Thread: Economic, Demographic, and Fiscal Effects of Immigration

The New Americans

Economic, Demographic, and Fiscal Effects of Immigration

James P. Smith and Barry Edmonston, Editors

Panel on the Demographic and Economic Impacts of Immigration

Committee on Population and

Committee on National Statistics

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.
1997

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--> The New Americans Economic, Demographic, and Fiscal Effects of Immigration James P. Smith and Barry Edmonston, Editors Panel on the Demographic and Economic Impacts of Immigration Committee on Population and Committee on National Statistics Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1997

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--> NATIONAL ACADEMY PRESS 2101 Constitution Ave., N.W. Washington, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This study was supported by Order No. 95-55 between the National Academy of Sciences and the U.S. Commission on Immigration Reform. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the organizations or agencies that provided support for this project. Library of Congress Cataloging-in-Publication Data The new Americans : economic, demographic, and fiscal effects of immigration / Panel on the Demographic and Economic Impacts of Immigration, National Research Council ; James P. Smith and Barry Edmonston, editors. p. cm. Includes bibliographical references and index. ISBN 0-309-06356-6 (cloth) 1. United States—Emigration and immigration—Economic aspects. 2. United States—Emigration and immigration—Government policy. 3. Alien labor—United States. I. Smith, James P. II. Edmonston, Barry. III. National Research Council (U.S.). Panel on the Demographic and Economic Impacts of Immigration. JV6471.N43 1997 330.973—dc21 97-21182 CIP Additional copies of this report are available from: National Academy Press 2101 Constitution Avenue N.W. Washington, D.C. 20418 Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area). This report is also available on line at http://www.nap.edu Printed in the United States of America Copyright 1997 by the National Academy of Sciences. All rights reserved.

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--> PANEL ON THE DEMOGRAPHIC AND ECONOMIC IMPACTS OF IMMIGRATION JAMES P. SMITH (Chair), RAND, Santa Monica, California ALAN J. AUERBACH, Department of Economics, University of California, Berkeley GEORGE J. BORJAS, John F. Kennedy School of Government, Harvard University J. THOMAS ESPENSHADE, Office of Population Research, Princeton University RICHARD B. FREEMAN, Department of Economics, Harvard University, and Labor Studies, National Bureau of Economic Research JOHN F. GEWEKE, Department of Economics, University of Minnesota CHARLES HIRSCHMAN, Department of Sociology, University of Washington ROBERT P. INMAN, Department of Finance, Wharton School of Business, University of Pennsylvania GUILLERMINA JASSO, Department of Sociology, New York University RONALD D. LEE, Departments of Demography and Economics, University of California, Berkeley MARY C. WATERS, Department of Sociology, Harvard University FINIS R. WELCH, Department of Economics, Texas A&M University BARRY EDMONSTON, Study Director KRISTIN McCUE, Research Associate JOEL A. ROSENQUIST, Senior Project Assistant

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--> COMMITTEE ON POPULATION RONALD D. LEE (Chair), Departments of Demography and Economics, University of California, Berkeley CAROLINE H. BLEDSOE, Department of Anthropology, Northwestern University JOHN BONGAARTS, The Population Council, New York JOHN B. CASTERLINE, The Population Council, New York LINDA G. MARTIN, RAND, Santa Monica, California JANE MENKEN, Population Studies Center, University of Pennsylvania ROBERT A. MOFFITT, Department of Economics, Johns Hopkins University MARK R. MONTGOMERY, The Population Council, New York W. HENRY MOSLEY, Department of Population Dynamics, Johns Hopkins University School of Hygiene and Public Health ALBERTO PALLONI, Department of Sociology, University of Wisconsin, Madison JAMES P. SMITH, RAND, Santa Monica, California BETH J. SOLDO, Department of Demography, Georgetown University MARTA TIENDA, Population Research Center, University of Chicago AMY O. TSUI, Carolina Population Center, University of North Carolina, Chapel Hill JOHN HAAGA, Director

