is that the federal government treats Social Security costs and revenues on a current accounts basis: in calculating the annual federal budget deficit (or surplus), Social Security taxes are treated as revenues and Social Security benefits as expenses. However, the Social Security Administration does not have data on the amount of Social Security benefits paid to illegal aliens; as a result, it is unclear whether the Urban Institute’s assumption that this amount was zero is reasonable.

In contrast, Huddle’s updated study views Social Security costs in terms of the “present value of future benefits” that illegal aliens will collect. The study’s cost estimate for 1993 represents the present value of the portion of future Social Security benefits that illegal aliens will receive that is attributable to their earnings in 1993. Huddle’s rationale for using this approach to Social Security costs is the belief that the federal government is incurring a substantial obligation for future benefits to illegal aliens. However, the data needed to develop a reasonable estimate of the amount of Social Security benefits that illegal aliens will collect in the future are not available.

These different conceptual approaches to measuring Social Security costs appear to address different questions. The current accounts approach is relevant to the question of the current-year cost of benefits provided to illegal aliens who generally have reached retirement age. In contrast, the present value approach is more appropriate for answering the question of the long-term costs that will result from the presence of illegal aliens currently in the labor force. The explanation of the Social Security cost estimate in Huddle’s updated study makes it difficult to discern whether he explicitly sought to address a different question than the one addressed by the Urban Institute’s study.

Displacement Costs

Although illegal aliens by law are not entitled to work in this country, they often find employment. This raises questions about the extent to which illegal aliens take jobs away from legal residents—U.S. citizens and aliens residing legally in the country. Job displacement can generate costs to all levels of government for various forms of public assistance provided to legal residents who lose their jobs. Huddle’s initial and updated studies include $4.3 billion in costs for public assistance—Medicaid, AFDC, Food Stamps, unemployment compensation, and general assistance—provided to displaced U.S. citizen workers. In contrast, the Urban Institute’s study concludes that any job displacement costs are offset by the positive economic effects of illegal aliens. These positive economic effects include the new jobs and additional spending (the multiplier effect) generated by illegal aliens’ spending on goods and services. Huddle’s subsequent response to the Urban Institute’s position is that the social and economic costs associated with each of the claimed economic benefits would have to be assessed.

It is very difficult to quantify the positive and negative effects of illegal aliens on the economy. With regard to job displacement, our analysis indicates that Huddle’s $4.3 billion estimate is based on a job displacement rate that is inconsistent with research findings on this topic. While some studies have shown that job displacement may occur, recent studies using national data generally have concluded that displacement is either small in magnitude or nonexistent. Huddle’s estimate assumes a displacement rate of 25 percent; that is, for every 100 low-skilled illegal alien workers, 25 U.S. citizens were displaced from their jobs in 1993. The estimate cites Huddle’s own studies on job displacement to support the 25-percent rate. However, these studies assume a correlation between the employment of illegal aliens and the unemployment of native workers that is not supported by any evidence. (See app. III for a more complete discussion of Huddle’s displacement cost estimate.)

With regard to positive economic effects, economic models have been developed to estimate multiplier effects; however, the models have not been used to measure the effects of subpopulations such as illegal aliens. As a result, the extent to which the positive economic effects of illegal aliens offset the costs they generate is unclear.

Local Revenues

The national net cost studies estimated the amounts of various revenues from illegal aliens collected by federal, state, and local governments. These include income, sales, property, Social Security, and gasoline taxes. (See app. II for a list of the revenues included in the studies.) Developing reasonable estimates of these revenues requires information about various characteristics of the illegal alien population, such as its size, age distribution, income distribution, labor force participation rate, consumption patterns, and tax compliance rate. However, limited data are available on these characteristics. Furthermore, the studies differ in some of the revenues they include.

Huddle’s initial estimate of the total revenues from illegal aliens was $2.5 billion. The Urban Institute’s study criticized Huddle’s estimate for omitting several revenues—the largest being Social Security tax—and estimated $7 billion in total revenues. Huddle’s updated study, which estimated total revenues at $10 billion, added several revenues that were not included in his initial study, such as Social Security tax, federal and state gasoline taxes, and city taxes. As shown in table 2, the major area of difference between the revenue estimates in the Urban Institute’s study and Huddle’s updated study was in their estimates of local revenues.

