2. 23-2
Number of Immigrants
• Economic immigrants
• Legal immigrants
• Migration averaged 1 million per year
• Quotas, refugees, and H1-B provision
• One-third of population growth
• One-half of labor force growth
LO1
4. 23-4
Number of Immigrants
LO1
Family-
Sponsored
I mmigrant s,
65.0%
Employment -
Based , 13.0%
Refugees,
16.0%
Diversit y
I mmigrant s,
4.7%
Ot hers, 1.3%
Legal Immigration by major category of admission, 2011
5. 23-5
Number of Immigrants
• Illegal immigrants
• Estimated from Census data
• 250,000 per year on average
• High proportion from Mexico and Central
America
• Total of 11.1 million residing in the U.S. in
2012; 58% from Mexico
LO1
6. 23-6
Number of Immigrants
Total 1,062,040
1. Mexico 143,446
2. China 87,016
3. India 69,013
4. Philippines 57,011
5. Dominican Republic 46,109
6. Cuba 36,452
7. Vietnam 34,157
8. South Korea 22,824
9. Columbia 22,635
10. Haiti 22,111LO1
7. 23-7
Decision to Migrate
• Take advantage of superior economic
opportunities
• Escape political or religious oppression
• Reunite with family members
LO2
8. 23-8
Decision to Migrate
• Earnings opportunities
• Increase value of human capital
• Moving costs
• Distance
• Follow beaten path
• Age
• Other factors
LO2
10. 23-10
Economic Effects
• Personal gains
• Economic benefits exceed costs
• Other issues
• Uncertainty and imperfect information
• Backflows
• Skill transferability
• Self-selection
LO3
11. 23-11
Impacts on Wages, Efficiency,
Output
• Understand economic outcomes
• Assumptions
• U.S. and Mexico
• Labor demand greater in U.S.
• No long-term unemployment
• Labor quality the same
• Migration is legal and has no cost
• Wage differentials key factor
LO3
12. 23-12
Impacts on Wages, Efficiency,
Output
WageRate
United States Mexico
Quantity of Labor
(Millions)
Quantity of Labor
(Millions)
Du
Dm
a
A
b
d D
B
We
WageRate
We
c f F C
Wu
0 0
Wm
Immigration impacts wages, employment, and output
g
G
LO3
13. 23-13
Impacts on Wages, Efficiency,
Output
• Wage rates will equalize
• In the U.S.:
• Wage rate falls
• Employment and output rise
• In Mexico:
• Wage rate rises
• Employment and output fall
LO3
15. 23-15
Impacts on Wages, Efficiency,
Output
• Overall effects:
• World output rises
• Efficiency gains
• Other effects
• Brain drains
• U.S. natives lose wage income
• U.S. businesses gain income
LO3
16. 23-16
Complications and Modifications
• Migration costs not zero
• Remittances redistribute income
• Backflows: temporary migration
• Immigrant workers as complementary
resources vs. substitute resources
• Expansion of capital in some industries
• Full employment vs. unemployment
• Negative self-selection
LO3
18. 23-18
Illegal Immigration
• Employment effects
• Two extreme views
• Fixed number of jobs in economy
• Immigrant employment decreases domestic
employment 1-for-1
• Immigrant work undesirable
• No domestic workers displaced
• Compensating wage differential
LO4
19. 23-19
Optimal Immigration
• Immigration can either benefit or harm a
nation, depending on several factors
• Immigration should be expanded until its
MB = MC
• The level of immigration is set through quotas,
special provisions, border enforcement and
immigration laws
LO5
20. 23-20
Startling Slowdown in
Illegal Immigration
• Number of illegal immigrants in the U.S.
tripled between 1990 and 2007
• That number fell 8% in 2009 because of
deceased job prospects during the recession
• Illegal immigration population leveled off
2010 and 2011 at 11.1 million
• Falling birthrates
• Better local job opportunities
• Government policies
• Stronger border enforcement
Editor's Notes
This chapter describes the extent of legal and illegal immigration into the United States. We discuss why economists view economic immigration as personal human capital investment. We also attempt to explain how immigration affects average wages, resource allocation, domestic output, and group income shares. We relate how illegal immigration affects employment and discuss its impacts on state and local government budgets.
This country was founded largely by immigrants and their descendants, yet when the subject of immigration comes up, the conversation can become very heated. The issues of immigration are many; the focus of this discussion will be economic. We start with some facts. H1-B allows for 65,000 skilled workers in “specialty occupations” to enter and work continuously for 6 years. In 2009, 65% of legal immigrants were family sponsored.
This graph from the book shows the number of legal immigrants into the United States between 1980 and 2011. We can see that there was a large spike in the number of illegal immigrants in the early 1990s.
This figure illustrates legal migration based upon category of immigrants. You can see that the majority of legal immigrants are family-sponsored.
We don’t know the exact number of illegal immigrants in the United States. The Census Bureau, through a residual approach process, takes the current number of all immigrants and subtracts the sum of past annual inflows of legal immigrants to make its estimate.
The figures in this table show the U.S legal immigrants by the top 10 countries of origin in 2011.
There are many reasons why people immigrate to the United States (legally or illegally). Our interest continues to focus on economic immigration. Listed on this slide are some of the main drivers of economic immigration.
One of the primary reasons that people immigrate to the United States is the opportunity to earn more money, sometimes by doing the same job that they were doing in their own country. Often times along with the possibility of earning a higher income, immigrants have a higher standard of living. Moving to another country can often entail large costs, but the individual weighs those costs against the benefits of higher income, a higher standard of living, and investment in human capital. The younger the individual and the closer together the countries, the more likely the individual will immigrate. This is one of the reasons that so many individuals immigrate from Mexico to the U.S.
