Correction of paper

Illegal Immigration: A Positive Economic Contribution to the United States Ramanujan Nadadur

This paper surveys a range of contemporary issues regarding illegal immigration in the

United States, with a focus on the consequences of undocumented immigrants on the

economy. The analysis looks at the effects of illegal immigration on jobs and wages in a

dual labour market model and the fiscal impacts of illegal immigrants (taxes paid and

costs imposed on society through use of public services). The paper argues that illegal

immigration has a positive impact on the US economy; although illegal immigrants

impose a fiscal cost at the state and local levels, this cost should be addressed by efficiently

allocating resources between the federal and state governments.

Keywords: Illegal Immigration; Dual Labour Market; Undocumented Migrants;

Economic Effects of Immigration; US Economy

Introduction

Throughout its history, the United States has been hailed as a haven for immigrants

from around the world. People have flocked to the nation’s shores, seeking the

freedoms that America guarantees and the economic opportunities that the American

economy presents. In recent decades, however, the increasing presence of illegal

immigrants has been troubling. Scholars have debated whether illegal immigrants

contribute positively or negatively to the United States, and legislators have grappled

with how to deal successfully with this issue. Illegal immigration also raises difficult

questions about the American economy and how the country continues to seek low-

wage labour while at the same time providing opportunities for its citizens. The

terrorist attack of 11 September has brought a new dimension to the debate

surrounding illegal immigration, as politicians and scholars have called for increased

controls of the flow of illegal immigrants as a matter of national security.

Ramanujan Nadadur is doing a Master’s in Forced Migration at Oxford University. Correspondence to:

R. Nadadur, 1 Lord Napier House, 48 Observatory Street, Oxford OX2 6EP, UK. E-mail: [email protected]

ISSN 1369-183X print/ISSN 1469-9451 online/09/061037-16 # 2009 Taylor & Francis

DOI: 10.1080/13691830902957775

Journal of Ethnic and Migration Studies

Vol. 35, No. 6, July 2009, pp. 1037�1052

Illegal immigration, however, is a difficult issue to study. To begin with, the

number of undocumented immigrants entering the United States is not precisely

known. In fact, no census or government survey asks individuals about legal status.

As a result, the measurement of issues pertaining to illegal immigration is difficult

and often indirect (Espenshade 1995). While a great deal of political debate

surrounds illegal immigration today, it is important to evaluate the economic

consequences of this type of immigration in order to decide about its actual merits.

This paper will first characterise the nature of the illegal immigrant population in

the US and examine statistical methods of calculating their numbers. It will then turn

to a brief history of illegal immigration to the US, a history that can be traced from

the end of the Bracero Accord in 1964 to the contemporary post-NAFTA era of illegal

immigration. With this serving as a backdrop, the paper will mainly study the

economic consequences of illegal immigration in the US by focusing on the effects of

illegal immigration on jobs and wages in a dual labour market model and the fiscal

impacts of illegal immigrants (taxes paid and costs imposed on society through use of

public services). It will be seen that illegal immigration has a positive impact on the

US economy and that, in spite of a fiscal cost being imposed at the state and local

levels, efficiently allocating resources between the federal and state governments could

help to solve this dilemma.

Measuring the Illegal Immigrant Population: Methodology and Figures

In addressing the issue of how to measure the number of illegal immigrants in the US,

three major techniques have been adopted:

. Immigration and Naturalization Service (INS) or Department of Homeland Security (DHS) apprehension-based estimates;

. survey-based methodologies; and

. residual estimation techniques.

Apprehensions data calculate the number of illegal immigrants entering the US based

on those apprehended at the border by US officials. This method has some drawbacks

because, first, it measures undocumented immigrants who have failed in their

attempt to enter the US rather than those who succeeded. Second, many migrants are

captured several times in the same period, resulting in multiple counting. Finally, the

level of apprehensions is sensitive to changes in the effectiveness of Border Patrol,

which has little to do with the number of illegal immigrants entering the United

States (Espenshade 1995). Survey-based methodologies, on the other hand, obtain

information about individuals believed likely to be undocumented from samples that

weigh characteristics of the population (i.e. income level, year of arrival, age, country

of birth, educational attainment, sex, receipt of welfare, receipt of Social Security,

veteran and marital status) to produce estimates of the probability that a given set of

individuals are undocumented. 1

Though this method has shown potential, it has

1038 R. Nadadur

been criticised for stereotyping the undocumented population and has not been as

widely used as the residual method (Espenshade 1995).