Two factors help explain the difference in their estimates of local revenues. First, Huddle’s updated study includes some local revenues not included in the Urban Institute’s study, such as property taxes paid by businesses. Second, the researchers’ estimates of the per capita income of illegal aliens differ. The researchers use income as a factor in estimating the different revenues because the amount of revenues from illegal aliens is a function of their income levels. The per capita income figure in Huddle’s updated study ($7,013) is 36 percent higher than that in the Urban Institute’s study ($5,155). However, more recent work by the Urban Institute for the same general time period can be used to obtain an income figure closer to Huddle’s—about $7,739. If this higher figure was substituted in the Urban Institute’s study, the estimate of total revenues from illegal aliens would increase to $10.5 billion, placing it closer to the $10 billion figure in Huddle’s updated study.

The reasonableness of the revenue estimates would remain unclear even if the gap between the estimates was narrowed, due to the limited data available on the characteristics of the illegal alien population. For example, the estimates of illegal aliens’ incomes cited above are derived from two main sources: survey data on former illegal aliens who were legalized under IRCA and 1990 Census data on the foreign-born population (which does not distinguish illegal from legal aliens). By using these sources to develop estimates, the researchers assumed that the average income of illegal aliens was similar to that of aliens legalized under IRCA or to the foreign-born population (either to the population overall or subpopulations from specific countries). However, the reasonableness of these assumptions is unknown.

Estimates of National Net Costs Could Be Improved

Our review of the national net cost studies highlighted two key issues: the limited data on the illegal alien population and the considerable variation in both the items that the studies included and their treatment of some of the same items. These issues led us to conclude that considerable uncertainty remains about the national fiscal impact of illegal aliens. Obtaining better data on the illegal alien population and providing clearer explanations of which costs and revenues are appropriate to include would help improve the usefulness of the national estimates.

Better Data on Illegal Alien Population Needed

The limited availability of data on illegal aliens is likely to remain a persistent problem because persons residing in the country illegally have an incentive to keep their status hidden from government officials. Yet as researchers explore new possibilities for overcoming some of the obstacles to collecting data on this population, some progress may be achieved.

Given the data gaps in so many areas, any effort to collect better data should focus on those data that would have the greatest impact in improving the estimates of net costs. Thus, emphasis could be placed on obtaining data on illegal aliens’ use of those public benefits associated with the largest cost items or their payment of those taxes associated with the largest revenue items. For example, elementary and secondary education is estimated to be the single largest program cost; thus, researchers could focus on obtaining data on the number of illegal alien schoolchildren. However, researchers may confront legal barriers in attempting to collect these data.

Another approach, which could be used in conjunction with the first, would be to obtain data on characteristics of the illegal alien population that would have broad usefulness by permitting researchers to estimate several cost or revenue items. For example, data on the illegal alien population’s size, geographic distribution, age distribution, income distribution, labor force participation rate, and tax compliance rate would be useful in estimating many types of revenues. Better data on the size of the population also would be useful in estimating most of the public costs of illegal aliens.

Clearer Explanation Needed of Items That Should Be Included in Net Cost Studies

Obtaining better data on the illegal alien population will not resolve all the problems associated with estimating the net costs of illegal aliens. Researchers will still face issues about which items are appropriate to include in the estimates and how the items should be treated. As we have seen, different decisions on these issues can generate considerable variation in estimates of net costs. Researchers need to clearly explain how they handled such issues in order to facilitate comparisons of their estimates. For example, when the decision about whether an item should be included or how it should be treated depends on the policy question being asked, a study should clearly acknowledge the question it addresses. The variations in the national studies’ treatment of costs for citizen children of illegal aliens and Social Security costs were difficult to assess because the studies did not make clear which questions they were addressing.

