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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

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August 8, 2018

Immigration and Hispanics' Educational Attainment

In a previous macroblog post, Whitney Mancuso and I wrote about the improved labor market outcomes for workers with the least amount of formal education. We attributed this improvement mostly to a combination of a secular decline in the supply of these workers over time and a shift in the composition of the low-skilled workforce toward Hispanic immigrants—a group that has an especially high rate of workforce attachment.

In a related article by colleagues at the St. Louis Fed, Alexander Monge-Naranjo and Juan Ignacio Vizcaino explore how the employment characteristics of the Hispanic population have grown increasingly concentrated in low-skilled occupations over time, and they relate this to the relatively smaller gains in the average educational attainment of the Hispanic population.

The authors ask why the education level of Hispanics has lagged behind other groups and suggest that it could be a consequence of intergenerational persistence; it takes a while for the children of poorly educated immigrants to catch up with the rest of the population. This explanation is likely to play a role, especially when considering why a relatively smaller share of U.S.-born Hispanics go to college. The study also notes differences across gender, showing that Hispanic men are less likely than Hispanic women to continue their education after high school, and although the college rate has been rising for all Hispanics, it is growing faster for women.

I also want to note that a large share of the Hispanic population in the United States are foreign born, and these immigrants have a much lower average level of educational attainment than do U.S.-born Hispanics. This observation is evident in table 1, which is based on data on individuals aged 25-54 (prime age) from the Current Population Survey. For instance, in 2017, 57 percent of the U.S. prime-age Hispanic population was foreign born, and 21 percent of these prime-age foreign born Hispanics had a college degree (associate degree or higher). In contrast, 36 percent of U.S.-born prime-age Hispanics had a degree.

Table 1: Selected Characteristics of the U.S. Prime-age Population (percent)

 

Foreign born

Completed a college/associate degree

 

Hispanic

Non-Hispanic

Hispanic

Non-Hispanic

 

 

 

Foreign born

U.S. born

Foreign born

U.S. born

1997

62

9

13

22

48

37

2007

64

12

15

29

56

43

2017

57

14

21

36

64

51

Source: Current Population Survey, author's calculations

As the St. Louis Fed study concludes, a primary factor distinguishing the Hispanic workforce in the United States is their lower average level of educational attainment. Further distinguishing between foreign and U.S.-born Hispanics shows the role that immigration has played in holding down the average education level since a large fraction of Hispanic immigrants have less education.

The Hispanic/non-Hispanic college completion gap remains large and has not closed over time. However, there has been relative improvement in high school completion, as table 2 shows.

Table 2: Selected Characteristics of the U.S. Prime-age Population (percent)

 

Foreign born

Completed 12th grade

 

Hispanic

Non-Hispanic

Hispanic

Non-Hispanic

 

 

 

Foreign born

U.S. born

Foreign born

U.S. born

1997

62

9

50

81

92

92

2007

64

12

55

87

93

94

2017

57

14

65

92

95

96

Source: Current Population Survey, author's calculations

Since 1997, the share of the prime-age foreign born Hispanic population who have finished 12th grade has increased by 15 percentage points. At the same time, the share of prime-age U.S.-born Hispanics completing high school has increased by 11 percentage points and is now not much lower than for non-Hispanics. While relatively low college attendance remains a major obstacle, greater high school completion is encouraging for Hispanics' future role in the workforce.

December 8, 2010

Questions (and some potential answers) on immigration and remittances

Immigration is a topic that raises many questions from both policymakers and the public, and researchers work to offer perspective. Some questions currently being posed are

  • Does immigration into the United States have a positive impact on native-born employment opportunities?
  • If remittance fees (that is, fees immigrants pay to send money home) are reduced, how much more money do migrants send home?
  • How does sponsorship of family members' immigration into the United States change immigration patterns?

Researchers discussed these questions and more at the Federal Reserve Bank of Atlanta's Americas Center research conference on Remittances and Immigration, held Nov. 5–6, 2010.

Unskilled immigrant labor and offshoring
Some highlights from the research presented at the conference include a paper by University of California, Davis professor Giovanni Peri that was recently profiled in the New York Times. Peri argues that unskilled immigrant labor helps prevent U.S. firms from relocating offshore.

