Economics Update (October-December 1997)

How Has Immigration Affected
the U.S. Economy?

W hile many people believe the recent surge in immigration has adversely affected the U.S. economy and job availability for native U.S. citizens, there is little evidence to support these theories, according to Madeline Zavodny, an economist at the Federal Reserve Bank of Atlanta. During a recent presentation to the Atlanta Fed's Advisory Council on Small Business, Agriculture and Labor, Zavodny dispelled several misconceptions about immigration and its impact on the United States.

Economic Impact of Immigration

While immigration, both legal and illegal, into the United States has risen since the end of World War II (see chart) and the foreign-born population share is now at its highest levels since the 1930s, Zavodny said immigration's impact on the U.S. economy does not appear to be as negative as many believe.

According to Zavodny, one reason is that most immigrants who arrive in the United States before age 25 become net taxpayers over their lifetime, based on the findings in a National Research Council study. The same study showed that, instead of being a drain on the economy, immigration actually provides a net fiscal benefit to the United States of approximately $10 billion annually.

Immigration to the United States
in the 20th Century

* Excluding IRCA conversions
Source: Immigration Naturalization Service
It is true that the average immigrant pays less in taxes and receives more in social services than the average native U.S. citizen, Zavodny said. For example, 5.8 percent of the foreign-born population received at least one form of cash public assistance in 1995, versus 4.5 percent of native U.S. citizens. She said that the lower tax payments and higher welfare rates of immigrants are caused by the fact that these individuals on average have less education and earn less than native U.S. citizens. Additionally, she indicated, households headed by immigrants also contain more children on average than households headed by native U.S. citizens. Therefore immigrants can raise public education costs.

While the long-run national fiscal impact of immigration may be positive, immigration may impose considerable costs at the state and local levels in areas that attract large numbers of immigrants, such as California, Zavodny said.

Examining Labor Issues

In addressing the issue of the wage impact of immigration, she said that economists have reached a consensus that recent waves of immigration have had little effect on employment or wages except among low-skilled native U.S. citizens and earlier immigrants. Negative wage effects of immigration are concentrated among workers with fewer than 12 years of education because recent immigrants tend to be less educated than the U.S. population as a whole.

"Recent research indicates that immigration accounts for about 40 percent of the 11 percentage point decline in the wages of high school dropouts relative to other workers between 1980 and 1995," she said. "Immigration played little or no role in the 21 percentage point increase in the wages of college graduates relative to high school graduates during the same period."

There are several potential reasons why the recent surge in immigration had a relatively small impact on the labor market. One is that immigrants may not be substitutable for native U.S. workers and may be complementary with high-skilled workers, Zavodny said. Additionally, people may move away from areas experiencing large immigrant inflows — for example, interstate immigration to Miami appeared to slow considerably after nearly 120,000 Cubans arrived in the city during the Mariel boatlift in 1980.

Another possible explanation is that firms that use low-skill labor may move to areas receiving a large number of immigrants, and these firms absorb the increase in labor supply. Economists have not reached clear conclusions on how valid these theories are.

Although immigration, both legal and illegal, has grown considerably in the United States in recent years, it is not causing the severe economic and labor-related problems that many have predicted.

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