Federal Effort to Improve Estimates of Aliens’ Fiscal Impact

Recognizing the need for better information on the effects of immigration, a federal effort is under way to improve estimates of the fiscal impact of legal and illegal aliens. The U.S. Commission on Immigration Reform, a bipartisan congressional commission created by the Immigration Act of 1990, is working on a final report to the Congress, due in 1997, on a wide range of immigration issues. The Commission provided an interim report to the Congress in September 1994. The Commission has convened a panel of independent experts organized by the National Academy of Sciences to review the methodologies and assumptions of studies of the costs and benefits of immigration. The panel will develop recommendations on the data sources and methodologies that hold the greatest promise for more precise measurement of the economic and social impacts of legal and illegal immigration.

Conclusions

The three national studies that we reviewed represent the initial efforts of researchers to develop estimates of the total public fiscal impact of the illegal alien population. The little data available on this population make it difficult to develop reasonable estimates on a subject so broad in scope. Moreover, the national studies varied considerably in the range of items they included and their treatment of certain items, making their estimates difficult to compare. As a result, a great deal of uncertainty remains about the national fiscal impact of illegal aliens.

Obtaining better data on the illegal alien population would help improve the national net cost estimates. Recognizing the difficulties inherent in collecting better data on a population with an incentive to keep its status hidden from government officials, any effort to collect better data should focus on those characteristics of the illegal alien population that are useful in estimating the largest net cost items, or many of them. These characteristics include the population’s size, geographic distribution, age distribution, income distribution, labor force participation rate, tax compliance rate, and extent of school participation.

Clearer explanations of which costs and revenues are appropriate to include would also help improve the usefulness of the estimates. The appropriateness of including any particular item may depend on the policy questions addressed by a study. If studies were more explicit about the questions they address, their estimates of net costs would be easier to compare.

The expert panel convened by the U.S. Commission on Immigration Reform could serve as a forum for discussing some of these data and conceptual issues. By exploring ways to provide lawmakers with better information on the public fiscal impact of illegal aliens, researchers could help provide a basis for the development of appropriate policy responses to address the problems of illegal immigration.

Comments and Our Evaluation

We obtained comments on a draft of this report from the Urban Institute and Donald Huddle (see apps. V and VI). In their comments, the researchers restated their disagreements with each other on a number of topics, including the size of the illegal alien population, the appropriate treatment of costs for citizen children of illegal aliens and Social Security costs, and the magnitude of indirect costs such as those attributable to job displacement. The researchers also cited areas in which they maintained that our report did not sufficiently identify the problems with each other’s estimates. In addition, they provided technical comments that we incorporated where appropriate to better characterize the methodologies they used in their net cost estimates.

The Urban Institute researchers agreed with much of the report’s analysis and its conclusions about the need for better data on the illegal alien population and sharper definitions of the accounting framework used. However, they took exception with two points in our report. They maintained that it is possible to test the reasonableness of the underlying assumptions used in the net cost estimates by developing estimates for reference groups and that their estimate of Social Security costs attributable to illegal aliens was reasonable. Huddle disagreed with several of the report’s findings. He maintained that the report was too negative in claiming that the reasonableness of many of the assumptions in the net cost estimates is unknown. In elaborating this point, Huddle argued that the results of various surveys of illegal aliens’ use of public benefits are consistent with the utilization rates in his cost estimates. Huddle also asserted that our report’s criticism of his Social Security and displacement cost estimates were unjustified.

We believe that our report accurately describes the problems researchers face in developing estimates of the national fiscal impact of the illegal alien population. With regard to the reasonableness of the assumptions in the net cost estimates, we agree with Urban Institute researchers that developing cost and revenue estimates for reference groups can provide a “reality check” on estimates for illegal aliens, as well as a useful context for assessing the net cost estimates. However, the use of reference groups provides only a limited test and does not ensure that the estimates for a particular immigrant group are reasonable. We find Huddle’s claim that the assumptions in his estimates are consistent with the results of survey studies problematic for several reasons. The utilization rates reported by these studies vary considerably, the reliability of some of the studies has been questioned, and the extent to which the findings of these studies can be generalized to the illegal alien population nationwide is unclear.

