Worried about the economy? Then pass immigration reform

January 31, 2013

Washington tends to have a narrow view of what counts as “economic policy.” Anything we do to the tax code is in. So is any stimulus we pass, or any deficit reduction we try. But most of this mistakes the federal budget for the economy.

The truth is, the most important piece of economic policy we pass — or don’t pass — in 2013 may be something we don’t think of as economic policy at all: immigration reform.

Congress certainly doesn’t consider it economic policy, at least not officially. Immigration laws go through the House and Senate judiciary committees. But consider a few facts about immigrants in the American economy: About a 10th of the U.S. population is foreign-born. More than a quarter of U.S. technology and engineering businesses started from 1995 to 2005 had a foreign-born owner. In Silicon Valley, half of all tech startups had a foreign-born founder. One-quarter of all U.S.-based Nobel laureates of the past 50 years were foreign born. Right now, about half of the PhDs working in science and technology are foreign born.


Hamilton Project

Immigrants begin businesses and file patents at a much higher rate than their native-born counterparts, and while there are disputes about the effect immigrants have on the wages of low-income Americans, there’s little dispute about their effect on wages overall: They lift them.

The economic case for immigration is best made by way of analogy. Everyone agrees that aging economies with low birth rates are in trouble; this, for example, is a thoroughly conventional view of Japan. It’s even conventional wisdom about the U.S. The retirement of the baby boomers is correctly understood as an economic challenge. The ratio of working Americans to retirees will fall from 5 to 1 today to  3 to 1 in 2050. Fewer workers and more retirees is tough on any economy.

There’s nothing controversial about that analysis. But if that’s not controversial, then immigration shouldn’t be, either. Immigration is essentially the importation of new workers. It’s akin to raising the birth rate, only easier, because most of the newcomers are old enough to work. And because living in the U.S. is considered such a blessing that even very skilled, very industrious workers are willing to leave their home countries and come to ours, the U.S. has an unusual amount to gain from immigration. When it comes to the global draft for talent, we almost always get the first-round picks -- at least, if we want them, and if we make it relatively easy for them to come here.

From the vantage of naked self-interest, the wonder isn’t that we might fix our broken immigration system in 2013. It’s that we might not.

Few economic problems wouldn’t be improved by more immigration. If you’re worried about deficits, more young, healthy workers paying into Social Security and Medicare are an obvious boon. If you’re concerned about the slowdown in new company formation and its attendant effects on economic growth, more immigrant entrepreneurs should cheer you. If you’re worried about the dearth of science and engineering majors in our universities, an influx of foreign-born students is the most obvious solution you’ll find.

Politicians of both parties recognize this. “Our goal is to advance policies that make a difference in peoples’ lives, and that means we want to advance pro-growth reforms that are good for the economy,” Republican Rep. Paul Ryan said at a recent Wall Street Journal breakfast. The first pro-growth reform he named? Immigration.

Many immigration opponents lodge a moral objection to “amnesty” — allowing people who broke the law to reap the benefits of legal status. That’s beyond the scope of this particular column. The main economic concern about allowing more immigration or legalizing the status of those who are already here is that immigrants will undermine the wages of the least-skilled Americans. In reality, it’s not clear that will happen.

In addition to growing the size of the national pie, unskilled immigrants tend to have what economists call complementary skills to U.S. workers. If one worker speaks English and another doesn’t, for example, they generally don’t pursue the same job.

In that way, it’s useful again to compare immigration with native birth rates. Increasing the number of native-born workers leads to more direct competition, because two native-born workers are probably more similar than an immigrant and a native worker. Yet most everyone cheers if they hear that the U.S. birth rate has ticked up.

Some workers are hurt by immigration, but they are typically already struggling. The best way to help them is with more training, better health care, a more generous earned income tax credit and so on. Those benefits are easier to provide in a growing economy with more young workers than in a sluggish one with chronic budget deficits. Immigration isn’t what really ails them, and it isn’t what stands in the way of aiding them.


Hamilton Project

Will immigrants use those same social services, as some immigration opponents contend, adding to the cost of the nation’s welfare state? Yes, but not as often as they’ll pay into it. In 2007, the Congressional Budget Office analyzed the issue while assessing President George W. Bush’s proposed immigration reforms. It found that legalizing undocumented immigrants would increase federal revenue by $48 billion while costing only $23 billion in increased public services — and that’s before accounting for the broader economic benefits of immigration.

There are few free lunches in public policy. But taking advantage of our unique position as a country where the world’s best, brightest and hardest-working desperately want to live is surely one. In the end, economies aren’t mainly about budgets and tax codes, though Congress occasionally pretends otherwise. They’re about workers and business owners. Immigration reform is a way to get more of both.

Further reading:

Creating a "brain gain" for U.S workers, the role of immigration. Darrell West, Brookings.

Ten economic facts about immigration. The Hamilton Project.

Senate Amendment 1150 to S. 1348: the Comprehensive Immigration Reform Act of 2007. Congressional Budget Office:

Rationalizing U.S. Immigration Policy: Reforms for Simplicity, Fairness, and Economic Growth. Giovanni Peri, Hamilton Project,

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Sarah Kliff | January 31, 2013