The paper cites evidence indicating that less-educated immigrants are employed in jobs that require more manual and routine-intensive tasks and on average do not compete for jobs in which the bulk of native workers are employed. Those jobs tend to be more cognitive and nonroutine-intensive type of work. In other words, immigrants and low-skilled native workers are not substitutes but complements. In fact, unskilled immigrants compete more with offshore workers. The paper concludes that immigration generates cost-savings for U.S. firms and thus a corresponding increase in productivity, so immigration's aggregate effect on the level of low-skilled native employment in the United States is positive.

This finding is in contrast to research conducted by George Borjas of Harvard University, who also participated in the conference. His work suggests that rather than being complements, immigrants with similar skill levels tend to be substitutes for native workers.

Remittance fees
In 2008, immigrants sent $336 billion to their relatives in developing countries, and in many countries remittances are often greater than private capital flows and official development aid combined. Remittance flows also generate billions of dollars in fees.

Dean Yang, from the University of Michigan, quantifies the impact of money transfer fees on remittances flows. Using a unique field experiment among Salvadoran migrants in the Washington, D.C., area, migrants were randomly assigned discounts on remittance transactions fees. Surprisingly, minor reductions in remittance fees led to large increases in total transfers. For instance, a $1 reduction in transaction costs generated $25 more remitted dollars per person per month. This finding suggests that a reduction in transaction costs can lead to very sizable gains in recipient countries.

Sponsorship of family members
Although countries such as Canada and Australia prioritize the entry of young, skilled foreign workers, the U.S. immigration system strongly emphasizes family reunification, which is a method where naturalized immigrants can sponsor relatives (spouse, children, parents, and siblings) in their immigration to the United States. Sponsoring new immigrants means that migrants not only are a major source of remittances, but they can fundamentally shape the flow of immigration by assisting migration of their relatives.

Until now, researchers had limited data on sponsors' behavior. Using a new immigration survey, Yale University professor Mark Rosenzweig presented research that for the first time explores the role of sponsorship. He shared preliminary results showing that while immigrant children who are less educated tend to receive remittances from their relatives who have immigrated to the United States, children with more schooling are able to take better advantage of the U.S. job market and are the first ones to be sponsored.

Other papers included research aimed at quantifying the effect of female migration on children left behind, the impact of immigrants on the educational attainment on natives, the productivity gains from skilled migration into the United States, and the role of seasonal migration in mitigating famine in Bangladesh. All of the conference papers are available.

By Stephen Kay, senior economist and coordinator of the Atlanta Fed's Americas Center, and Federico Mandelman, research economist and assistant policy adviser, both of the Atlanta Fed's research department

May 28, 2009

Housing starts, remittances and macroeconomic developments

Recent evidence collected by the Dallas Fed's Pia Orrenius suggests that apprehensions of undocumented workers attempting to cross the U.S.–Mexican border are a good predictor of the overall American job market. Simply put, if one wanted to predict job market conditions in July of a given year, one should examine immigrant apprehensions in January. Orrenius finds that more immigrants attempt to cross the border from Mexico (and more of them are caught doing so) when immigrants believe the U.S. economy would offer more jobs in the near future.

One area of the economy that relied heavily on immigrant labor was housing. The following chart plots monthly U.S. housing starts (lagged five months) and remittances to Mexico. (I use year-over-year growth rates and smooth the noise from very short-run fluctuations by using a three-month moving average in my analysis.) I use remittances as a proxy for migrant Mexican labor.

Figure: Housing Starts and Remittances to Mexico

052809
Note: Remittances in U.S. dollars. Housing starts indicate new, privately owned housing units.
Source: Bank of Mexico (remittances), Haver Analytics (housing starts)

The correlation between the two data series is strikingly high. For instance, the plunge in housing starts that began in early 2006 was followed by a sizable drop in remittances growth five months later. Of course, the results are not unexpected as the construction industry heavily employs immigrant labor.

Also, it is well known that immigrants send remittances to their country of origin on a regular basis. Some estimates indicate that the remittances sent by immigrants from developing economies back home reached $305 billion in 2008. (As an aside, keep in mind that because of unrecorded immigration flows through formal and informal channels, the actual numbers are likely to be significantly larger.) Remittances are particularly important for smaller Latin American countries. In 2007, for instance, recorded remittances represented more than 10 percent of the gross domestic product in several Latin American countries, including Honduras (25 percent), Guyana (24 percent), El Salvador (16 percent), and the Dominican Republic (13 percent), among others.

What is especially remarkable from a macroeconomic perspective is the volatility of these capital flows. During the housing boom, remittances to Mexico were growing at 20–25 percent annual rates (see the chart). With the onset of the global economic crisis, however, remittances have been declining, falling by almost 10 percent early this year. For smaller emerging economies, the volatility in remittance flows becomes a significant extra source of instability.