On the issue of Social Security costs for illegal aliens, we continue to believe that data limitations preclude the development of a reasonable estimate. To support their estimate that these costs are zero, the Urban Institute researchers cited some reasons why illegal aliens are not likely to be receiving Social Security benefits. Huddle, on the other hand, criticized the Urban Institute’s estimate by citing several reasons for believing that illegal aliens are receiving benefits. Given the researchers’ disagreement and the lack of national data on the number of illegal aliens receiving benefits, we have no basis for supporting either of these positions. Data limitations also lead us to question Huddle’s estimate of Social Security costs. For example, Huddle claimed that at least 75 percent of illegal aliens in the work force have valid Social Security numbers, but he did not provide sufficient evidence to support this claim. Moreover, data are not available to assess his claim.

Finally, with regard to the magnitude of displacement costs, we continue to believe that Huddle’s estimate overstates these costs because it is based on a displacement rate that is inconsistent with research findings on job displacement. (See pp. 32-33 for a more detailed discussion of Huddle’s comments and our responses on this issue).

The comments from the Urban Institute and Huddle reinforce our assessment of how difficult it is to develop estimates of the national fiscal impact of illegal aliens, given the limited data available. As noted in this report, obtaining better data on some of the key characteristics of the illegal alien population could help narrow the gap between the researchers’ widely varying estimates of the national net cost. Moreover, clearer explanations of the approaches used would make the net cost estimates more useful.

Our work was conducted in accordance with generally accepted government auditing standards. If you or your staff have any questions concerning this report, please call me on (202) 512-7215. Other GAO contacts and staff acknowledgments are listed in appendix VII.

Studies of the Net Fiscal Impact of Illegal Aliens

Huddle (1994)

Federal, state, and local ($19 billion)

Passel and Clark (Urban Institute) (1994)

Federal, state, and local ($2 billion)

Huddle (1993)

Federal, state, and local ($12 billion)

Huddle (1994)

Federal, state, and local ($913 million)

Huddle (1994)

Federal, state, and local ($1 billion)

Huddle (1993)

Federal, state, and local ($5 billion)

Parker and Rea (1993) San Diego County, fiscal year 1992-93 ($244 million)

Parker and Rea (1992) San Diego County, fiscal year 1991-92 ($146 million)

Texas Governor’s Office of Immigration and Refugee Affairs (1993) ($130-$166 million)

Romero and others (1994)

California, fiscal year 1994-95 ($2.7 billion)

Los Angeles County Board of Supervisors (1992)

Los Angeles County, fiscal year 1991-92 ($272 million)

Los Angeles County Chief Administrative Office (1991)

Los Angeles County, fiscal year 1990-91 ($276 million)

Lyndon B. Johnson School of Public Affairs (1984)

Six Texas cities, fiscal year 1982 ($4-$30 million)

Cost and Revenue Items Included in Estimates of the National Net Costs of Illegal Aliens

Huddle’s initial estimate (1992)

Urban Institute’s estimate (1992)

Huddle’s updated estimate (1993)

Primary and secondary education (citizen children)

School lunch (citizen children)

English as a Second Language, English for Speakers of Other Languages, and bilingual education English as a Second Language, English for Speakers of Other Languages, and bilingual education (citizen children)

Criminal justice (corrections)

Earned Income Tax Credit and health care tax credit State and federal highway costs (continued)

Huddle’s initial estimate (1992)

Urban Institute’s estimate (1992)

Huddle’s updated estimate (1993)

Net costs (costs less revenues)

Donald Huddle, The Costs of Immigration (Washington, D.C.: 1993), exhibits 5, 6, and 12.

Jeffrey S. Passel and Rebecca L. Clark, How Much Do Immigrants Really Cost? A Reappraisal of Huddle’s “The Cost of Immigrants” (Washington, D.C.: 1994), pp. 1-8, supplemented by data from Jeffrey Passel providing a breakdown of the cost estimates for individual items; and Jeffrey S. Passel, Immigrants and Taxes: A Reappraisal of Huddle’s “The Cost of Immigrants” (Washington, D.C.: 1994), table 7c.

Donald Huddle, The Net National Costs of Immigration in 1993 (Washington, D.C.: 1994), exhibits 5, 6, and 12.

The estimate does not include this item.

