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Home / Articles / News / News /  The economic impact of undocumented immigrants
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Thursday, December 2,2010

The economic impact of undocumented immigrants

By Ana Arias
Few issues in our country are as heated and emotional as the topic of undocumented immigrants, especially those from Mexico.

 

And here in Colorado, the issue is coming to the forefront as Republican lawmakers met this past week to discuss immigration issues, including plans for legislation similar to controversial SB 1070 in Arizona.

Many believe “illegal aliens” are taking Americans’ jobs, getting paid under the table and feeding from the public trough by relying on government services — services that are funded by taxes paid by “real” citizens.

But a closer look at the research reveals the issue is not that simple. While undocumented immigrants may have a negative financial impact in the short term when the economy is down, they actually have a positive economic effect at other times.

Still, dispelling deeply ingrained urban myths about the impact of undocumented Latinos on employment and economic conditions is akin to dipping a toe in an ocean of controversy or tumbling down a rabbit hole.

How many of the 3.9 million Americans whose jobs were lost from January 2009 to this past January remain resolute in their beliefs that undocumented workers were at fault? And given the state of the current economic conditions we face locally and globally, to what extent can the “American” public accept what economic research conducted in the past 10 years points to in terms of potential benefits resulting from immigration over the long run?


Impacts in the long and short term

A report written in June 2010 for the Migration Policy Institute’s Labor Markets, titled “The Impact of Immigrants in Recession and Economic Expansion,” sheds light on long- and short-term economic implications of the immigration debate.

Author Giovanni Peri of the University of California-Davis writes, “In the long run, immigrants do not reduce native employment rates, but they do increase productivity and hence average income. This finding is consistent with the broad existing literature on the impact of immigration in the United States.”

But what about the short term? According to Peri, in this shorter context, “immigration may slightly reduce native employment and average income at first, because the economic adjustment process is not immediate. The long-run gains to productivity and income become significant after seven to 10 years.”

In addition, he says, that shorter-term impact is dependent on the state of the economy. Peri explains that when the economy is on an upswing, “new immigration creates jobs in sufficient numbers to leave native employment unharmed,” he says, even in the very short term and even for native workers who are not as educated.

However, when the economy is on a downswing, and thus not responding as quickly, then recent immigrants seem to have a “small negative impact on native employment” in the near term, but not the long term.

“In other words, immigration unambiguously improves employment, productivity and income, but this involves adjustments,” Peri says. “These adjustments are more difficult during downturns, suggesting that the United States would benefit most from immigration that adjusts to economic conditions. While immigration already responds to some extent to the economic cycle (particularly illegal immigration), the current immigration system makes legal immigration inflows particularly unresponsive.”

According to David Coates, a professor and the Worrell Chair in Anglo-American Studies at Wake Forest University and author of several books, including Getting Immigration Right: What Every American Needs to Know, the economic impact of having undocumented workers in this country is a huge question.

Coates has a website (www.davidcoates.net) dedicated to countering misinformation with accurate data and clear guidance to sources on numerous aspects of the immigration issue, so people can educate themselves.

“The broad impact is positive,” Coates told Boulder Weekly. “They raise GDP [Gross Domestic Product], lower prices, thus raising living standards, and sustain industries that would otherwise struggle for labor.”

In his book, Coates goes on to specify that any downside immigration impacts on wages, work and welfare must be placed in the “context of the growth of GDP associated with immigrant-enhanced labor supply, the strengthening of U.S. competitiveness through the use of imported skilled labor, the positive impact of even unskilled immigrant workers on the prices of the goods and services they help to produce, and the associated increase in demand by the wages paid to undocumented immigrant workers themselves.

“There is plenty of anecdotal evidence of the positive contribution made by even undocumented workers to local demand levels: anecdotal evidence of boosted demand, and anecdotal evidence of fall in demand when illegal immigration is squeezed out of an area by tighter policing,” adds Coates. “And now we have a string of general reports — from the 1997 report of the National Research Council to the 2006 report of the Council of Economic Advisers to the President — all arguing that the long-term benefits arising from legal immigration outweigh the immediate costs associated with the new arrivals.”


Shedding light on urban myths

Three particular urban myths circulate profusely in our community and nationwide around undocumented workers costing “American” citizens their jobs and costing government millions of dollars on public services and taxes:

Myth #1: Undocumented immigrants are costing U.S. citizens jobs, and U.S. citizens are just as willing to do the menial jobs that some Mexicans do.

