"Immigration Always Helps the Economy" Is Only Half True

Economists are the only profession that can hold a three-way argument with two people in the room. Ask whether immigration is good for the economy and you get the same three answers, delivered with more confidence and a chart. One says it is a boon. One says it is a burden. And one says, "It depends," which is the only honest answer and, naturally, the one that never makes it onto a bumper sticker.

The slogan I want to take apart is the first one, the cheerful one: "Immigration always helps the economy." You hear it from politicians, from editorial boards, from corporate lobbyists and from people who have never run a payroll. It is not a lie. It is half a truth, and half a truth is the most useful thing in politics, because it lets you stop thinking. The other side has its own half-truth, that immigrants take American jobs and drain the budget, and I will deal with that too. But since we are Republicans, and since we are supposed to be the party that reads the whole report, let us read the whole report.

The claim at its strongest

Here is the best version of the pro-immigration economic case, as a thoughtful defender would state it. I want to give it a fair hearing, because it is stronger than its opponents like to admit.

1. Immigrants are workers, and more workers produce more output. A bigger labor force makes a bigger economy. That is arithmetic, not ideology.
2. Immigrants are also consumers and taxpayers. They rent apartments, buy groceries and pay sales tax and, when they work on the books, payroll taxes. Their spending creates demand, which creates jobs.
3. Immigrants start businesses. Many founders of famous American companies were immigrants or the children of immigrants. A country that attracts ambitious people from everywhere gets more entrepreneurs.
4. Immigrants fill gaps. An aging country with a shrinking workforce needs young workers to staff the farms, the hospitals, the construction sites and the nursing homes, and to pay into programs like Social Security.
5. The economics literature mostly agrees on the big picture. Most researchers find that immigration raises the economy's total output, and that any harm to native workers overall is small.

Each of those points has truth in it. I am not going to wave them away. But the claim says "always helps," and the word that does the work is "always." Let us see what the evidence says when we look past the headline.

What the National Academies found

The most careful single study of the subject is the report The Economic and Fiscal Consequences of Immigration, published by the National Academies of Sciences, Engineering, and Medicine in September 2016. It was written by a panel of economists, demographers and other scholars of different views, and it is the document that serious people on both sides cite. Its main findings, in plain English, are these.

First, on wages. The panel found that, over the long run, immigration has little or no overall effect on the wages of native-born workers. The workers most likely to lose, though by a modest amount, are prior immigrants and native-born workers without a high-school diploma, because they compete most directly with new arrivals. The pro-immigration slogan fits the first half of that finding. The second half, the part about the people who compete directly, is the one you do not see on the sticker.

Second, on growth. The panel found that immigration raises total economic output, and it explained that most of the gain goes to the immigrants themselves in the form of their wages, with a smaller "immigration surplus" accruing to native-born Americans as a whole. In other words, the economy gets bigger, but the gain to the people who were already here is a small part of it.

Third, on the budget. The panel's fiscal analysis found that the answer depends on who you are asking and at which level of government. The costs, especially for the education of immigrants' children, fall mostly on state and local governments, while a larger share of the tax revenue goes to the federal government. The panel found that the first generation tends to cost more than later generations, and that the second generation, the children of immigrants, is among the strongest fiscal contributors in the whole population. And it found that the fiscal picture depends heavily on the age and education of the people who come: high-skilled arrivals tend to be positive, and low-skilled ones tend to be a net cost to the public purse in the early years, though the picture changes as their children grow up and work.

Now read those three findings again and ask whether "always helps" survives. On growth: yes, in total. On wages: neutral overall, with winners and losers. On the budget: it depends on who and when. The truthful statement is "Immigration usually makes the economy larger, and the distribution of the gains and costs depends on who comes and where they land." That does not fit on a sticker, and it is more useful.

The Mariel boatlift and the fight over it

The best-known natural experiment is the Mariel boatlift. In 1980, between April and September, roughly 125,000 Cubans arrived in South Florida, and Miami's labor force grew by about 7 percent in a matter of months. If anyone wanted to know what a sudden surge of workers does to local wages, here was the lab.

In 1990, the economist David Card published a study comparing Miami with several other cities, and he found little or no effect on the wages or unemployment of less-skilled workers there. It became the foundational paper for the view that immigration does not hurt native workers.

Years later, the economist George Borjas looked at the same episode again. In a 2017 reanalysis, he narrowed the focus to prime-age men without a high-school diploma, the group most likely to compete with the new arrivals, and he found a large drop in their wages. Other economists, notably Giovanni Peri and Vasil Yasenov, replied that his choices of sample and comparison were driving the result. The argument has continued for years, and it is a good example of how a result can depend on whom you decide to count.

What do we learn? Not that one of them is a fraud. Not that the question is closed. We learn that the effect on wages depends on who is competing with whom. A surge of workers with similar skills to the existing workforce can depress wages in that narrow slice, even if the average across the economy is flat. That is exactly what the National Academies said, and it is the answer to the slogan: the average can be fine while a particular group is hurting. If you are in that group, the average is not much comfort.

