We're a nation of immigrants, and that's been one of the secrets of our economic success.
That will continue even more now that President Obama has taken executive action to protect 5 million undocumented workers from deportation and increase high-skill immigration. Altogether, this should give the economy at least a modest boost. Specifically, the White House estimates that it will raise gross domestic product between 0.4 and 0.9 percent over the next decade. And not only that, but in the long run — more on that in a minute — it should even push up wages for native workers, too. To see why, let's break down what Obama did exactly.
1. Deferred action on deportations and work permits. For the next three years, the government won't try to deport around 5 million undocumented immigrants and their families -- if they apply. Work permits will also be available.
Now why would this help the economy? Undocumented workers, after all, are for the most part already working, so it's not like this would increase the labor supply. Well, the answer is that while they're working, they're not working in the jobs that would make the best use of their talents. In other words, they're stuck in unproductive jobs, because they don't have the papers to apply for better ones.
So the solution is simple: give them the work permits they need. That will let them find higher-paying jobs that help themselves, and the economy at large. And that, as Adam Ozimek points out, is what happened after the 1986 immigration reform: wages for newly-amnestied workers went up 6 percent the following few years. (This effect might be smaller now, though, since Obama hasn't provided a pathway to full legalization).
The question, of course, is what this would do to native workers. Skeptics say it would just increase competition among low-skill workers, and push down their wages even more. But recent research by economists Gianmarco Ottaviano and Giovanni Peri suggests that the opposite would happen.
Between 1990 and 2006, you see, immigration tended to increase wages even more for native workers who had dropped out of high school (although it lowered them for previous immigrants). Heidi Shierholz of the Economic Policy Institute found the same thing. The idea here is that low-skill immigrants work complementary jobs as low-skill native workers. As Matt Yglesias explains, the former are working as, say, busboys, and the latter as waiters—which means they're helping, not competing with, each other.
But there's one big assumption here. It's that the economy is creating enough jobs for everyone who wants one. That's obviously not true today, so there could be some competition of the cutthroat variety. That doesn't mean, though, that we shouldn't do something that isn't just humane, but makes good economic sense in the long run. It's just acknowledging the possible short-run pain.
2. High-skill immigration. There's no such thing as a free lunch in economics, except, maybe, for high-skill immigration. Well, almost. It's true, as economist George Borjas shows, that native-born PhDs see their wages suffer when they have to compete with the best and brightest from overseas. But that's a small price to pay for the overwhelming benefits that foreign-born grads bring to our economy (especially when we're already educating them).
Consider this mind-boggling stat. According to economists Giovanni Peri, Kevin Shih, and Chad Sparber, foreign-born STEM grads explain somewhere between 30 to 60 percent of our new technologies between 1990 and 2010. That, in turn, means that for every percentage point that foreign STEM employment goes up, real wages increase 7 to 8 percent for native-born college grads and 3 to 4 percent for non-grads. And that's no wonder when you consider that 40 percent of the founders in Silicon Valley were not born in the U.S. So even just a little bit more high-skill immigration, like Obama announced, is an absolute slam dunk policy-wise.
It's not exactly the New Deal, but, after all our austerity and debt ceiling debacles, it's something novel for Washington the last few years: policy that actually helps the economy. It would help even more if Congress would get in on the act, and do a full immigration bill that would resolve all this permanently, not just for three years, and let in even more high-skill immigrants.
But let's not get too crazy now. There are more important things like ... repealing the medical device tax?