Coates told Boulder Weekly, “There is very little evidence of native-born Americans wanting to do the heavy manual work, particularly in construction and agriculture, that undocumented workers do and did. Even now, in the depths of the recession.”

In “Chapter 6: The Economic Impact of Immigration” of his book Getting Immigration Right: What Every American Needs to Know, Coates writes,

“When low paying jobs done by immigrants are offered to native-born workers without significant increases in wages, there is plenty of anecdotal evidence of limited take-up; and … when illegal immigrants are driven from employment by tighter law enforcement, replacing those workers often proves extraordinarily difficult.”

He told Boulder Weekly, “There is also, of course, a lot of hidden unemployment among undocumented workers in those industries — and in hotels and leisure — the other great area of concentration of undocumented workers. They are doubly hit, without work and without benefits. It is not just the nativeborn Americans who are suffering in this recession.

“There will be some casualties, people whose job security will be made worse by the presence of undocumented workers, particularly equivalent unskilled native-born workers and recent legal immigrants, but not the bulk of the U.S. labor force, which historically has benefited from immigration, legal or otherwise, by rising up occupational ladders, leaving the grunt work behind,” says Coates.


Myth #2: Government would save millions of dollars on public services currently offered to undocumented immigrants and their kids, including unemployment, Medicaid and education.

In Getting Immigration Right, Coates writes, “The fiscal burden of illegal immigration is easier to see, if equally easy to exaggerate. There are many claims made about the excessive pressure placed by illegal immigrants on health services and the penal system, when thus far at least illegal Mexican immigrants — and, indeed, legal ones — use health services and end up in jail at a lower rate than do native-born Americans.”

Gerald Prante is a senior economist at the Tax Foundation, a nonpartisan tax research group based in Washington, D.C. He has expertise in data analysis, including microsimulation models, as well as federal income tax distributional analysis.

“Obviously, there are costs to immigration, such as certain government services may have higher demands placed upon them. Traffic congestion increases. Crime may go up in certain areas,” he says. “But there are benefits, such as a greater labor pool that tends to raise living standards. Goods and services are produced more efficiently, which tends to make society, as a whole, better off.

“Are some people worse off as a result of immigration? Absolutely. But, on the net, society is better off, especially over the long term when government costs tend to subside due largely to the fact that secondand third- and fourth-generation immigrants earn significantly higher incomes than first-generation,” says Prante.

Coates shares his thoughts on this myth that addresses the family, education and Medicaid areas.

“There is no doubt that undocumented workers, particularly now that the wall is being built, are increasingly prone to come with families, and to stay. So there are particular pressures on border states’ education systems. And not just border states, also North Carolina and other states as the undocumented flee Arizona,” says Coates.

“But undocumented workers do not get unemployment benefits or Medicaid,” he adds. “Even legal immigrants have to wait five years for health benefits. And undocumented workers tend to stay away from hospitals and doctors for fear of deportation.”

According to Laurel Herndon, an attorney with the Immigrant Legal Center of Boulder County, “My understanding is that the Social Security/Medicare money goes into a fund for payers who cannot be properly identified,” she says. “My understanding is also that this fund has accumulated past half a trillion dollars and is being used to pay government obligations to the same extent as the rest of the Social Security trust fund.”

In Getting Immigration Right, Coates writes, “Overall, the general consensus among professional economists does seem to be that immigration yields a modest economic surplus overall — one accruing to American consumers, businesses and GDP through the arrival here of a predominantly young overseas labor force imbued with a strong work ethic.”


Myth #3: Undocumented workers don’t pay taxes.

Not so, says Herndon, who explains that those not being paid “under the table” pay the same amount of federal, state and social security/Medicare taxes as all wage-earners.

Prante says that undocumented immigrants pay taxes both directly and indirectly.

“Directly, many pay federal income taxes and payroll taxes, such as FICA and Medicare, either using a TIN [Tax Identification Number] or a fake Social Security number.”

In a submission to his “Tax Policy Blog,” Prante says that in 2005 approximately 1.4 million individuals filed tax returns with TINs, representing an increase of 40 percent over 2004.

