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The contributions of immigrants are many, particularly when it comes to the pace of economic growth. (1) Immigrants both power and grease the engines that run the economy. In fact, just over half of the increase in the U.S. labor force over the last decade was the result of immigration--legal and illegal. (2) Immigrants' labor force contributions will continue to be important in the near future as the U.S. workforce ages and the baby boomers retire. Immigration also plays a key role in the business cycle. Immigration is pro-cyclical, meaning foreigners come in greater numbers when U.S. job growth accelerates and in fewer numbers when it wanes. In a similar vein, immigrants help resolve bottlenecks and shortages that arise in growing regions and sectors by moving to areas and industries experiencing high labor demand.
Despite immigrants' contributions to economic growth and efficiency, policymakers will continue to debate the costs and benefits of immigration because, while economic growth makes the economy bigger, a larger economy does not necessarily make U.S. natives better off. For example, the economic benefits of low-skilled immigration for U.S. natives are offset to a certain extent by the adverse fiscal impact that an increased number of poor households have on taxpayers. Globally, the reallocation of workers from low- to high-income countries still has huge benefits but, because most of these benefits accrue to the migrants, the effect on host-country natives is far less positive. In this way, the perspective from which immigration is viewed makes all the difference to the conclusions of the analysis. Worker migration that is globally optimal and beneficial to the origin country may have negative implications for the host country in certain cases.
U.S. immigrants: How many?
The foreign-born population reached a 20th century low point in 1970. Since then, the U.S. has witnessed over three decades of mass immigration with large effects on economic growth. Between 1970 and 2007, the foreign-born population rose from 9.6 to 38.1 million and, as a share of the population, immigrants increased from 4.7 percent in 1970 to 12.6 percent in 2007 (Chart 1).
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By 2007, immigrants made up 15.6 percent of the U.S. labor force. (3) Over the last decade or so, foreign-born workers have contributed roughly half of annual labor force growth. Natives have had a shrinking role in labor force growth due to many factors, notably their declining labor force participation rates. As the native-born population ages and the baby boomers retire over the next twenty years, the foreign-born contribution to labor force growth is expected to stay high or even increase. The retirement of baby boomers is expected to result in 80 million workers leaving the U.S. workforce over the next two decades (Social Security Administration, 2007).
The influx of workers on the high and low ends of the skill distribution has made the growth and evolution of certain industries and occupations increasingly dependent on foreign-born professionals and laborers. Immigrants' contribution to job growth is highest in sectors such as construction and extraction that require little formal education. The foreign-born made up about 64 percent of job growth in this sector between 2003 and 2007 (Chart 2).
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Immigrants also made up a large share of job growth in many high-skilled occupations; they were responsible for 63 percent of job growth in computer- and math-related occupations between 2003 and 2007. Bear in mind that although foreign workers make up high shares of net job growth in an occupation or industry this does not imply that U.S.-born workers are not in those professions. Natives may be the majority of workers in an occupation, but because they are exiting at a high rate relative to the rate at which they are entering, they make a small contribution to net growth. This is the case in many math, science and engineering fields. Low entry rates are in part due to talented American students who pursue professional degrees rather than graduate school given the shorter education and faster rate of real wage increases in business and law occupations relative to jobs in science, engineering and math (Freeman, 2005).
Immigrants are also important drivers of growth in many other occupations. In healthcare support, for example, which includes nursing, about 43 percent of growth was due to the influx of the foreign-born during this period. Overall, during 2003-2007, the foreign-born made up 39 percent of total employment growth. Occupations with below-average immigrant participation often require U.S. citizenship (e.g., jobs in law enforcement or other protective services) or present substantial institutional and language barriers (e.g., legal professions).
U.S. immigration: How has it changed?
During the last forty years or so, changes in immigrant characteristics and immigration policy have accompanied the dramatic rise in immigration. Two changes stand out both with regard to their effects on immigration dynamics and their implications for ongoing policy debates. First, the education distribution of foreign-born workers has become increasingly bimodal and, second, illegal immigration has grown so quickly that it overtook legal immigration for several years.
