BPC Panel Explores Immigration’s Costs and Benefits

Demarquin Johnson contributed to this post.

Costs and benefits are central to the debate over immigration reform and specifically S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act. Last week, the Bipartisan Policy Center (BPC) held an event, “The Bottom Line: Exploring the Costs and Benefits of Immigration Reform,” sponsored by Walmart. The balanced expert panel discussed a wide range of issues related to immigration’s costs and benefits for both the government and the wider economy, including the impact on low-wage workers, entitlements and public benefits, and S. 744’s responsiveness to economic needs.

The discussion began with an opportunity for each panelist to give opening remarks. In speaking order:

• Robert Rector, Senior Research Fellow at the Heritage Foundation, focused on the logic behind his widely-cited analysis of the costs of legalization. Rector explained that statistically, less-educated individuals tend to use more in public benefits than they pay in taxes, and that the opposite is true of better-educated individuals. Rector stressed that this state of affairs reflects no moral fault on the part of the less-advantaged individuals, but that large transfers to the less fortunate is simply how public benefits are structured in the U.S.
• Steve Camarota, Director of Research at the Center for Immigration Studies, used three principles to frame immigration’s costs and benefits. First, while immigration indisputably increases the overall size of the economy (GDP) by adding additional workers, it does not necessarily boost per-person outcomes (GDP per capita). Second, to examine the impact on GDP per capita, Camarota forwarded the concept of an “immigrant surplus,” contending that immigrants capture 98 percent of the GDP increase through wages and government benefits. Third, Camarota echoed Rector on fiscal costs, noting that low-skill, low-education individuals tend to use much more in government benefits than they pay in taxes.
• Doug Holtz-Eakin, President of the American Action Forum and former director of the Congressional Budget Office, began by emphasizing that not all potential benefits of immigration can be measured in dollars and cents. Turning to measurable factors, Holtz-Eakin applauded the recognition that immigration policy has major economic implications. He led with demographics, noting that the U.S. population would soon begin to shrink in the absence of immigration. In addition to population growth, Holtz-Eakin named high labor force participation and entrepreneurship as economic benefits that immigrants provide. He concluded by explaining that American entitlements are unsustainable, but was adamant that entitlements and immigration are separate issues.
• Robert Lynch, Visiting Senior Fellow at the Center for American Progress, asserted that if presently unauthorized immigrants gain legal status, the U.S. would see increases in GDP, productivity, earnings, and tax payments. He forwarded three reasons why this will occur. First, it increases immigrants’ education, job training, and English ability. Second, it enables immigrants to pursue occupations that more closely match their skill set. Third, it helps immigrants unleash their entrepreneurial spirit by granting them access to the permits, licenses, insurance, and credit that are essential to starting a business. Lynch’s research claims that immigrants would improve their earnings and productivity by at least 25 percent if legalized.

Following the opening statements, moderator Julie Hirschfeld Davis of Bloomberg asked questions of the panel. This was followed by an open question and answer session with the audience on a wide range of themes:

Low-wage workers. The panelists engaged in a vigorous exchange on immigration’s impact on the wages of U.S.-born, less-skilled workers. Rector touched off the controversy by citing George Borjas’ 2004 paper, which found that between 1960 and 2000, immigrants reduced the wages of native-born men by $1,700.* Lynch countered that Borjas’ work is more than 20 years out of date, asserting that the work of David Card and Giovanni Peri has far surpassed that of Borjas. In turn, Camarota noted criticism of Peri’s work and claimed that most economists find a negative wage impact for low-skill individuals. However, he stated that the issue has not been completely resolved and that room for debate remains. Twice, Holtz-Eakin argued that the debate over low-wage competition is “completely misplaced” because global competition already exists between low-wage workers because of the ability to outsource many of the jobs. Camarota countered that low-wage industries such as construction, hotels, and restaurants are location specific, asserting that the labor markets for these low-wage industries are not global. Lynch pointed out that legalizing the unauthorized population does not change their location, merely their legal status.

