The Effect of Immigration on US Economy - Example

The Effect of Immigration on US Economy Executive summary The second wave of immigration that began around 1970s greatly influenced the US labor market, and the US labor force represented 15.3 percent foreign-born workers as of 2006. The illegal immigration through the Mexican-US border poses potential threats the US because these undocumented immigrants generally do not pay federal taxes but enjoy government services like healthcare, education, and roads. The immigrant population does not hurt the interests of US-born workers because immigrant workers are more likely than native workers to have low levels of education. The foreign-born workers do jobs that Americans do not want to do, and therefore they do not compete with the US-born workers in this respect. This paper will particularly discuss the effects of immigration on the US economy. Introduction The United States is an agglomeration of different cultures, and this great cultural diversity is created through the increased immigration flow (both legal and illegal) over the last century. Immigrants worldwide choose to enter United States because the country offers good economic opportunities and living situations to the immigrant population. In addition, the US federal government adopts a liberal approach to immigrants so as to acquire potential employee skills. A recent report indicates that the number of immigrants deported from US dropped sharply in the last year. However, the federal government effectively reduced the size of illegal immigrant population in the country over the years. The effects of immigration on the US economy have been well documented in the academic literature although the net contribution of immigration to US GDP is a hot debatable topic. Some recent studies indicate that there is a positive correlation between immigration and FDI, and therefore the US states tend to maintain a strong immigration network. Evidences also suggest that the immigrant population greatly took advantages of the overall employment growth over the last 13 years. Although native-born Americans do not directly compete with immigrants in the labor market, the immigrant population has been raising certain challenges to unskilled native workers and native high school dropouts, and in the long run, immigrants’ contribution to the US GDP is negligible too. Current Status of Immigration in US The increased level of immigration to the country over the last decades significantly contributed to the multicultural social condition in the US. While analyzing the current status of immigration to the US, it is identified that approximately 14 million immigrants entered the country during the period 2000-2010 and over one million individuals were naturalized as US citizens in 2008. Some recent studies indicate that family reunification represents roughly two-thirds of the legal immigration to the country every year. Mora reports that as of 2009, 66 percent of legal immigrants were admitted on the basis of family reunification, 17 percent for humanitarian reasons, and a 13 percent for their employment skills. Federal authorities have admitted that it is really difficult and expensive to mitigate illegal immigration to the US across the Mexican-US border. After the 9/11 attack; the US federal government took strict measures to monitor the immigration to the country. Along with strict federal regulation, hostile public attitudes towards immigrants after the 9/11 attack reduced the rate of immigration to the United States over the last decade. According to a 2008 Public Agenda survey, half of Americans hold the view that tighter controls on immigration may benefit the country to enhance its national security. The federal government succeeded in minimizing immigration, specifically illegal immigration to the country over the last years. To justify, As Yen (2012) reports, the population of illegal Mexican immigrants in the United States dropped from nearly 7 million in 2007 to 6.1 million in 2011. The emergence of global financial crisis 2008-09 together with the introduction of tough immigration laws in many US states contributed significantly to this reversal of the immigration trend. While evaluating the inflow of new legal permanent residents to US in 2013 as described in CNN Library (n.d.), it seems that Mexico, China, India, Philippines, and Dominican Republic are the top five sending nations. Statistical data show that 990,553 people migrated to US in 2013 out of which 400,548 migrants were from Asian countries. In 2013, 19.4% of the legal permanent residents settled in the US state of California. Other top US states which were home to legal permanent residents in 2013 were New York (13.5%), Florida (10.4%), Texas (9.4%), and New Jersey (5.4%). Interestingly, 662,483 unauthorized immigrants were apprehended last year and 64% of them were from Mexico. In addition, 438,421 undocumented immigrants were removed from the country in 2013 (CNN Library). In short, immigration still remains to be a major issue posing serious challenges to the US government. Why Immigration to US? People find United States a potential destination for migration for several reasons. A significant percent of the immigrant population