US Immigration and Labor: Impact on the Economy
US Immigration Eras and Their Economic Impact
1780s to 1921: Unrestricted Immigration
This era was characterized by essentially unrestricted immigration, with some restrictions on convicts and Asian immigrants.
1921 to 1965: Quota System
The Quota System, based on national origin, favored Northern and Western Europeans. The Quota Law of 1921, followed by laws in 1924 and 1929, further restricted immigration from Southeastern Europe.
1965 to 1986: Semi-Fixed Nominal Restriction
The Immigration and Nationality Act of 1965 abolished the quota system. As amended in 1990, overall immigration was formally restricted, with most spots reserved for family reunification. About 20% were reserved for immigrants with special skills for employment purposes. Exceptions were made for “immediate relatives” and “political refugees” (no limits). About 8% of the restricted spots were reserved for “diversity immigrants” from countries not well-represented in the US population.
1986-Present: Amnesty and Open Borders Era
The Immigration Reform and Control Act of 1986 granted amnesty to some 2.7 million illegal immigrants (2 million from Mexico) and formally penalized employers who knowingly hired undocumented immigrants. However, these penalties have largely been unenforced.
Impact of Trade on American Workers
Americans most likely to lose from trade are in jobs that foreign workers can readily perform, often less-skilled ones. They are also in sectors, such as manufacturing, that shrink domestically once trade is expanded, or in industries for which lower costs do not significantly increase product demand.
Those most likely to gain are in sectors with a comparative advantage in production or in jobs that are complementary with production workers overseas.
Trade is one of many factors affecting labor demand and wages. As manufacturing jobs decline and displaced workers seek jobs in non-manufacturing industries, workers who change jobs may experience reduced wages.
Policy Issues
- Removing barriers to international transactions can enhance aggregate consumption through greater specialization and the exploitation of comparative advantages.
- The movement of resources within each country to adjust to greater specialization imposes costs on workers whose jobs are displaced.
- Less-skilled workers within a country seem most at risk of losing from expanded trade.
Addressing the Impact of Trade on Workers
- Subsidizing Human-Capital Investments: The Trade Adjustment Assistance program, as amended in 2002, subsidizes human-capital investments by workers displaced by trade or production sharing.
- Income Support Programs: The Earned Income Tax Credit Program is an example of a program that directly subsidizes targeted individuals who work.
- Subsidized Employment: The government can become the “employer of last resort,” directly employing targeted workers for public works projects.
Economic Impact of Undocumented Immigration
The degree of illegal immigration may not necessarily be a major economic problem. Unauthorized immigration may be more likely to increase native incomes than officially sanctioned immigration.
- Undocumented immigrants mainly come to work, adding to the production of domestic goods and services.
- While they receive emergency-room treatment and their children get schooling, they are ineligible for most government programs (welfare, Social Security) that transfer resources to low-income citizens.
- Despite their wish to hide from the government, unauthorized immigrants cannot avoid paying most taxes.
Economic theory suggests an overall gain to society. A critical part of the policy debate on unauthorized immigration should focus on programs or policies that would tax the likely gainers to compensate those most likely to lose.
Labor Market Dynamics: Demand and Supply
Demand and Supply of Rough Laborers
- At wage W1, there is no shortage of native workers, and no immigrants are in this market.
- Immigrants increase the supply of workers, and the going wage decreases to W2, as employment increases to N2.
- At W2, there is a shortage of native workers of N2-N3 (due to wages falling from W1 to W2).
- If N2-N3 immigrants are deported, only N1-N3 jobs would be created for native workers as wages rise from W2 to W1. There is no one-to-one replacement or gain.
Demand and Supply of Rough Laborers with a Minimum Wage
At the wage Wm, if some of the N-0 workers are illegal immigrants, deporting them would create jobs for natives on a one-for-one basis.