Total output is not output per person

Now to the most important distinction in the whole debate, and the one most commonly dropped. The slogan talks about the economy, and the economy is measured as total output, the gross domestic product. But a family does not live on total output. A family lives on income per person.

Let me show you the difference with a hypothetical, using numbers I made up to keep the arithmetic clean. Imagine a small economy of 1,000 workers, each producing $60,000 a year. Total output is 1,000 times $60,000, which is $60,000,000. Output per worker is $60,000.

Now add 100 immigrants who each produce $45,000 a year. Their output adds 100 times $45,000, or $4,500,000. Total output rises to $64,500,000, an increase of 7.5 percent. The economy got bigger. But output per worker is now $64,500,000 divided by 1,100 workers, which is $58,636 and some change. That is a fall of about 2.3 percent.

Run the same math with a different group. Add 100 immigrants who each produce $90,000. Their output adds $9,000,000. Total output rises to $69,000,000, and output per worker is $69,000,000 divided by 1,100, or about $62,727, a rise of about 4.5 percent.

Same economy, same number of newcomers, opposite effect on output per person. The difference is who came. In both cases "immigration helped the economy" in the sense that total output rose. In only one did it raise the average output per worker. If the question is whether the people already here are better off, the answer differs. The slogan treats the two cases as the same, and they are not.

That is the hypothetical, and the real world is messier, with complementary skills, new businesses and productivity spillovers that can push the number either way. But the principle is the one I want you to carry: total output tells you the size of the pie, and output per person tells you how the slices look.

The first generation versus the second

There is one more piece of the National Academies' finding that deserves its own attention. A child who arrives at the age of five and attends a public school costs the state and local governments money before she ever pays a dime of taxes. That is true of every child, native-born or not. The costs come first and the revenue comes later. When the child grows up, works and pays taxes for forty years, the ledger turns.

The Academies' finding that the second generation is among the strongest fiscal contributors reflects this timing, plus the fact that the children of immigrants tend to be better educated than their parents. It is a point in favor of a long view. If you evaluate immigration by the first-year budget, it looks costly. If you evaluate it over a generation, it often looks good.

But the long view has its own limit. A budget is paid every year, by real people, and the state or county that pays today's school costs is not the federal government that collects tomorrow's payroll tax. That is the subject of Three Towns, Three Budgets, and What Immigration Looks Like Locally, and it is why the national average does not settle a local fight.

Why who comes matters more than a headline number

Put the pieces together and you arrive at the conclusion that almost nobody on the cable shows wants to say, which is that the effect of immigration depends on the mix of people. How many. How old. How educated. With what skills. With what family attached. With what legal status. Whether they arrive in a trickle the local economy can absorb or in a flood it cannot.

That is not an anti-immigrant statement. It is the reason a country might want an immigration system that has a view about who comes. The way our system chooses people is laid out in The Four Doors Into America and Who Holds the Keys to Each and traced back in How the 1965 Immigration Act Quietly Rewrote Who Comes to America. If a country picks its immigrants mainly by family ties, the economic effect is whatever the family networks produce. If it picks them partly by skills and employer need, the effect is different. Both are legitimate choices. Neither is "always" anything.

It is also why the legal status of workers matters. A worker on the books pays payroll tax and is protected by wage laws. A worker off the books does neither, and the employer who hires him gains an advantage over the competitor who plays by the rules. A conservative economic argument for verification is not just about law. It is about a fair market. See E-Verify Explained, the Free Federal Check Most Employers Skip.

The opposite slogan fails too

In fairness, the other half-truth deserves the same treatment. "Immigrants take our jobs and drain the budget" is no better. The best evidence says the average effect on native wages is small, the total economy grows, and the second generation pays its way. A conservative who wants to be believed should not use an argument that the evidence contradicts, because the other side will cite the evidence and win the round. Make the argument you can defend: the effects are distributed unevenly, the fiscal costs fall on particular governments, the legal status of workers matters, and the choice of who comes is a policy choice for the country to make.

A verdict

If you are an owner or a manager, immigration can be a real source of workers, and an employer who follows the law is entitled to say so. If you are a worker at the bottom of the wage scale in a trade where newcomers compete directly, you are entitled to ask whether anyone in Washington is thinking about you. If you are a county commissioner, you are entitled to ask who is paying for the schools. And if you are a voter, you are entitled to expect your representatives to talk about all of it and not just the part that polls well.

"Always" is the word to throw out. The rest of the sentence deserves a hearing.

The bottom line

• The slogan is half true: immigration generally raises total output, but the gains to people already here are smaller than the headline and are unevenly shared.
• The 2016 National Academies report found little overall effect on native wages in the long run, a modest cost for prior immigrants and workers without a high-school diploma, and a fiscal picture that depends on age, education and level of government.
• Total output is not output per person. In the hypothetical above, adding 100 workers raised total output either way but cut output per worker by about 2.3 percent in one case and raised it by about 4.5 percent in the other.
• Who comes matters more than how many, which is a reason to have a deliberate immigration policy and not a reason to fear newcomers.
• When you hear a slogan in either direction, ask: for whom, at which level of government, and over what time period?