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Global Economics Paper No. 168
GS GLOBAL ECONOMIC WEBSITE
Economic Research from the GS Institutional Portalat
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Important disclosures appear at the back of this document.
Thanks to our GS colleagues Jan Hatzius, Ed McKelvey,Erik Nielsen, Jim O’Neill, and Thomas Stolper for helpfulcomments and suggestions.
Andrew Tilton, Kent Michels,Alec Phillips, Alberto RamosMay 27, 2008
Immigration and the NorthAmerican Economy
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Immigration to the United States has surged over the past decadewith most of the increase outside legal channels. Immigrantsboosted US labor force growth by about half a percentage point peryear over the past decade.
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Though immigrants appear to have a very limited impact on USwage levels, most immigrants themselves realize a large economicgain—with further benefits accruing to the second generation.
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Remittances from citizens working in the United States are animportant source of capital for Mexico and other countries of originof migrant workers.
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Current US immigration policy is ineffective—too tight for skilledworkers, and often irrelevant for undocumented workers. Withcompromise stalled, immigration policy is likely to tighten graduallyas enforcement increases.
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Along with a weaker domestic labor market, tighter borders arelikely to reduce the level of both legal and illegal immigration over the next few years—slowing the growth of the US labor supply andhence of US economic output.
Goldman Sachs Economic Research
Global Economics Paper No. 168Issue No: 168
May 27, 2008
Table of ContentsHighlights 1I.
The Next Great Wave of Immigration 2
Forces Driving Immigration
3II.
Characteristics of the Immigrant Labor Force 5
Skilled Immigrants
5
Unskilled Workers
5
The Second Generation
6
Box 1: Estimating the Scale of Immigration
8III.
The Impact of Immigration on the North American Economy 9
Labor Supply
9
Wages and the Income Distribution
11
Fiscal Implications of Immigration
12
Impact on Mexico and Other Emigrant Nations
14IV.
The Ideal Immigration System—And the American One 18
Box 2: The US Immigration System
20V.
Making Immigration Work 21
Makings of a Compromise
21
The New ‘Third Rail’ of American Politics
23
Progress is Unlikely Before 2009
24VI. Conclusion: An Opportunity on Hold 25
Goldman Sachs Economic Research
Global Economics Paper No. 168Issue No: 168
1
May 27, 2008
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Immigrants are a vital part of the American economy and of thecountry’s historical identity. The United States prides itself on being a“melting pot” for people from all over the world, and accepts hundreds of thousands of new legal permanent residents each year.
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A surge in immigration over the past decade has pushed the foreign-born population to nearly 40 million and boosted the growth rate of the USlabor force. New immigrants accounted for about half of the growth inthe US labor force over the past decade, boosting GDP growth byroughly ½ of a percentage point per year.
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The net economic benefit of immigration is large and goes beyond asimple increase in the size of the labor force. Immigrants themselvestypically gain enormously from migration, and their US-born children doeven better. Remittances from migrants to relatives back home also benefit their countries of origin. Immigrants appear to have a fairly smallimpact on the level and distribution of wages, and largely offsettingeffects for the federal budget (positive) and state and local budgets(negative).
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Despite the basic openness of the United States and the benefits of immigration, a surge in unauthorized migrants over the past fewdecades—particularly from Mexico—has evolved into a public policycrisis. The majority of recent immigrants are in the country illegally,even as some legal (albeit temporary) work permits go unused.Immigration flows are larger than ever, but the skilled labor market isextraordinarily tight and annual quotas for permits for skilled work visasare exhausted within a few days. In short, current US immigration policyis unrealistic and inefficient.
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Politicians of all stripes are dissatisfied with the current situation, butdisparate views of the desirability of immigration—exacerbated in somecases by an insufficient understanding of the facts of immigration and itsimpact on the economy—impede legislative progress. Voters and politicians differ on whether to focus on legal or illegal immigration, therelative importance of skill-based versus family preferences for immigrants, and the utility of temporary worker programs. Aside fromrecent efforts to step up enforcement, progress on immigration reformwill have to wait until the next administration—and possibly longer.
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The rate of immigration to the United States has already begun to slow,reflecting the political stalemate, increased enforcement efforts againstunauthorized migrants, and economic weakness. Each of these factorsappears likely to persist over the next year or two. Meanwhile, a weaker domestic labor market will discourage immigration, particularly of undocumented workers. Lower immigration flows will reduce labor force growth and consequently the potential growth rate of GDP incoming years.
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Over the long term, the United States is likely to remain an attractivedestination for migrants from around the world, especially those from poorer countries in the Americas. Given a slowdown in native-born population growth, and assuming some degree of openness to immigrantsremains, immigrants are likely to account for the majority of US population growth through 2050—up to four-fifths by some estimates.
Highlights
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