He also writes that empirical evidence tends to demonstrate that a large share of “economic incidence” (who actually pays) falls on these undocumented workers. And even in cases of individuals who are compensated “under the table,” where the income isn’t reported to the Internal Revenue Service by either the employer or the employee, undocumented immigrants pay other taxes, Prante says.

“[Undocumented workers] often don’t get their refunds,” Prante says, “and furthermore, they don’t often get their Social Security benefits from payroll taxes paid. These illegal immigrants also pay sales taxes when they purchase products at retail stores, restaurant meals and then selective sales taxes like gasoline, tobacco, alcohol, etc. Some even directly pay property taxes, or indirectly through rent,” says Prante. “Like everyone else, they bear the burden of indirect taxes such as taxes on businesses like apartment complexes or taxes on insurance companies, oil companies, etc. It is just not true that [undocumented] immigrants pay no taxes.”

According to Randolph Capps and Michael E. Fix, authors of a report by the nonpartisan Urban Institute, real estate taxes, which are also paid by undocumented immigrants whether they own homes or pay it through rent, make a variety of state, local school and other public services possible.


The employer-worker dilemma

In 2009, Immigration and Customs Enforcement (ICE) fined 2,900 companies $3 million after audits of employee files revealed that these companies were providing work to undocumented immigrants. This led to the deportation of 279,000 workers in fiscal year 2010.

Coates told Boulder Weekly, “[Employers] are now being regulated far more tightly than in the Bush years.” In fact, that deportation statistic represents a 10 percent increase over the same time frame in the last fiscal year of the Bush administration. And ironically, despite the current administration’s purported focus on giving the boot to individuals with criminal records, 51 percent of folks expelled in 2009-10 didn’t have a criminal record. And a hefty number of those with “records” had committed minor offenses, like driving without a U.S. license or with faulty taillights.

So just how are these tighter reins around the necks of employers affecting the employer-undocumented worker relationship?

Despite this national tension, there is a dynamic among some employers in Boulder County that extends beyond the paperwork. In her legal immigration activities, Herndon has seen it firsthand.

“I have in the past met with employers who would like to help regularize the status of such [undocumented] persons because they find the [immigrants] to be excellent workers and wonderful people,” says Herndon. “It’s not possible to generalize, but many [companies] refuse to lay off such workers because of the human connection that has been established. Such employers fault the federal government for not providing a path for employers to help workers who may be undocumented.

“It’s interesting that the employment verification system set up in 1986, when employment eligibility verification began, placed two requirements on employers: 1) do not knowingly employ those who are not eligible, but 2) do not discriminate against those who are eligible,” adds Herndon. “These equally important and often conflicting requirements led to a federal system where employers could only look at the eligibility document the employee chose to provide, and decide ‘on its face’ whether the document appeared to be valid.

“Employers were federally prohibited from investigating the status of work applicants, and no ‘E-Verify’ system existed. As a result, many employers accepted documents, which, in fact, were not valid,” says Herndon. “But in the position of ‘guessing’ about a document’s validity, it was safer to decide that a document was valid. Back then, if an employer refused to accept a document as valid, and it turned out in fact to be valid, the employer could face federal civil liability for discrimination. The old I-9 forms even contained a bold-faced, large-print notice to employers regarding civil rights violations.

“As a result, many employers have built their businesses with the help of employees who are not in fact authorized to work in the U.S.,” she says. “While there’s concern about employers exploiting undocumented workers, there’s a parallel concern that good employers may have to choose between complying with federal law and losing their businesses — should they belatedly learn that workers they believed were authorized in fact were not.

“Anecdotally, employers in this position have expressed that they will not turn on their employees,” says Herndon. “Boulder is not a sanctuary city.”

She provided Boulder Weekly with a synopsis that she shared with the Boulder Human Relations Commissioners, a document that summarizes the areas related to Federal Comprehensive Immigration Reform that are strictly off-limits for states and municipalities.

“The problem is that the federal government doesn’t care about the ways in which the broken federal system is affecting cities across the nation,” Herndon adds. “In my opinion, a good way for cities to encourage the federal government to fix its system is to refuse to cooperate on voluntary federal immigration initiatives. I would equate such an effort to a parent saying ‘no ice cream until you finish your dinner.’”

Respond: letters@boulderweekly.com

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REPLY TO THIS COMMENT

These "myths" are about immigrants. Can we see the numbers for illegal immigrants?