enters the US to flee wars or domestic violence. For instance, many people from African countries have migrated to US so as to escape from domestic conflicts and riots. People also tend to flee governments who are not ruling in the best interests of their citizens or are treating people discriminatively on the basis of sex, religion, politics, or ethnicity. To illustrate, as per the records of US Immigration and Customs Enforcement (n.d.), there are many Burmese immigrants in the US who migrated to the country to flee the military government which was treating different ethnic groups poorly. Freedom of religion is another major factor influencing people to migrate to US. In many regions of the world, particularly the Middle East and China, this basic human right is not protected. As a result, many Christians and other minorities from the Arab world migrate to US to exercise their right of religion freely. It is clear that US is an industrially and economically developed nation that offers a wide range of appealing employment opportunities. Hence, a large number of young people from the Third World migrate to US so as to increase their income and to enjoy better living standards. US regulators state that majority of the immigrants entering the country are in search for better job opportunities. Sociologists opine that once an immigrant finds better living conditions in a country, he/she is more likely to bring his/her family to the country. Evidently, the US offers better economic opportunities to immigrants, and hence they would often try to have the family reuniting with them. Similarly, young people who seek better educational opportunities that are not available at home may migrate to foreign countries like US that have an efficient education system in operation. Improved campus placement opportunities also attract student immigrants to the United States. Surveys indicate that growing environmental issue like global warming and climate change; limited access to fresh water, and lack of nutritional foods are also some of the major factors contributing to US immigration. The US has stricter environmental laws in practice, and therefore immigrants consider the country as a better place that would suite their health needs. Furthermore, the nation has an efficient and well performing law and order system, and therefore immigrants worldwide think that US can provide them with very peaceful living situations. US Immigration Policies While evaluating the current federal policies concerning immigration, it seems that US immigration law is very complex, and it often leads to a lot of confusion. “The Immigration and Naturalization Act (INA), the body of law governing current immigration policy, provides for an annual worldwide limit of 675,000 permanent immigrants, with certain exceptions for close family members” (American Immigration Council, 2014). The US immigration policy is based on four principles including reunification of families, admitting immigrants with potential skills that are keys to US economic growth, protecting refugees, and promoting diversity (American Immigration Council). Immigration category on the ground of family reunification permits US citizens and lawful permanent residents to bring their certain family members to the country. As per this legal provision, there are 480,000 family-based visas available every year. The federal government admits family-based immigrants to the country either as immediate relatives of US citizens or through the family preference system. In addition, the government allows immigrants with superior skills to enter the nation on either a permanent or a temporary basis. The country provides more than 20 types of visas for temporary nonimmigrant workers. In terms of permanent employment-based immigration, the US government offers 140,000 visas per year. Finally, the federal government is committed to protecting refugees and promoting diversity in the country. According to the US immigration policy, refugees are admitted to the country on the ground of an inability to enter their home countries as a result of a ‘well-founded fear of prosecution’ due to their race, religion, political opinion, or membership in a social group. The US government has created the Diversity Visa Program to encourage immigration from countries that have sent less than 50,000 immigrants to US over the last five years. Effects of Immigration on US Economy The process of immigration has had both positive and negative effects on the US economy. As the Figure (1) reflects, the share of immigrants in the US population notably varied over the last century. An increased rate of immigration from Eastern and Southern Europe swelled the number of foreign-born US residents in the early 20th century. In response to this situation, the US government adopted tight measures in 1920s to regulate this immigration flow. As a result, immigrants represented only a minor percent of the US population by the 1960s. As Krugman (2008, p.159) reports, a new wave of immigration began around 1970s with most immigrants coming from Latin America and Asia. (Source: Krugman, 2008, p.159). The most direct of economic impact of this immigration flow is that it expanded the US workforce. To