Amnesty for Undocumented Immigrants Would Not Burden US Economy—Levy Economics Institute

Reuters, August 9, 2013. © Thomson Reuters. All Rights Reserved.

The recently passed Senate bill—S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act—that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.

A recent report from the Congressional Budget Office estimated the following:

All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.

Nathan Sheets and Robert Sockin at Citigroup are even more sweeping in their endorsement of immigration’s economic upside:

We find that immigration has been a major driver of growth in the United States, the euro area, and the United Kingdom. Specifically, we find that about one-third of the growth in these economies over the past decade can be attributed to immigration. Stated bluntly, the average immigrant appears to have contributed roughly as much to GDP as the average person in the domestic-born population. We also find that a more rapid pace of immigrant inflows in the decades ahead will result in a corresponding increase in the level and growth rate of GDP.

Yet according to a report rom the Levy Economics Institute, a liberal research group at Bard College, these broad endorsements fail to push back appropriately against the specific claim that is the law’s major point of contention: the purported economic costs of granting amnesty to undocumented immigrants.

The Levy research argues that “legalizing a significant proportion of the undocumented immigrant population would not impose serious costs on either the economy in general or the social insurance system in particular.”

In fact, author Selçuk Eren, a Levy research scholar, finds maintaining the status quo would be economically wasteful.

Legalization would lead to increased benefit payouts for social insurance programs, since it would make a portion of the currently undocumented population eligible for benefits. At the same time, bringing undocumented immigrants into the legal labor pool would boost capital accumulation in the U.S. economy, the Institute said. Compared to legal immigrants, undocumented workers end up sending more of their savings back to their home countries as remittances.

Moreover, offering a path to legal immigration status should increase labor productivity as newly legalized immigrants become able to better match their skills to the jobs available without having to maneuver through the shadows of the grey labor market.

When we ran the numbers on a scenario in which 50 percent of undocumented immigrants became legal immigrants, the positive effects of the former outweighed the costs of the latter, leading to net benefits in the form of overall increases in capital stock, output, consumption, and labor productivity. These positive macroeconomic effects would also feed into improvements in the finances of the social insurance system.

As a result, the overall costs to the system would ultimately be negligible: in order to support new beneficiaries, Social Security and unemployment insurance tax rates would need to increase by only 0.13 and 0.01 percentage points, respectively. Moreover, for the sake of simplicity we assumed that all currently undocumented immigrants pay into Social Security and unemployment insurance.

Macroeconomic improvements would be fairly modest, amounting to around one- to two-tenths of 1 percent for many measures, the report said. The Institute also estimates an overall contribution of $36 billion per year to the U.S. economy. But while small, that’s hardly a downside.

Still,  Eren concludes:

We cannot reasonably oppose comprehensive immigration reform on the basis of the alleged economic burden of offering a pathway to citizenship. Even when we isolate this most controversial element of reform, maintaining the status quo is the most costly option.