Impact of Immigration on the American Economy - Coursework Example

Impact of Immigration on the American Economy Impact of Immigration on the American Economy Introduction Whendeliberating on the economics of the United States, there are three interconnected but individual things that should not mix people. The first is that immigration in itself makes the U.S. economy bigger. Taken on its own, however, a bigger GDP does not translate into benefits for the indigenous Americans. Although there is no denying that the immigrants are the biggest beneficiaries, there is no any research that supports the observation that immigration increases the GDP or the earning power of the natives. The second thing that needs to be examined in the immigrant-economy debate is the fiscal impact. This signifies the taxes that the immigrants pay to the federal government as well as the total fiscal drain that the government incurs in taking care of them. Ideally, less educated immigrants earn less and they are therefore a drain to the government while the more educated earn more and are therefore an economic benefit to the government. Another significant issue that comes up in the debate on immigration is the effect on the earnings and working opportunities of indigenous Americans. The basic economic theory envisages that immigration should produce a net gain for indigenous people but doing so would demand the redistribution of revenue from employees competing with immigrants to workers who are not necessary in competition and to the individuals owning the capital. This theory also envisages that the dimension of the net gain will be tiny comparative to the dimension of the economy as well as the total size of the reorganization. Since the least educated and poorest indigenous Americans are the most likely to be competing against the immigrants, they have a propensity of being the biggest losers from migration (Borjas, 2013). Turning away from the economic theory, the last one decade has experienced a complete revolution in the U.S. labor market that has seen all the employment gains been transferred to the immigrants. This is truly baffling given that the native-born account for three quarters of the employment development. Even before the Great Depression, an unbalanced share of employment benefits went to immigrants regardless of the fact that indigenous people account for majority of the working-age populace. Given the nature of the relationship between the U.S. economy and immigration, it is clear that immigration hurts the U.S. economy more than it builds it (Borjas, 2013). This paper examines the unusual developments in the U.S. labor market over the last few years whereby nearly all of the net growth in employment went to migrants while it will also discuss the impact of immigration on the labor market. The U.S. Labor Market Impact: Immigration Gains and Native Losses According to experts, the largest part of workers in the America are in the 16-65 year age group so any research on the labor force should focus on this age bracket. Research shows that the total working age population in the United States went up by 25 million between March 2000 and March 2013 with this number being 8.8 million immigrants and 16.2 million for indigenous Americans. This signifies that natives accounted for 65% of the total increase in the working-age group (Rector & Richwine, 2013). Despite the fact that indigenous people make up the largest part of the employment growth, there is enough proof to show that the biggest gains went to the immigrants. This irregularity is evident given that in 2013 there were 5.3 million more immigrants in employment compared to 2000 while there was a 1.3 million loss for natives within the same period. Put differently, the research demonstrates that even though the number of possible indigenous born workers went up by 16.4 million, the number of those truly working went down by 1.3 million. This means that the immigrants enjoyed all the benefits of the rise in emplyment (Rector & Richwine, 2013). Ideally, this disparity does not in any way mean that immigrants are displacing indigenous people from employment. However, this is exactly the kind of trend that would be witnessed if the same thing was happening. This situation is also significant given the last 13 years has seen close to 16 million immigrants coming to the United States. Despite this, there has been very little job growth within this period. This is a clear sign that large-scale immigration does not necessarily translate into job creation. It is also important to note that the best period for natives was in the 1st quarter of 2007 just before the recession set in. examining that particular quarter to the 1st quarter of 2000 demonstrates that there was a total increase of 3.3 million natives in employment. This means that all the employment growth for natives from 2000 to 2007 was lost during the Great Recession in 2007. The net increase for immigrants 2000 to 2007 was almost 5 million meaning that 60% of the total employment went to people who were not immigrants. This is disconcerting considering that a large part of the job growth after the depression still went to immigrants after the Great Depression of 2007 (National Research Council, 2007). Theoretical Impact of Immigration on the Labor Market According to economists, labor share refers to the total percentage of GDP that goes to employees and this is estimated to be 70% with the rest accounting for capital. The immigrant portion of the labor force in the United States is well documented and it currently stands at 15%. According to predictors, immigration is responsible for only 0.25% to the national GDP and using this estimation, if the total GDP is $15 trillion, then the total benefit would translate to about $35 billion or less. Three significant things come out clearly from this analysis. First, the net effect on the presented population is positive in general, though not for everyone. Second, the benefits are insignificant compared with the size of the economy and lastly the benefit is reliant on the size of the wage losses experienced by the current population of employees. Loosely translated, a higher wage loss translates into higher the total benefit. Those who deny that immigration has no impact on the wages of immigrants are in effect claiming that there is no economic gain from immigration (Smith, 2012). According to research, American workers lose 2.7% of GDP translating to $405 billion due to immigration; this is not a small figure. The cash that would have been given to workers in the event that there was no immigration does not just disappear. Instead, it is held by capital owners as profits or passed down to customers in form of subsidized prices. Considering that business entities strive so hard to ensure that the total number of immigrants keeps on going up, it means that they are getting all the benefits. In addition to this, workers who face minimal or no competition from immigrants are not likely to suffer any wage loss. Actually, the demand for their services is most likely to go up and consequently increase their wages. As an example, if you are an English speaking journalist in the United States, you will face very little competition from immigrants. Actually, a person in such a profession will likely earn more salary as the demand for their services increase. In contrast, if someone is a nanny, driver or cook, you will receive a negative wage bill since the influx of immigrants has increased the supply of laborers in these areas. In general however, the gain for some employees, organizations, and consumers is slightly higher than the loss experienced by the losers and therefore the slight net gin that is reported (Smith, 2012). Empirical Research To start with, there are people who believe that there is actually no job competition between immigrants and indigenous Americans. However, a recent survey of the 472 civilian professions shows that only six are mainly immigrant. These six professions constitute only 1% of the entire U.S. workforce. In addition, indigenous Americans still form 46% of the employees even in these professions; there are around 67 professions where 25% or even more of the workers are immigrants. In these immigrant dominant careers, there are still more than 16 million indigenous people constituting for one out of eight natives in the labor force. In essence, the idea that there are some jobs that natives do not want to engage in is simply misleading (Borjas, Grogger, & Hanson, 2010). In the last few years, the attempt to measure the real labor market effects of current immigration empirically have usually attained inconsistent and opposite conclusions. The studies carried out in the 1980s and the start of the 1990s, which examined cities with varying ratios of immigrants, are now highly censured because they are founded on the assumption that the labor market effects of immigration are concentrated to only those areas where immigrants live. The interrelated nature of the country’s economy makes comparisons across cities of labor market effects based on a cross section of the immigrant population very challenging. The movement of people, goods, services, and resources neutralizes the effect of immigration those deflating the cross-city approach. In addition to this, the immigrants themselves reside in areas of high employment growth thus making such comparisons becomes even more challenging (Borjas, Grogger, & Hanson, 2010). In order to surmount the challenge of cross-city comparisons, researchers have over the last ten years been trying to categorize workers based on education and education and examining the effect of migration across these education and age groups. Over time, comparisons have revealed that a 10% rise in the size of an education/age group owing to the emergence of immigrants lowers the wage of indigenous men within that group by 3.7% and the wage of the entire native-born workers by almost 2.6%. This finding is consistent in nearly all the studies and is also consistent with what economic theory would point out. These findings are also supported by recent studies from countries where the same approach has been applied (Borjas, Grogger, & Hanson, 2010). Impact on Employment For the last few years, economists have concentrated more on wages instead of employment. There have been several studies that have attempted to establish the effect of immigration on employment patterns of immigrants to determine whether it locks out natives from the labor market. In an extensive study featuring California, the Rand Corporation projected that between 130,000 and 200,000 natives in the state were either out of employment or resigned from the labor force owing to immigration from 1970 to 1990. Several other studies have also determined that immigration negatively affects black Americans. There are also other studies that have established that immigration lowers the employment chances of less educated black American men but it also raises crime and imprisonment within that population. This same research has also established that immigration negatively affects the employment of young employees. Despite this observation the question of how immigration affects employment opportunities that are existent for Native Americans still remains a contentious issue (Shihadeh & Barranco, 2013). Economic Impact In today’s American economy, individuals with relatively little education whether immigrants or native earn moderate wages and pay modest tax as well. Due to their comparatively low wages, those with little education or their dependents are usually eligible for welfare as well as other supportive programs. Due to this arrangement, those who are less educated consume more in terms of services than what they contribute through taxes. This case applies for the legal and illegal immigrants as well as for the natives. The relationship or connection between educational accomplishment and total fiscal impact is significant in grasping the economic impact of workers. The families led by immigrants with anything less than high school education utilize more welfare services and have comparatively low income tax responsibility. Given that the same case applies for the less educated natives, then it becomes evident that it is the level of education and not being an immigrant per se that brings the costs. In the case of the illegal immigrants, majority of them have relatively low levels of education hence explaining the reason why they are a net economic drain and not their legal status (Camarota, & Jensenius, 2009). It must also be comprehended that the utilization of welfare and work go hand in hand. Of the families headed by immigrants that were using welfare in 2012, 86% had at