illustrate, foreign-born workers accounted for 15.3 percent of the US labor force in 2006 (Krugman, p.159). More clearly, the country would have struggled by a severe workforce deficit in the absence of immigration. Many people believe that this increase in the workforce would reduce wages. According to a widely cited estimation, the current average US wages would be 3 percent higher if there was no immigration. However, some economists claim that such comparisons can be misleading. They point that native-born workers are less likely than immigrant workers to have low level of education. To illustrate, 28 percent of the immigrant labors had not completed high school or equivalent education in 2006 as compared to a 6 percent of native-born workers (Krugman, p.159). Hence, the economists argue that the inflow of immigrant workers actually increased the wages of native-born American with a college education or above. They also indicate that less-educated Americans may be affected by a fall in their wages. The extent of this negative effect is still a disputable topic among economists, with estimates ranging from an 8 percent to smaller numbers. While analyzing the overall effects of immigration on American incomes, it seems that immigration did not contribute noticeably to the US economic growth. Evidently, immigrant workers played a significant role in increasing the size of US GDP. However, it is important to note that much of this increase in GDP is used to pay wages to foreign-born workers. It is estimated that the immigration surplus – the difference between the increase in GDP and the cost paid to immigrants in wages – is generally negligible, on the order of 0.1% of GDP. Similarly, it is difficult to assess the economic effects of US immigration in terms tax revenues and government spending. On one side, the immigrant population assists the federal government to increase the tax revenues. On the other side, they impose costs on the government by enjoying public facilities like road and electricity, health care services, and the public education system. Since many immigrants earn low wages, they do not pay enough in taxes to cover the amount that they cost more in additional spending. Hence the net fiscal cost is also small on the order of 0.1% of GDP. Ramphael and Smolensky (2009) conducted as study to identify the effects of immigration on the US poverty level. The researchers found that the contribution of immigration to the US poverty operates through two avenues. First, higher poverty rates among foreign-born US residents increase the national poverty rate. Second, international immigration restructures the relative supplies of employees with different skill levels, which in turn may impact the employment and wages of both migrants and natives. According to the authors, the effects of such a change on poverty greatly depend on native employment sensitivity and earnings to labor supply shifts. The outcomes based on race/ethnicity suggest that the international immigration has had negligible effects on the overall poverty levels during the 1970-2003 period. The authors specifically state that if immigration had been held to 1970 levels, the black poverty rate would be 25.5% in 2005, compared to the actual poverty rate of 26% for this group in the same period. In the case of households headed by someone with less than a high school degree, the poverty rate would be between 27.2 and 28.6 percent in 2005, compared to an actual poverty rate of 29.1 percent, if the immigration penetration in the US labor market were at 1970 levels (Ramphael & Smolensky). At the same time, the effects of immigration on poverty rates are equal to zero for households headed by a native born person with high school level education or greater. The authors conclude that the immigrant-native labor market competition has had little effects on native poverty. They add that despite some adverse effects on the poverty rates of high school dropouts, immigration contributed little to the native poverty rate (Ramphael & Smolensky). While considering the impacts of immigration on the US economy, it is relevant to discuss the economic effects of illegal immigration. The main argument in favor of undocumented immigration is that illegal immigrant workers generally do jobs that native-born Americans do not want to do. As most Americans do not want to compete with undocumented workers, there has not been a notable shift in the US wage structure. Many economists are of the view that the illegal immigrant population stimulates the US economy in a number of ways. They assert that the lower wages paid to the undocumented workers would assist companies to cut their cost of production, and that in turn would lead to cheap prices for American consumers in industries like restaurants, agriculture, and construction. Although the undocumented labors send a certain percent of their earnings to their home countries, they spend much of their earnings in the US itself. By providing labor at cheap costs, undocumented workers can benefit firms to refrain from investing heavily in labor and capital intensive automated technologies. However, many others argue that the undocumented immigrant population is costing the country largely through the use of