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--> COMMITTEE ON NATIONAL STATISTICS NORMAN M. BRADBURN (Chair), National Opinion Research Center, University of Chicago JULIE DAVANZO, RAND, Santa Monica, California QWILLIAM F. EDDY, Department of Statistics, Carnegie Mellon University JOHN F. GEWEKE, Department of Economics, University of Minnesota, Minneapolis JOEL B. GREENHOUSE, Department of Statistics, Carnegie Mellon University ERIC A. HANUSHEK, W. Allen Wallis Institute of Political Economy and Department of Economics, University of Rochester RODERICK J.A. LITTLE, Department of Biostatistics, University of Michigan CHARLES F. MANSKI, Department of Economics, University of Wisconsin WILLIAM D. NORDHAUS, Department of Economics, Yale University JANET L. NORWOOD, The Urban Institute, Washington, D.C. EDWARD B. PERRIN, School of Public Health and Community Medicine, University of Washington PAUL R. ROSENBAUM, Department of Statistics, Wharton School of Business, University of Pennsylvania KEITH F. RUST, Westat, Inc., Rockville, Maryland FRANCISCO J. SAMANIEGO, Division of Statistics, University of California, Davis MIRON L. STRAF, Director

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--> The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

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--> Acknowledgments This report reflects the efforts of many people. The panel was established under the auspices of the Committee on Population, directed by John Haaga, and the Committee on National Statistics, directed by Miron Straf—both of whom were instrumental in developing the study and provided guidance and support to the staff. At a number of critical times, John Haaga offered useful advice and always found a way to help us meet our obligations in a timely fashion. The panel gratefully acknowledges the funding received from the U.S. Commission on Immigration Reform. Commission staff, including Susan Forbes Martin, Lindsay Lowell, and David Howell, were helpful to the panel throughout the study. The panel benefited greatly from a set of papers we commissioned: by Susan Carter and Richard Sutch on long-term population and economic effects of immigration on the United States; by Kevin Murphy and Gary Becker on the role of immigration in economic growth; by John Haaga and Alberto Palloni on immigration and crime; by Edward Funkhouser and Stephen Trejo on the economic effects of immigration on women; by Thomas MaCurdy, Thomas Nechyba, and Jay Bhattacharya on a conceptual framework considering fiscal effects of immigration; and by Daniel Trefler on economic models of immigration and trade. In addition, William Frey and Kao-Lee Liaw prepared a paper that analyzed the effect of immigration on internal migration and state distribution of the U.S. resident population. The National Academy Press expects to publish a volume containing revised versions of some of these papers. The panel did considerable new research, with the aid of some expert consultants. Peter Brandon prepared fiscal estimates from the Survey on Income and Program Participation. Michael Clune conducted the panel's case study of the

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--> fiscal effect of immigration in California. Deborah Garvey worked with panel member Thomas Espenshade on the panel's use of their ongoing study of the fiscal effect of immigration in New Jersey. Tim Miller collaborated with panel member Ron Lee on lifetime estimates of the fiscal effect of immigration. And Michel Vanderhart assisted panel member Finis Welch in estimating price effects of immigration. I also acknowledge the contribution of Mendelle T. Woodley's superb editing skills in the preparation of the report. Mendy was there from the beginning and helped us translate our thoughts into clear English sentences. Our report also benefited from a final copy editing by Christine McShane, of the National Research Council staff. No panel with a task as complex and challenging as ours could perform its duties without an excellent, well-managed staff. In particular, the overall report would not have been possible without the dedicated efforts of four staff members. The panel is indebted to Karen Foote, program officer, who handled administrative matters for the first year of the panel's work. We appreciate very much the work of Joel Rosenquist, senior project assistant, who skillfully guided the report through numerous rounds of editing in preparation for publication and ably and cheerfully handled the large number of administrative tasks presented by the panel. Kristin McCue, senior staff officer, made major contributions to the panel's work. Working with the panel's chair, she coordinated much of the work for the study of labor markets and directed the preparation of considerable data analysis for Chapter 5. More than this, she also worked with the study director on revising and reviewing drafts of the report, offering constructive advice on the panel's work and helping to bring the report to publication. Finally, we are indebted to Barry Edmonston, study director, who managed the overall work of the panel, organized and managed a complex set of activities, and helped us to meet our deadlines. Barry worked on all aspects of the project and was always dedicated, responsible, and in good humor. I close by expressing my appreciation to fellow panel members for their willingness to devote long hours to this project. They worked together well and patiently, a critical element in such a far-reaching project. A number of panel members prepared drafts for the panel's use. Some of their contributions have greatly assisted the preparation of chapters; others appear in the appendices. Although the work was difficult and the requests I made of their time bordered on the unconscionable, all panel members responded in an extremely helpful way. This project has been one of the most intellectually stimulating experiences of my life. The reasons are simple—an important public issue and a group of intelligent, and highly motivated panel members. I am in their debt. JAMES P. SMITH, CHAIR PANEL ON THE DEMOGRAPHIC AND ECONOMIC IMPACTS OF IMMIGRATION