This paper will rely mainly on figures determined by the residual method as

employed by Jeffrey Passel at the Pew Hispanic Center. In employing the residual

method, one subtracts a Census or Current Population Survey (CPS) estimate of the

legally resident, foreign-born population in the US from the Census or CPS estimate

of the total foreign-born population (Espenshade 1995). The difference between the

two represents the total undocumented population. The major disadvantage of this

method lies in the fact that it probably undercounts the undocumented population

because immigrants are less likely to respond to Census or CPS surveys compared to

native individuals, and it is difficult to quantify this disparity. Nonetheless, it has been

the most-widely used method because it is one of the few that utilise direct estimates

to count the undocumented population. Variations of the residual estimation

technique have been used to count the number of illegal immigrants living in certain

states and their characteristics*sex, age, country of origin, etc. According to Passel’s residual method, there were 10.3 million undocumented

immigrants residing in the US in 2004, accounting for 29 per cent of the total

immigrant population (Passel 2005). The majority of the illegal population is

comprised of those who entered the country without inspection, so-called EWIs. The

next group is those who entered the US legally, for example on a tourist or student

visa, but overstayed the visa and continue to reside in the US. The remainder of the

illegal population is ‘quasi’-illegal immigrants who are out of status but are in the

process of adjusting status or applying for asylum. 2

The bulk of the illegal immigrant

population is comprised of labour migrants who come to the US in search of

economic opportunity (Haines 1999). When looking at country of origin, 57 per cent

of undocumented immigrants come from Mexico. The next largest group originates

in Central America, constituting 15 per cent of the illegal immigrant population

(Passel 2005).

A Brief History of Illegal Immigration

Before looking at the history of illegal immigration to the US, it is important to

examine the general pattern that has characterised illegal migration streams. This

pattern begins with an initial migration of pioneer migrants who were generally

young males working in agriculture or other low-wage jobs. Over time, these pioneers

made multiple trips and accumulated experience and knowledge of the US. With this

experience, more of these illegal migrants settled permanently in the US. After the

pioneer males settled, family integration ensued as wives and children were brought

over and relatives encouraged to migrate. The ‘maturation’ of the migrant stream also

included the introduction of friends and acquaintances into the migratory stream

(Massey et al. 1994).

Many scholars trace the initial roots of illegal immigration to the US to the end of

the Bracero Program. Though its official end in 1964 was meant to herald a shift by

Journal of Ethnic and Migration Studies 1039

agricultural growers to the native labour force and mechanised agriculture, the

Bracero Program created a steady supply of cheap labour from Mexico; as a result,

after 1964, growers substituted illegal labour for the formerly legal bracero labour

(Calavita 1992). The first period of mass illegal immigration thus immediately

followed the Bracero Program and occurred between 1965 and 1986 (Massey et al.

2002). James (1991: 4�5) argues that ‘networks created by workers coming in as braceros were used to aid the subsequent illegal immigration of friends and relatives’.

During this 20-year period, there were increasing numbers of women and children

entering the US illegally. In addition, this period witnessed a diversified demand for

cheap labour in the US that not only included agriculture but other unskilled jobs in

transportation, construction, production and service (Woodrow-Lafield 1999).

In 1986, significant steps were taken by the US government against illegal

immigration with the passage of the Immigration Reform and Control Act (IRCA),

which created civil and criminal penalties for US employers who knowingly hired

undocumented immigrants and authorised a one-time-only ‘amnesty’ programme

which sought to legalise certain immigrants already living in the US (Gonzalez 1997).

Although the IRCA’s amnesty reduced the population of illegal immigrants, scholars

now acknowledge that it largely failed to stem the tide of illegal immigration. As firms

expanded their production, the demand for unskilled labour continued to attract

illegal immigrant workers. By 1990, for example, the Immigration and Naturalization

Service (INS) reported an increasing border apprehensions rate (Massey et al. 2002).

Further, the estimated 2.3 million legalisations of Mexican illegal immigrants by the

IRCA increased the probability that relatives and other acquaintances would migrate

illegally because IRCA legalisations created a larger pool of potential migrants in

Mexico with connections to legal migrants in the US.