I've worked construction, and I was born here, it's a great summer job for a college student. Only 2 million of the 12-20 million people here illegally work in agriculture. Most are in low and mid level income jobs.

Many people here illegally don't make enough to pay taxes, or they use fake numbers to claim dependents. Some hire out as temps or sub contractors so money is not with held from checks. There are many ways to get around paying taxes.

So where are the numbers for just those here illegally. That's the subject. No one is complaioning about legal immigrants.

 

Ali
ICE is conducting audits of employers such as Chipotle. Illegal aliens are working alongside Americans and legal immigrants by using stolen or fake SS numbers. 40% of the employees audited at Chipotle were illegal workers, meaning that 60% were LEGAL. Pretty darn clear that illegal aliens are taking jobs that Americans and legal workers are willing, able, and are doing.

 

REPLY TO THIS COMMENT
Ali

Myth #4:  Illegal aliens "contribute" anything that LEGAL immigrants or citizens wouldn't if they were doing these jobs.

Of course, if the only advantage of illegal immigrants is that they're, well, illegal, then it hardly makes sense to legalize them, does it?

 

REPLY TO THIS COMMENT

First of all, looking just at GDP is a captious way of looking at the issue.  The 5.4% of the labor force that is illegal does have a noxiouseffect on the wages and the wage growth of legitimate laborers.  By occupying viable employment slots, they displace Americna workers.  Finally, those employers who have built their businesses with the help of employees who are not in fact authorized to work in the U.S. may have to make the choice of finally abiding by our laws or closing up their shops and working for those who do follow our laws.  If they want to legalize their illegal aliens, they can foot the bill.

Finally, there is a total absence in this report of economists who do not favor granting amnesty.  I'd recommend reading George Borjas work for starters.

 

REPLY TO THIS COMMENT

Nothing in the pro-illegal research sheds any light on the 'lost opportunity' costs that negatively impact American workers. At one time, every job currently held by illegal aliens was held by an American worker. The only thing that has changed is that employers refuse to compete for the legal workers they need, and our politicians, ever in search of another dependent, easily manipulated constituency, have been willing to furnish such employers with a taxpayer subsidized, low cost alternative to hiring American workers.

For years I did charity work helping young inner city youth, particularly single fathers, try to find work. I can't count the number of times that employers, both large and small, turned these young men away, because it was cheaper to hire illegals, and because the paperwork involved with withholding child support was so complicated, and left such a glaring paper trail (Illegals were being paid cash).

Indeed, the very workers and families that we should care about were being denied entry level positions because our government, state and federal, make it difficult to hire those that need the jobs and the opportunity to build skills and a work ethic the most! Dad's who don't work, and fail to support their children,  go to jail  (how they pay child support from jail, or find work with a jailbird record still escapes me), and their children end up on taxpayers dole.

Overpopulation, congestion, urban sprawl, crumbling infrastructure, diminishing resources, overcrowded schools and hospitals, lack of affordable housing, water and energy shortages (not to mention the skyrocketing costs for both), vanishing farm land and green space, crime, pollution, depressed wages, increased tax burdens, the balkanization of our communities, the marginalization of American workers, taxpayers and voters, the overall decline in quality of life, are all the result of unconstrained immigration and lax enforcement. Indeed, one can hardly expect to spread our economic, diplomatic or military efforts to help spread democracy and social/economic equity to other nations to bare fruit, so long as it easier and far more lucrative to slip across our border and take advantage of taxpayer largess.

Certainly an argument can be made that all those that are too lazy, self interested, or cowardly to work for social and economic justice in their native country, are hardly the sort of person our immigration policies should encourage to come to the U.S..  Like it or not folks, too many people competing for the same limited resources is NOT sane, sustainable social, economic or environmental policies. As our recent history of war and diplomacy indicates, the problems of other nations that drives their people to violate our immigration laws, can and will only be resolved by the citizens of those nations, taking action in their native land. Congress is even now discussing ways to further oppress the financial well being of America's citizens as a means of cutting government spending, yet they ignore securing our borders and enforcing our immigration laws. The benefits of stabilizing the out-of-control population growth we experience through legal as well as illegal immigration would certainly offset some of the debt burden being heaped on American's simply so that politicians can pander to a constituency that only votes benefits for itself.

