Immigration Restrictions Harm Our Economy

In an article published in AIER’s January 1996 Research Report, Thomas Lehman wrote, “The present immigration policy of the United States amounts to nothing less than a tariff or barrier to entry on the commodity of labor, and harms American consumers in the same manner as tariffs and trade barriers on other capital or consumer goods.” In over 20 years, the picture has not improved. Immigration laws restrict such voluntary cooperation by preventing some of those best qualified from fulfilling their most useful economic roles.

Calls for immigration restrictions have long been a part of American politics. In 2006, 54 Republican and 26 Democratic senators, including Barack Obama and Hillary Clinton, voted for the Secure Fence Act, which authorized 700 miles of physical barriers along the U.S.-Mexico border. Still, it is clear from rhetoric and recent executive orders that President Donald Trump intends to restrict immigration more than the past several administrations of either party.

Though it is difficult to predict how much the new administration’s policies will reduce immigration, it is instructive to look at the overall impact of immigration on the U.S. economy as well as positions taken by advocates of individual freedom.

Impacts of U.S. immigration
Total immigration to the U.S. today is relatively high but within the bounds of historical standards. This is true when considering either the flow of immigrants -- the number of people entering the U.S. in a given period of time -- or the total number of foreign-born permanent residents of the U.S. Figures from the Migration Policy Institute show that 13.5 percent of those residing in the U.S. in 2015 were not native born. This is higher than in the latter half of the 20th century, but the number of foreign-born was over 13 percent each decade from 1860 to 1920.

Similarly, the annual amount of legal immigration has been rising in recent decades but is not near historical highs. The U.S. currently admits about one million legal immigrants a year, or about a third of a percent of the 300 million baseline population. As Chart 1 shows, legal immigration was at least half a percent of the population almost every year from the 1830s until World War I and regularly exceeded one percent. In contrast, legal immigration has only been near the current levels since about 1990 and was nearer one-fourth or one-fifth of a percent of the population in the 1970s and 1980s. Taking 10-year averages of the annual raw totals compiled by the Migration Policy Institute and dividing them by U.S. Census population estimates (for example, the 1990 point is calculated by taking the average of 1986-95 immigration and dividing by the 1990 U.S. population), we show that total immigration is still relatively low today compared with its level throughout much of U.S. history.

The number of unauthorized immigrants in the U.S. fell to 11.1 million in 2014 from a high of 12.2 million in 2007, according to the Pew Research Center. Pew also reports that an increasing share of unauthorized immigrants have been in the country for 10 years or more and a declining share have been here less than five years. This, along with the overall decline, indicates that more unauthorized immigrants have left the country than have entered in the past decade.

America’s population is aging. Immigration, both directly and indirectly through the American-born children of immigrants, slows that process. This is one critical potential benefit of immigration, since an aging population can slow a nation’s economic growth. According to a 2015  study, the U.S. population including immigrants is projected to have 187.6 million adults aged 25-64 in 2040 and 82.5 million seniors. Alternative projections with no immigration put those numbers at 164.6 million adults and 80.3 million seniors. So immigration would add 23 million members to the workforce over the next 25 years but only 2.2 million seniors. This influx of new, younger workers may contribute to economic growth over the next generation.

Immigration also affects the overall education level of the U.S. population. Chart 2 shows the distribution of educational attainment for the foreign-born and general populations of the U.S. It shows that immigrants are over-represented at both ends. Although 26 percent of foreign-born people in the U.S. have less than a high school diploma, compared with 12 percent of the whole population, 38 percent of immigrants have bachelor’s or advanced degrees, compared with 31 percent of the general population. These foreign-born holders of college and advanced degrees are important to the economy.

A recent survey of empirical literature found that immigration lowers the wages of native-born workers and employment for some professions and groups, but the overall impact is small. Prior immigrants are hurt the most, because they are likely the closest substitutes in the labor force for recent immigrants. Moreover, several studies have found that the influx of highly skilled and educated immigrants from the H-1B skilled worker and other visa programs have lifted wages and employment for native-born workers. Possible reasons for this are that skilled immigrants may complement rather than replace native-born workers, that native-born workers may benefit from spillovers and wage-enhancing skills, and that skilled immigrants raise overall productivity.