This charts shows immigrants as a percent of the labor force for selected advanced industrial countries. Immigrants make up relatively large percentages of the labor forces in several advanced industrial countries, including Australia, Austria, and the United States, but not in other countries such as Finland.
Immigration may create large economic benefits for some, but it can also create some losers. The facts show that in general, the benefits of immigration exceed the cost; however, not all immigrants to the United States succeed. Because the decision to immigrate is often made with uncertainty and based on what is true for the average person, this can often times lead to backflows – migration back to the home country. These returns might be the result of lower earnings than expected or missing family and friends. Sometimes a person’s skills don’t transfer as well to the new country, making it difficult to find a new job, but sometimes the migrants themselves are self-selected to be determined, motivated individuals, which can sometimes offset the lack of skill transferability.
Although the personal outcomes of immigration are easy to understand, the broader economic outcomes are not. A simple economic model of migration will help us understand some of the key cause-effect relationships and identify broader economic outcomes.
A simple immigration model allows us to see the migration of low-wage Mexican labor to the U.S. increases domestic output, reduces the U.S. wage rate, and increases U.S. business income. The out-migration of labor from Mexico reduces Mexican output, raises the wage rate, and lowers Mexican business income. Because the U.S. gain in output exceeds Mexico’s loss of output, this migration increases economic efficiency and produces a net gain of world output.
In the migration model, ultimately the wage rates between the countries will end up being equal. With higher wages in the U.S., workers from Mexico will continue to find benefits to moving to the U.S. As they continue to enter the U.S., it will cause wages to fall, but employment and output will rise. On the other hand, as workers leave Mexico, wage rates will rise, but employment and output will fall.
This Global Perspective lists the remittances that are received by a variety of countries. Ultimately, the majority of remittances flow towards developing countries. For some of these nations, the amount of remittances each year exceeds their direct foreign investment (economic investment by foreign individuals and firms).
As labor more freely moves from one place to another, there is a more efficient allocation of labor – a better match between the skills of the labor and the productive requirements. As a result of a more efficient allocation of labor, world output rises. The global economy gains. As a result of immigration into the U.S., the U.S. gains because the output rises, but Mexico’s output falls. As a result of these changes in output, the U.S. encourages high amounts of immigration while other countries may try to prevent people from leaving their country. Countries often find that it is attractive to prevent highly educated individuals from leaving their country, referred to as a brain drain.
The analysis that we just went through is subject to complications. Flow of labor isn’t as easy as the model indicates because the costs of migration can be quite high and may be a hindrance for at least some individuals who will choose not to migrate because of these costs.
When migration is temporary and/or the immigrants send payments back home, then this will change the distribution of benefits between the countries. Not everyone’s wages in the U.S. will fall because some immigrant workers are complements rather than substitutes. Although initially native workers may lose earnings, it may only be temporary or not occur at all. This is because, as firms have lowered their costs, they have a greater means to increase their capital, which will then increase the demand for labor and wages. The unemployed workers moving to the U.S. may reflect negative self-selection, in which movers are less capable and perhaps less motivated than similarly educated people who did not migrate.
The model suggests that immigration will contribute to a higher GDP, but in the U.S. many immigrants use the welfare system proportionately more than natives. It was even argued that the welfare system in the U.S. was a major attraction for immigrants. Despite changes to the welfare system, immigrants still pose a cost to the government by enrolling kids in schools, emergency health care, and the criminal justice system. Evidence is mixed about the overall effects of migration on U.S. incomes.
The illegal immigration debate continues with passions running high on both sides. The two extreme views discussed here on illegal immigration are often expressed in dealing with the subject of employment.
The immigration issues go well beyond economics; there are also political and cultural issues. Economic analysis suggests that immigration can either harm a nation, depending on the number of immigrants; their education, skills, and work ethic; and the rate at which they can be absorbed into the economy without disruption.
From an economic perspective, immigration should be expanded until its marginal benefit equals its marginal cost. This framework recognizes there can be too few immigrants, just as there could be too many. It also recognizes that some immigrants benefit more to the U.S. economy than others; and some impose more costs, on taxpayers, than others.
A nation sets the level of legal immigration through quotas and special provisions. It also sets the size of illegal immigration through how effectively it secures its borders and enforces its immigration laws.
The number of illegal immigrants living in the U.S more than tripled between 1990 and 2007, increasing from 3.5 million in 1990 to 12.0 million in 2007. During the 2007-2009 recession, the number of illegal immigrants in the U.S. fell by nearly 8% to 11.1 million in 2009. The decline occurred because the backflow of illegal immigrants returning to their home countries exceeded the inflow of illegal immigrants entering the U.S., because of decreased job prospects for illegal immigrants.
The illegal immigrant population remained steady at 11.1 million in 2010 and 2011. First, the rapid decline in birthrates in the countries that have sent the most illegal immigrants to the U.S. is part of the reason for the leveling-off. Second, economic growth has increased in most of the countries that sent the most illegal immigrants to the U.S. Third, government policies have also played a role. The North American Free Trade Agreement (NAFTA) spurred the creation of a larger manufacturing sector in Mexico. Fourth, U.S. immigration-enforcement activities have increased. A fence was built along several hundred miles of the U.S.-Mexican border and border patrols were strengthened, too.
These factors lead many economists to conclude that illegal immigration is more likely to decrease than increase in coming years.
