The economic impact of undocumented immigrants

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 ( 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.”

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.

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.

#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.”

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.

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.

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.

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.

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.

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.

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.”

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.

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.

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

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.

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?

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.

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.

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.

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.

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.

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

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.

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.’”