Recent studies also have found that immigration positively affects U.S. output and productivity. The influx of highly skilled foreign-born students and workers may increase innovation. One study estimated that U.S. gross domestic product grew between 1.4 and 2.4 percent over the 1990s because of patenting activity by college graduates.  H-1B visas, for skilled foreign workers who have a U.S. employer, are currently assigned by a lottery that may miss workers who can generate the most benefits to the U.S. economy. But any changes making it harder for the highly skilled to work in the United States will instead help other countries where they choose to locate.

Research shows that the overall impact of immigration on federal, state, and local budgets is mixed. First- generation immigrants have less favorable fiscal impacts than native-born citizens; that is, they have a lower-than-average ratio of tax contributions to consumption of government services than the native-born population. However, this trend reverses for the children of immigrants, whose fiscal impact is found to be more favorable than native-born citizens.

A Congressional Budget Office study in 2007, around the time that illegal immigration peaked, found that unauthorized immigrants cost states and localities more in services consumed than received in tax revenue or federal funding. However, the proportion of spending on unauthorized immigrants relative to the rest of the population was generally below 5 percent. This means that unauthorized immigrants, who at the time were about 4 percent of the U.S. population, did not consume a proportion of state and local government services that was much higher than the average.

Immigration and freedom
Advocates of individual freedom tend to oppose immigration restrictions, both practically and philosophically. In its official policy statement on immigration, the Cato Institute, a public-policy think tank, cites five advantages that immigration brings to the U.S.: self-selection on the basis of motivation and work ethic, a tendency to immigrate during prime working years, a tendency to fill labor market niches where demand exceeds supply, their prevalence of high skills, and the high performance of their children in schools and American society.

Per Bylund, an assistant professor at Oklahoma State University, wrote for the Mises Institute, a center of the Austrian school of economics, an article attacking the fundamental nature of immigration restrictions. “The ‘immigration policies’ of modern states is yet another licensing scheme of the 20th century,” he said. “The state has enforced licensing of movement.” Bylund compared immigration restrictions with other licensing schemes, such as those of physicians and taxi drivers, which he sees as lowering the quality and increasing the price of those services. He concluded that “from a libertarian point of view it should be clear that all licensing needs to be done away with, including immigration.”

Byland also discussed the view that well-defined and enforced property rights can and should restrict freedom of movement. While some have seen this as an opposing view to the pro-immigration positions taken by many libertarians, Byland said that the views are entirely consistent. Property rights only restrict people, both immigrants and native-born, from squatting on land. In a free society, immigration and property rights would exist hand in hand. As Christopher A. Preble, vice president for defense and foreign policy studies at the Cato Institute wrote, “Trump’s isolationism won’t make us safer. It will, however, make us poorer—economically and culturally—if it ends up stifling the voluntary and peaceful interactions that have made America great since its founding.”

Attraction, not exclusion
Research on U.S. immigration is far too vast to be fully summarized in this space. While methods and estimates of impacts always differ, the preponderance of research finds the positive impact on economic output is large, and negative impacts on native-born employment and wages are small.

Ludwig von Mises, an economist and advocate of individual freedom (1881-1973), recognized both the positive consequences of freedom of movement and the potential of immigration to depress some workers’ wages. But he also made a broader moral and cultural argument in favor of immigration: “A people conscious of its own worth would refrain from forcibly detaining those who wanted to move away and from forcibly incorporating into the national community those who were not joining it of their own free will. To let the attractive force of its own culture prove itself in free competition with other peoples — that alone is worthy of a proud nation, that alone would be true national and cultural policy. The means of power and of political rule were in no way necessary for that.”

As President Trump’s rhetoric leads to action in the form of executive orders, those who perceive harm from U.S. immigrants should consider both the potential negative economy-wide impacts of a significant reduction in immigration as well as what it says about our nation’s view of itself.