Migrant workers enter the country in response to upturns in domestic labor demand, and that upturn results in higher remittances both because of the increased number of immigrants but also because the existing stock of immigrant workers is earning more. Conversely, a downturn in labor demand should be reflected in lower remittance flows because of out-migration as workers return home and because of lower earnings among the remaining stock of migrants. But what happens when some of those workers have entered the country illegally?

In a study published in 1997, Belinda Reyes found that about two-thirds of the undocumented immigrants returned to Mexico within three years upon arrival. In a recent paper I wrote with Andrei Zlate, we explore the implications of changes to enforcement policies for the U.S./Mexican border on undocumented labor and remittances. We find that increased border enforcement during the last decade has broken the typical pattern of flows of undocumented workers. Basically, while increased enforcement makes it harder/more expensive to enter the country, it also reduces the incentive for those already in the country to leave. Why? Because of the high cost/risk associated with reentering the United States in the future.

In a recent paper, Carolina Rodriguez-Zamora adds support to our claims. She finds that as the U.S. Department of Homeland Security increases the amount of resources spent policing the border undocumented immigrants tend to stay longer.

Increased enforcement protects the existing stock of undocumented immigrants from additional competition, and this development can put upward pressure on wages when U.S. labor demand is high. When labor demand is low, rather than returning home, these individuals could remain in local labor markets, placing additional downward pressure on wages.

By Federico Mandelman, research economist and assistant policy adviser at the Atlanta Fed

April 30, 2009

The undocumented and business survival in the United States

Based on the severe economic contraction during the past six months, it is obvious why the topic of the economy receives so much attention as the economy directly weighs on the lives of citizens and businesses here and throughout the world. But the weight of the economy can have indirect effects as well, including potentially shifting attention from other policy issues.

For instance, a recent Bloomberg News article describes how economic troubles may affect potential immigration reform legislation.

"The long campaign to overhaul U.S. immigration laws may be derailed for yet another year—this time by the deteriorating economy."

The immigration debate is multifaceted, complex, and, at times, contentious. There are myriad issues to consider when entering into the immigration reform discussion, many of which are best left to the political process to decide. But, as the Bloomberg article describes, there is an important economic component to the immigration discussion. Economists can make a modest contribution to the debate by supplying unbiased research that touches on various aspects of the immigration question.

In that spirit, I offer up the results of research I've done with my colleagues, Julie Hotchkiss of the Federal Reserve Bank of Atlanta and David Brown of Heriot-Watt University in Edinburgh. Our research looks into the potential impact of undocumented workers on firm survival and is based on confidential information from the state of Georgia, which between 2000 and 2008 experienced the fastest growth in the number of undocumented immigrants in the United States, according to the Department of Homeland Security.

In this research, we find that firms employing undocumented workers enjoy a competitive advantage over firms that do not employ undocumented workers. We also observe that firms engage in herding behavior, i.e., firms will employ undocumented workers if their competitors do. The herding behavior is a natural consequence of competitive pressure: Rival firms' undocumented workforce lowers a firms' survival probability, while a firm's own undocumented workforce strongly enhances that firm's survival prospects.

Our analysis suggests that cost savings enjoyed by firms employing undocumented workers is a result of paying these workers wages that are less than what is paid to comparable documented workers. Because the advantage of hiring undocumented workers is cost-related, herding behavior and competitive effects are weaker if firms have the option to shift labor-intensive production out of state or abroad.

Our findings have several implications relevant to the policy discussion. The most straightforward prediction would be that if immigration reform is successful in forcing firms to pay undocumented workers market wages, the competitive advantage of hiring these workers may disappear. As a consequence, the demand for undocumented workers might well dissipate.

In addition, reform efforts that reduced the supply of undocumented workers (e.g., through tougher border and worksite enforcement) would raise firms' production costs, which may have an impact on prices if firms pass through these additional costs to consumers. However, this last point is not a direct implication of our analysis.

One word of caution about this study: Our results are based on the payroll reports of employers. This study does not have information on the activities of undocumented workers that are not recorded on firms' official wage records.

There are, of course, many other aspects of immigration policy to be considered, and we are loath to characterize the results of our research as supporting any particular approach or conclusion. But we do hope it sheds some light on a debate that already has its fair share of heat.

By Myriam Quispe-Agnoli, research economist and assistant policy adviser at the Atlanta Fed