Review of Huddle’s Displacement Cost Estimate

In our view, Huddle’s estimate of $4.3 billion in displacement costs is based on a displacement rate that is too high. The estimate assumes that for every 100 low-skilled illegal alien workers, 25 U.S. citizens were displaced from their jobs in 1993. This assumption of a 25-percent displacement rate is inconsistent with research findings on job displacement.

Huddle’s Research on Displacement

Huddle’s study cites his own work on job displacement to support the claim that the level of displacement is at least 25 percent. In several field surveys that focused on the labor market in the Houston metropolitan area, Huddle claimed to have found displacement rates that ranged from 23 to 53 percent in the 1980s. The figures that Huddle cited in his 1982-83, 1985, and 1989-90 “microstudies of job displacement” are based on the percentages of unemployed native workers he surveyed who were still unemployed after some period of time. However, these figures cannot be construed as measures of displacement by illegal aliens because the studies did not show that the unemployed natives lost their jobs to illegal aliens or were unable to find work because of the presence of illegal aliens in the Houston labor market.

In effect, Huddle’s microstudies of job displacement assumed a correlation between the employment of illegal aliens and the unemployment of native workers that was unsupported by any evidence. In addition, even if the studies had accurately measured the level of job displacement in Houston in the 1980s, the phenomenon of job displacement is so sensitive to the locality where it is measured that the studies’ results for Texas cannot be generalized to the nation.

Other Research on Displacement

In his national net cost study, Huddle maintains that the 25-percent displacement rate is a conservative figure because an even higher displacement rate can be derived from a study by Altonji and Card.However, this contradicts the conclusion that the authors draw from their own research. Altonji and Card summarize the results of their study as indicating that immigrants have a small and potentially zero effect on the employment rates of natives. Furthermore, Huddle’s interpretation of Altonji and Card’s econometric results is based on an incorrect use of statistics. Huddle sums the coefficients from three separate regression equations, each with a different dependent variable.

The work of other researchers does not support the claim of a 25-percent displacement rate. Our 1986 review of the literature on job displacement concluded that illegal aliens may displace native workers. However, it found that the available research was inconclusive because it was limited and suffered from important methodological weaknesses. In addition, the experts that we consulted during our review agreed that while there is no consensus on what the average displacement rate might be, the literature on displacement does not support the claim of a rate as high as 25 percent. Recent studies using nationwide data have concluded that job displacement by aliens is either small in magnitude or nonexistent. The literature on job displacement that focuses specifically on illegal aliens has reached the same conclusion.

Huddle’s Comments and Our Evaluation

In his comments on a draft of our report, Huddle maintained that our criticism of his displacement cost estimate was unjustified (see app. VI). Huddle made four main points about our discussion of displacement. First, he contended that we had misunderstood his definition of displacement and were not including other types of displaced workers, such as teenagers who could not find first-time jobs and workers who had to physically move in order to look for work. Second, Huddle maintained that the coefficients from the four different equations in the Altonji and Card study are additive. Third, Huddle claimed that we did not consider the effect of illegal immigrants on wage depression as well as job displacement. Finally, Huddle maintained that his interpretation of the literature on job displacement was valid and that other experts would agree with him.

With respect to Huddle’s definition of displacement, we do not agree that it is valid to apply this broader definition in calculating the costs of the array of social service benefits he cites. Workers who have never entered the labor force cannot collect unemployment benefits, for example, and teenagers in particular are not likely to be individually eligible for the full range of welfare benefits. Workers who migrate elsewhere, that is, those who are physically displaced due to the presence of illegal aliens in the work force, may not necessarily be jobless or earning such a low wage in their new place of residence that they would be eligible for welfare benefits. Most importantly, there is no evidence of how many displaced workers remain permanently unemployed and, therefore, continue to collect welfare over a long period of time. In our view, ascribing full costs to this broader set of workers overstates the true cost of displacement.

With respect to Huddle’s claim that the coefficients in table 7.7 of the Altonji and Card study are additive, we disagree. Adding the coefficients on the first equation, which measures the ratio of people in the labor force to the population as a whole, and the second equation, which measures the ratio of employed persons to the population as a whole, effectively double-counts all employed persons, because the second ratio is a subset of the first. In addition, no other researcher we consulted, including one of the authors, interpreted the Altonji and Card study in the way that Huddle did, nor did they agree with Huddle’s methodology of adding coefficients from separate regression equations to get a measure of total labor displacement.