least one person in employment during the course of that year. The non-cash welfare system is particularly intended to aid low-income workers, especially those who are bringing up children. There are also a number of additional programs on top of welfare that offer aid to low-income workers such as the Earned Income Tax Credit as well as the cash portion, which is offered through the Additional Child Tax Credit. In one recent study, it was established that families headed by a legal immigrant who had not gone through high school on average got close to $37,000 in welfare more than what they were taxed. The results showed that families headed by legal immigrants who had at least graduated from high school brought a net financial deficit of $18,000 while those who had college education created a net financial deficit of $7,000. This finding clearly demonstrates that education is critical in understanding the economic impacts of employees. There is no superior predictor of an individual’s income, tax payments, or utilization of communal services other than their education levels. Given that most immigrants come to the United States as adults, it is therefore not surprising that their education level is a central factor in determining the overall financial impact (Simon, 2013). Economic Benefits Offset Fiscal Costs From the above analysis, it is very clear that immigration raises the revenues of natives and this offsets the financial costs that immigration brings. According to researchers, the immigrant surplus stood at $1 billion to $10 billion for every year in 1996. At the same period, it was also projected that the total fiscal drain stood at negative $11 billion to $20 billion per year. For this reason, there was some economic benefit although it was smaller as compared to the financial drain. Although advocate groups have tried to paint a different picture, there is no any credible research, which shows that immigration creates noteworthy benefits for natives (Headey & Hodge, 2009). In recent days, the former financial adviser to Senator John McCain, Douglas Holtz-Eakin pointed out that the proposed immigration reforms will bring monumental net gains for the public. The central point that Holtz-Eakin wanted to pass across was that having an immigration induced-population would affect the country’s GDP positively thus benefiting the public coffers. Although this might seem plausible, the only challenge with the research is that the research he quoted had nothing to do with immigrants (Camarota, 2013). Ideally, a bigger economy from immigration is not a wealthier economy, though it is a inferior one either. It might also be worth noting that for the tiny benefits to be generated, immigration has to reallocate income. In America, the workers who lose the most because of immigration tend to be those with little education as well as the poorest who mostly have to utilize increased government services as their income dwindles (Camarota, 2013). On top of disregarding the immigration research, Holtz-Eakin also disregards the available literature that examines the effect of population growth on per capita earning in developing countries, which is clearly connected to his observation. That research does not support the observation that population growth raises per capita GDP on its own. It is quite clear that this particular observation came in the backdrop of another study, which showed that population growth, has adverse effects on the economy. Perhaps Holtz-Eakin did not feel that his study was applicable to developed economies such as the United States but then he does not mention this. The arguments by Holtz-Eakin are exceedingly speculative and in his observation, he fails to mention the financial impact of authorizing illegal immigrants despite the fact that this issue is central to the immigration reform deliberations (Camarota, 2013). Conclusion Immigration causes the U.S. economy bigger. However, for the indigenous people, immigration is principally a redistributive policy. This means that it does not significantly raise the general income of Native Americans. When dealing with the financial impact of immigration, the education level of the immigrants is crucial in understanding their economic impact. From the available research, it is simply not possible to fund social programs by bringing in big populations of immigrants who have comparatively little education. The financial problem created by less educated immigrants is still prevalent even though the immigrants did not come to the United States to be granted welfare. The certainties of the current American economy tied with the current American governmental state cause large financial costs an unavoidable challenge of high magnitude, less-educated immigration. However, the bulk of evidence indicates that skilled immigration should be a momentous economic gain. References Borjas, G., Grogger, J., & Hanson, G. (2010). Immigration and the economic status of black men Economica. 77: 255-282. Borjas, G. (2013). Immigration and the American Worker: A Review of the Academic Literature. Center for Immigration Studies, 16 (2): 2-10. Camarota, S. & Jensenius, K. (2009). Jobs Americans Won’t Do? A Detailed Look at Immigrant Employment by Occupation. Center for Immigration Studies, 13 (4): 230-240 Camarota, S. (2013). Dynamic Scoring of Immigration? A Critique of Douglas Holtz-Eakin’s Analysis. Center for Immigration Studies 14 (2): 25-33. Headey, D., & Hodge, A. (2009). The Effect of Population Growth on Economic Growth: A Meta-Regression Analysis of the Macroeconomic Literature. Population and Development Review 35 (2): 105-125. National Research Council (2007). The New Americans: Economic, Demographic, and Fiscal Effects of Immigration. Washington, D.C.: National Academy of Sciences Press. Rector, R., & Richwine, J. (2013). The Fiscal Cost of Unlawful Immigrants and Amnesty to the U.S. Taxpayer. Retrieved from http://thf_media.s3.amazonaws.com/2013/pdf/sr133.pdf Simon, J. (2013). Immigrants, Taxes, and Welfare in the United States. Population and Development Review 10 (1): 55-69. Shihadeh, E., & Barranco, R. (2013). Latino Employment and Black Violence: The Unintended Consequence of U.S. Immigration Policy. Social Forces 88 (3): 1393-1420. Smith, C. (2012). The Impact of Low Skilled Immigration on the Youth Labor Market. Journal of Labor Economics 30 (1): 55-89. Read More