As mentioned above, immigrants have played an important role in the growth of both high and low-skilled occupations. This is largely because they are disproportionately represented on the extremes of the education distribution (Chart 3). Between 1980 and 2004, the share of foreign-born among workers who lack a high school degree tripled, rising from 10.5 to 32 percent. At the same time, the share of foreign-born among workers who have a Masters or Professional degree doubled (from 7.5 to 15.5 percent) and the share with a Doctorate increased 13.5 percentage points (from 14.5 to 28 percent).
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Where do native-born workers fall in the educational distribution? They are overwhelmingly concentrated in the middle of the distribution- the average education among U.S.-born workers age 25 and over is about 13 years. Only 5.2 percent lack a high school degree and 35 percent have a Bachelors degree or higher. In other words, since labor demand for foreign workers is likely highest where native workers are scarce, it makes sense that foreign-born workers tend to have either very low or very high levels of education.
The second important change with regard to U.S. immigration over the last few decades is the rise of illegal immigration. Jeffrey Passel of the Pew Hispanic Center has developed estimates of the yearly net flow of legal and illegal immigrants into the U.S. since 1990 (Chart 4) (Passel & Suro, 2005; Passel & Cohn, 2008). The graphic is striking in that undocumented flows (grey) rivaled legal flows (black) from 1990 to 2004. On average over this period, net undocumented immigrant inflows numbered 518,000 annually as compared with legal immigrants (green card recipients) who numbered 608,000. Illegal inflows dropped to an average of 275,000 from 2005 to 2008 due to slowing economic growth in the U.S. As a result of many years of large undocumented worker inflows, 30 percent of the 2008 foreign-born population was thought to be made up of undocumented immigrants (about 11.9 million people) (Passel & Cohn, 2008).
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Why the rise in illegal immigration?
The rise of illegal immigration is in some ways as much about the change in U.S. immigration policy as it is about a change in immigration patterns. Most illegal immigrants come from Mexico, but immigration from Mexico is not new. In the early 1900s, Mexican workers migrated to the West and Southwest to fill in for the Chinese and Japanese laborers who had essentially been banned. As more restrictive immigration policies targeting southern and eastern Europeans were passed in the early 1920s, Mexican immigration soared. During World War II and in the years following, the Bracero Program brought in over 200,000 Mexicans annually for agricultural and other work. The 1965 Immigration and Nationality Act Amendments exempted the Western Hemisphere, including Mexico, from country quotas (annual caps of 20,000 green cards) that were applied to the rest of the world.
Throughout most of the 20th century then, U.S. immigration policy accommodated immigration from Mexico in one way or another, partly in recognition of the dependence on Mexican labor in the American West. The turning point vis-a-vis preference for Mexican immigration came in 1977 with the end of this 'Western Hemisphere exemption.'
At about the same time as legal immigration from Mexico was curtailed through the imposition of country caps, many Mexicans were opting to settle permanently in the U.S. rather than continue the traditional pattern of return migration. This decrease in return migration, together with policies that curtailed opportunities for legal settlement, spurred the rise of illegal immigration. At the root of the change was a large cohort of young Mexicans coming of age at a time that the Mexican economy was waning and U.S. labor demand growing, particularly in the service and manufacturing sectors. For Mexican migrants, the change from seasonal agriculture-based work to year-round employment meant fewer trips home, longer stays, and an increased incidence of permanent settlement. Worsening economic conditions in Mexico in the 1980s continued to be a push factor. And once the Mexican migrant population was firmly in place in gateway cities in the U.S., its social networks caused families and friends to follow. (4)
U.S. immigrants: Why do they come?
Most U.S. immigration, whether family- or employment-based, is economically motivated in that immigrants leave their homelands in search of better economic opportunities. This stands in contrast to many other OECD nations--Western European nations, for example--where non-European immigration has traditionally been reserved for refugees and asylum seekers and the government's strong social safety net has attracted such foreigners. In the U.S., while family- and employment-based immigrants share motivations, they differ in other respects. Employment-based immigrants have higher levels of education and typically hold at least a college degree.
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