According the the latest CIA World fact book, Mexico (only as an easy example) has half the unemployment of the United States, with a population one third the size of the United States. Mexico also has the 12th. Largest GDP on the planet, and a cost of living (except for some universally fungible items like cars, trucks, etc,,,) that is significantly less than that of the United States. Estimates indicate that almost 20% of Mexico's population (a substantial portion being the rural Indina tribes) lives below the poverty line, while better than 12% of the much larger U.S. population (a substantial portion of those being illegal aliens) lives below the poverty line. On average illegal aliens operating in the United States send in excess of 25 Billion dollars outside our nation in the form of remittances. American dollars that are seldom taxed by the U.S., and never taxed by the receiving countries. Apparently, one of the greatest benefits to violating our immigration laws is the ability to avoid taxes in our country as well as their native country's.

Our government estimates that illegal aliens make up approximately 5% of our work force, even though they comprise a larger percentage of the overall population. Factually, all the cash earned by working illegal aliens wouldn't make a dent in the social costs of supporting the additional millions of dependent illegals.  Assertions that any employer or business would suffer as the result of securing our border and enforcing our immigration laws are ridiculous, a pure fiction created by employers who's products and services are driven solely from greed, and that lack the business model to remain an ongoing enterprise. Certainly such businesses should not remain ongoing concerns at the cost of American taxpayers or workers.

 

Excellent points in your response. Thank you!

 

Who cares about single fathers instead prevent unwanted parenthood has the brain betwin the legs.So let's kick the dead dog,everything is Illegals faut.Sorry Mr President,that elbow was my faut too.Better you find another scapegoat. lo

 

Ali
Ed, you might mention that not only do illegal aliens displace American poor from jobs, they also use welfare that they're able to collect on behalf of their U.S.-born kids. 30% of welfare recipients in California live in households headed by illegal aliens. LA County alone paid out $600 million last year in welfare to illegal aliens, NOT counting the cost of education. Illegal aliens increase poverty and welfare usage in this country not only by displacing American poor, but by creating MORE of them, their children.

 

Ed Weirdness: Excellent response. Ms. Arias realizes the American people will kill any amnesty presented in Congress. (We did it in 2007 and we will again do it now.) She needs to visit the state of Georgia. We have an immigration law (HB87). As a result, I believe illegal aliens are leaving Georgia and are heading to Colorado. Finally, Ms. Arias needs to get her priorites in order: Americans come first and illegal aliens are going home. There will be no amnesty. Michael Dale Smith, Statesboro, GA

 

REPLY TO THIS COMMENT

If second, third, fourth generations of illegals earn substantially higher incomes, how do they explain the substantial numbers of 'high school' drop outs and incarcerated criminals that are second, third, and fourth generation? Likewise, how do you explain the illegals who have resided in the U.S. for decades (hence the second, third, fourth generations) that refuse to learn English? Amnesty is capitulation and not a solution. In November, America's citizens handed the Obama Administration and Congressional Democrats and RINO's a political a_ _ whipping of biblical proportions. Spurious justification for illegal immigration aside, what part of this message are politicians and those in the media unable to comprehend?

Pragmatically speaking, democracy, even saddled with it's representative form as ours, is still an expression of the will of the people, essentially majority rule. Our founding fathers pledged their lives, their fortunes, their sacred honor to insure that America's citizens were free from the oppressions and the tyranny of an elitist minority and an unaccountable bureaucracy. Essentially, our founders were intent that their legacy would be that the will of the people would serve as the guidance in our governance. Why then would anyone expect America's citizens to again allow themselves to be subjugated by an elitist minority in pursuit of their own political self interests?

Over generations, American's became complacent, we allowed politicians and Judicial self service to undermine our interests and usurp our will. Over the past few years, America's citizens have awakened. We recognized how our complacency and the greed and serl service of politicians had harmed our nation. November 2nd. was but a first step to restoring our will as the guidance in our governance.

Liberals and special interests will assert that their interests (violating our immigrations laws) are oppressed by the tyranny of the majority, and generations of activist Jurists have allowed such insanity to prevail as they tortured and twisted the clear intent of our founders expressed in the Constitution. The fact remains though, just as it occurred to those early patriots who founded our nation, the only thing worse than the tyranny of the majority, is the tyranny of the minority!

 

 
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