Entitlements and public benefits. Rector frequently returned to the principle that well-educated people tend to pay more taxes than they use in benefits, and that the opposite tends to be true for less-educated people. Holtz-Eakin responded that immigration is separate from the entitlement crisis, and contended that it will be much easier to address entitlements if the economy is growing more rapidly. Lynch claimed that the public benefits issue has not been framed “properly or correctly.” He pointed out that based on Rector’s methodology, 70 percent of U.S. households create a net fiscal deficit, not just unauthorized immigrants. Lynch also argued that an individual’s earnings and tax payments do not necessarily reflect their true contribution to society.

Demographics. Related to entitlements is the aging U.S. population. Lynch noted that Social Security’s structure depends on current workers to pay for retirees. He asserted that there are not enough workers in the pipeline to pay for Social Security beneficiaries, and that immigrants can help make up the deficit. Camarota contested this claim. Citing Census Bureau surveys, he stated that immigrants boost U.S. fertility by about 5 percent. Camarota quoted Census Bureau research stating that international migration is an inefficient means to alter the long-run age picture.**

S.744’s responsiveness to economic needs. Camarota asserted that the U.S. economy must add millions of jobs to reach 2007 employment levels, and millions more to keep up with current population growth. He argued that nothing short of “the greatest jobs bonanza in American history” would enable U.S. job growth to keep up with what he claims would be a doubling of legal immigration under S.744. Holtz-Eakin argued that it is important to take the long view. Pointing out that immigration reform occurs infrequently, he stated that “to evaluate the economics of reform legislation on the basis of current labor market conditions … is fundamentally a mistake.” He explained that he has little doubt in the U.S. economy’s capability to absorb new workers. Holtz-Eakin also expressed his distaste for Congressional caps on guest worker visas, highlighting that eliminating quotas enables the immigration system to be more responsive to labor market demand.

S.744’s ability to stop unauthorized immigration. Rector and Camarota strongly criticized S.744’s attempts to prevent unauthorized immigration. Rector recounted that the supporters of the 1986 Immigration Reform and Control Act (IRCA) billed it as a one-time event. Rector criticized U.S.’s track record of enforcing laws against hiring unauthorized immigrants, and both Camarota and Rector questioned the bill’s plan to develop a new employment verification system to replace E-Verify. Camarota criticized S.744’s system for preventing visa overstays. He asserted that even though most visa overstaying occurs at land borders, those borders are exempt from the bill’s trigger related to the entry-exit system. Camarota stated that if the government were to first enforce the law, he could see himself supporting legalization for some unauthorized individuals. Holtz-Eakin asserted that opponents will always claim enforcement will never get done, but expressed his belief that the U.S. will rise to the challenge and pass an enforceable law.

Rector’s cost study. Lynch criticized Rector’s widely-cited cost study, stating that the $6.3 trillion figure is not the cost of legalization, and pointing out that Rector does not introduce a baseline cost of inaction ($1 trillion) until page 29. Lynch also contested Rector’s baseline scenario, which assumes that unauthorized immigrants will leave the country at age 55. Rector defended his study’s presentation of the $6.3 trillion figure and explained that projecting the baseline cost was the most difficult part of the study. He agreed that under certain assumptions, the baseline cost could be higher, leading to a net cost of “a couple trillion.” However, he was highly skeptical of Lynch’s claim that a proper application of the Rector methodology would yield a net fiscal surplus from reform. This is not the last you can expect to hear from BPC’s Immigration Task Force. Stay tuned to www.bipartisanpolicy.org for details on upcoming public events. Join the conversation on Twitter: @BPC_Bipartisan #immigration

* Rector cited $2,600, which was the figure for male college graduates. ** The full quote from the Census Bureau reads: “International migration may address a high dependency ratio decisively in the short-term, yet is highly inefficient in reducing it over the longer term–especially if considerations of population scale, as well as age composition, are taken into account.”