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--> Contents Summary 1 Impact of Immigration on the U.S. Population 3 Economic Impacts of Immigration 4 Fiscal Impacts of Immigration 8 Social Dimensions of Immigration 12 1 The Immigration Debate 14 Immigration Policy 15 Who Wins? Who Loses? 16 Is Immigration "Too" Costly? 16 What Did the Panel Do? 17 A Road Map 19 2 Background to Contemporary U.S. Immigration 20 A Word About Terminology 21 U.S. Immigration Laws and Trends 22 Background to Immigration Numbers 30 Current U.S. Immigration Policy 37 Immigrant Characteristics 52 Comparison with Other Countries 62 The Canadian Case 65 Conclusions 67 References 68 Appendix 2.A: Admission of Immigrants into Canada 71

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--> 3 The Face of the U.S. Population in 2050 76 Background to Population Change 78 A Projection Model 81 National Population Growth 93 Implications of the Size of the Population 98 Age and Sex Composition 99 Immigrants and Their Children 110 Racial and Ethnic Composition 113 Conclusions 122 References 123 Appendix 3.A: Population Projection Model 124 Appendix 3.B: Population Projection Assumptions 131 Appendix 3.C: Sensitivity of Population Projection Results 133 4 Immigration's Effects on Jobs and Wages: First Principles 135 First Principles: Labor Market Effects of Immigration 136 Growth and Immigration 153 Conclusions 164 References 165 Appendix 4.A: Immigration in the Two-Good, Two-Factor Model 166 Appendix 4.B: Assessing the Labor Market Benefits and Costs of Immigration 170 5 Immigration's Effects on Jobs and Wages: Empirical Evidence 173 The Economic Gain to Immigrants 174 Trends in Immigrant Skills 181 Differentials Across National Origins and the Decline in Immigrant Skills 185 Who Are the Immigrants? 190 Economic Assimilation 196 Emigration 204 Trends in Employment 205 Occupations and Jobs 209 Impact of Immigrants on Native Earnings and Employment 219 Immigration and Native Migration 228 Price Effects of Immigration 230 Conclusions 235 References 237 Appendix 5.A: Observed Wage Growth of Men and Women 240 Appendix 5.B: Calculation of Shares of Expenditures Attributable to Immigrant Labor 251

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--> 6 Do Immigrants Impose A Net Fiscal Burden? Annual Estimates 254 Introduction 254 Estimating the Annual Fiscal Impact of New Immigrants 257 Estimates of the Annual Fiscal Impact of Immigrant-Headed Households 270 Conclusions 292 References 294 7 The Future Fiscal Impacts of Current Immigrants 297 Introduction 297 Dynamic Incidence 298 Kinds of Impacts 302 The Heterogeneity of Immigrants and Intra- and Intergenerational Mobility 306 The Age Profiles of Taxes and Benefits 308 Aggregate Cross-Sectional Fiscal Impacts of Immigrants and Their Children 316 Constructing Longitudinal Age Profiles 323 Baseline Results 325 The Average Impact of an Incremental Immigrant 331 Alternative Scenarios 336 The Timing of Fiscal Impacts 341 Interpreting the Results 344 Summary 349 Key Conclusions 352 References 354 Appendix 7.A: Intergenerational Educational Mobility 355 Appendix 7.B: Net Present Values for Immigrants and Natives, by Scenario 358 Appendix 7.C: Discussion of Data Sets for the Study of Fiscal Impacts 362 8 The Social Dimensions of Immigration 363 Integration of Immigrants into American Society 365 Effect of Immigrants on American Institutions 382 Attitudes Toward Immigration and Interethnic Relations 389 Immigration and Interethnic Tensions 393 Conclusions 395 References 397 Appendix 8.A: Analysis of Polling Data 402 Biographical Sketches 407 Index 413

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