With respect to Huddle’s claim that we overlooked the phenomenon of wage depression, we did not make an evaluation of the impact of illegal aliens on wage depression because that was outside the scope of the net cost studies we reviewed. These studies specified job displacement only, and it is our judgment that the evidence on job displacement is much weaker than the evidence on wage depression. Huddle’s claim that job displacement and wage depression are close substitutes in terms of their impact on the low-skill native work force and on the net cost of public services is not supported by any empirical evidence or reference to any relevant literature.

Finally, with respect to our overall conclusion and our interpretation of the literature, we thoroughly reviewed the literature and consulted with recognized experts on immigration (see app. IV for a list of these persons). None of the experts we consulted believes that a displacement rate as high as 25 percent is supported by the research literature.

Experts Consulted by GAO

George J. Borjas, Professor of Economics, University of California, San Diego.

David Card, Professor of Economics, Princeton University.

Richard Fry, Division of Immigration Policy and Research, Bureau of International Labor Affairs, U.S. Department of Labor, Washington, D.C.

Briant Lindsay Lowell, Division of Immigration Policy and Research, Bureau of International Labor Affairs, U.S. Department of Labor, Washington, D.C.

Demetrios Papademetriou, Carnegie Endowment for International Peace, Washington, D.C.

Stephen J. Trejo, Associate Professor of Economics, University of California, Santa Barbara.

Sidney Weintraub, Center for Strategic and International Studies, Washington, D.C.; Dean Rusk Chair in International Affairs, Lyndon B. Johnson School of Public Affairs, University of Texas, Austin.

Comments From the Urban Institute

Comments From Donald Huddle

GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition to those named above, the following persons also made important contributions to this report: Deborah A. Moberly, Evaluator; Alicia Puente Cackley, Senior Economist; Steven R. Machlin, Senior Social Science Analyst; and William McNaught, Assistant Director, Office of the Chief Economist.

Bibliography

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Carrying Capacity Network. A Critique of the Urban Institute’s Claims of Cost Free Immigration: Huddle Findings Confirmed. Washington, D.C.: 1994.

Clark, Rebecca L. The Costs of Providing Public Assistance and Education to Immigrants, PRIP-UI-34. Washington, D.C.: The Urban Institute, 1994.

Clark, Rebecca L., and others. Fiscal Impacts of Undocumented Aliens: Selected Estimates for Seven States. Washington, D.C.: The Urban Institute, 1994.

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Fernandez, Edward W., and J. Gregory Robinson. “Illustrative Ranges of the Distribution of Undocumented Immigrants by State,” technical working paper no. 8. Washington, D.C.: U.S. Bureau of the Census, Population Division, 1994.

Fix, Michael, and Jeffrey S. Passel. Immigration and Immigrants: Setting the Record Straight. Washington, D.C.: The Urban Institute, 1994.

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U.S. General Accounting Office. Benefits for Illegal Aliens: Some Program Costs Increasing, But Total Costs Unknown (GAO/T-HRD-93-33). Washington, D.C.: 1993.

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Related GAO Products

Illegal Aliens: Assessing Estimates of Financial Burden on California (GAO/HEHS-95-22, Nov. 28, 1994).

Benefits for Illegal Aliens: Some Program Costs Increasing, But Total Costs Unknown (GAO/T-HRD-93-33, Sept. 29, 1993).

Illegal Aliens: Despite Data Limitations, Current Methods Provide Better Population Estimates (GAO/PEMD-93-25, Aug. 5, 1993).

Trauma Care Reimbursement: Poor Understanding of Losses and Coverage for Undocumented Aliens (GAO/PEMD-93-1, Oct. 15, 1992).

Undocumented Aliens: Estimating the Cost of Their Uncompensated Hospital Care (GAO/PEMD-87-24BR, Sept. 16, 1987).

Illegal Aliens: Limited Research Suggests Illegal Aliens May Displace Native Workers (GAO/PEMD-86-98BR, Apr. 21, 1986).

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