Policy
How immigration affects the U.S. economy
AIER founder Edward C. Harwood wrote that “free competition is seen to be that situation in which men are voluntarily cooperating. All of the group, by purchasing what they prefer, encourage those best qualified to provide the desired economic things including services” (emphasis added). Immigration laws restrict such voluntary cooperation by preventing some of those best qualified from filling their most useful economic roles.
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 by examining U.S. demographics, wages and employment, and output and productivity.
America’s population is aging. Immigration, both directly and indirectly through the American-born children of immigrants, slows that process. 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 but only 2.2 million seniors. The influx of new, younger workers would contribute to economic growth.
Immigration also affects the overall education level of the U.S. population. Chart 6 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 education, 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, as we will show.
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 lottery and may miss workers who can most benefit the U.S. economy. But any changes making it harder for the highly skilled to work in the United States will help other countries where they choose to locate.
Research on U.S. immigration is far too vast to be fully summarized here. 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.
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