government services such as healthcare, education, food assistance, and other public welfare programs. If the immigrant couple has a baby born in the United States, that child is a US citizen and is entitled to access all these government services. This situation puts additional financial burden on the US government. According to a study conducted by Foad (2012), immigration has greatly assisted the US to obtain better access to potential foreign direct investments (FDI). The author argues that immigrant networks are capable of lowering the risk of foreign investment on the strength of increased information flows and a built in market. To analyze the effects of immigration on FDI more effectively, Foad explores the regional distribution of both FDI and immigration from 10 different source countries to all the 50 US states. From this evaluation, the researcher identified that there is a positive correlation between immigration and FDI. Compared to a state having an average-sized immigrant network to one with twice larger network, it is observed that the state with the stronger network would enjoy 20 more foreign-owned affiliates opening per year on average (Ford). The US states with more skilled immigrant communities attract more FD. The pull effect of immigration on FDI notably increases with immigrants that maintain ties with their native countries and with the immigrant influence in local communities. Thus, the process of immigration benefits the United States in terms of FDI. Recent trends show that although native-born American account for majority of the population growth in the context of the labor market, most of the net employment gains are enjoyed by immigrants. “In the first quarter of 2013, the number of working-age natives (16 to 65) working was 1.3 million fewer than in the first quarter of 2000, while the number of immigrants working was 5.3 million greater over the same period” (Camarota, 2013). This statistical data reflect that the overall employment growth over the last 13 years went to the immigrant population even though the native-born people represented two-thirds of the growth in the working age population (Camarota). Conclusion From the above discussion, it is clear that US still remains to be a hot destination for migration, and 990,553 people migrated to US in the last year among which 400,548 were from Asian countries. The fast emerging Asian countries such as China and India are respectively the top second and third sending nations. The US immigration policy is based on four pillar principles including reunification of families, admitting immigrants with potential skills that are keys to US economic growth, protecting refugees, and promoting diversity. A number of reasons such as strong law and order system, increased national security, strict environmental laws, freedom of religion, better economic opportunities, and great cultural tolerance contribute to the popularity of US as hot immigrant spot. While analyzing the effects of immigration on the US economy, it is identified that immigration has positive as well as negative impacts on the country’s economy. Most of the immigrant workers, particularly illegal immigrants, have low levels of education as compared to native-born workers. As a result, immigrants generally do jobs that Americans are reluctant to perform. Therefore, native-born Americans do not directly compete with immigrants in the labor market or they do not face any decline in wages due to immigration. However, the immigrant population raises some level of challenges to unskilled native workers and native high school dropouts. Although immigrants spend a major portion of their earnings in the US, they enjoy many government services freely, and hence their net contribution to the US GDP is negligible. References American Immigration Council. (2014, March). Immigration Policy Center. Retrieved from http://www.immigrationpolicy.org/sites/default/files/docs/how_us_immig_system_works.pdf Camarota, S. A. (May 2013). The Fiscal and Economic Impact of Immigration on the United States. Centre for Immigration Studies. Retrieved from http://cis.org/node/4573 CNN Library. Immigration Statistics Fast Facts. Retrieved from http://edition.cnn.com/2013/11/06/us/immigration-statistics-fast-facts/ Foad, H. (2012) FDI and immigration: a regional analysis. Ann Reg Sci 49,237–259. Krugman, P. R. (2008). International Economics: Theory And Policy. New Delhi: Pearson Education India. Mora, E. (2011 January 11). CBO: 748,000 Foreign Nationals Granted U.S. Permanent Residency Status in 2009 Because They Had Immediate Family Legally Living in America. CN News. Retrieved from http://www.cnsnews.com/news/article/cbo-748000-foreign-nationals-granted-us-permanent-residency-status-2009-because-they Raphael, S & Smolensky, E. (2009). Immigration And Poverty In The United States. American Economic Review: Papers & Proceedings, 99 (2), 41–44. US Immigration and Customs Enforcement. US Immigration: Push and pull factors! http://usaimmigration.weebly.com/why-do-people-immigrate-to-the-us.html Yen, H. (2012 April 24). Mexican migration appears to be in reverse. UT San Diego, retrieved from http://www.utsandiego.com/news/2012/apr/24/tp-mexican-migration-appears-to-be-in-reverse/ Read More