Finally, the 1994 passage of the North American Free Trade Agreement (NAFTA)

created a new incentive for migration that had not existed before. Because illegal

immigration has continued unabated in the aftermath of the IRCA, the government

has virtually stopped enforcing the 1986 employer sanctions. In 2003, for example,

the agency levied only $9,300 in fines against employers (Katel 2005).

Thus, current illegal immigration can be traced to policy decisions made in the late

1980s and early 1990s. In short, the last 15 years have shown a marked increase in the

number of illegal immigrants coming to the US. In 1990�94, for example, about 2.2 million undocumented immigrants settled in the US at a rate of 450,000 per year;

between 1995 and 1999, about 3.6 million settled*750,000 per year, and between 2000 and 2004, about 3.1 million*700,000 per year. To put these numbers in perspective, only about 1.3 million undocumented immigrants settled in the US

between 1984 and 1988 (Passel 2005). While many illegal immigrants acquired legal

status through the IRCA, and undocumented immigrant numbers in the 1980s were

probably higher than this figure shows, the last decade has, nonetheless, shown a

marked increase in illegal immigration. In fact, by 2004 the number of undocu-

mented immigrants living in the US was at a new high.

1040 R. Nadadur

Recent data also suggest an increased dispersal of illegal immigrants. In 1990, 45

per cent of the illegal immigrant population lived in California; this number had

fallen to 24 per cent by 2004. The distribution of illegal immigrants across major

states is as follows: 24 per cent (2.4 million) live in California, 14 per cent (1.4

million) in Texas, 4 per cent (400,000) in Illinois, 9 per cent (850,000) in Florida and

7 per cent (650,000) in New York. In addition, the number of undocumented

immigrants in states other than these has increased from 12 per cent of the total

undocumented population in 1990 to 39 per cent in 2004 (Passel 2005).

The Labour Market Impact of Illegal Immigration

Classical economics holds that immigration benefits the host country because it

subsidises the labour supply. In short, the sending country bears the costs of raising a

worker to the age when s/he is ready to enter the labour market. As a result, the

sending country pays for the labour productivity of the receiving country. According

to this argument, immigrants also positively benefit the economy by increasing

demand, spurring investment, and keeping receiving-country industries competitive

through enhancing capital productivity (Borjas 1994).

When examining the issue of illegal immigration in the US, however, many

contemporary economic theorists have focused on the negative economic effect illegal

immigration has on the labour market. These critics have argued that significant

numbers of illegal immigrants harm the economy by displacing low-skilled natives,

depressing wages and neutralising market pressures that would otherwise result in a

rising trend in wages. Labour unions and native US workers have often adopted this

line of reasoning in calling for stricter immigration controls to protect US jobs and

safeguard the wage structure. On the other hand, scholars have argued that illegal

immigrants perform jobs that no US worker will fill; as a result, these scholars hold

that reducing the illegal immigrant population would be devastating to the US

economy (Lerman and Schmidt 1999). In order to examine the labour market effects

of illegal immigration in detail, this section will examine a dual model of the US

labour market and seek to demonstrate the consequences of illegal immigrants on

jobs and wages in the US.

Labour Market Theory

What exactly does dual labour market theory hold? Specifically, the theory divides the

economy into two segmented labour markets: the primary and the secondary sectors.

The secondary sector is differentiated from the primary by short-term employment

relationships and little or no prospect of internal promotion. In terms of occupations,

this sector consists primarily of low or unskilled work or service jobs, linked by the

fact that they are characterised by low earnings, job impermanence and low returns

on education. Primary labour markets, on the other hand, are characterised by skilled

work, employment stability, the presence of job ladders, effective trade unions and

Journal of Ethnic and Migration Studies 1041

efficient management. In adopting a dual labour market model, production functions

have three variables: capital and two types of labour input (Smith and Edmonston

1998: 15).

Segmentation of the labour market occurs because of the way in which employers

use capital and primary labour as opposed to secondary labour to deal with the

uncertainties of the economy. Workers in the primary sector are ‘capital intensive’

and are costly to acquire, train and lose; workers in the secondary sector are less costly

to train and less costly to lose. Since employers face unstable demand for their

products, these employers have the incentive to use skilled labour to meet stable

portions of demand and unskilled labour to satisfy unpredictable portions. This

results in the secondary labour market being characterised by job insecurity, low

wages and little prospect of upward mobility. When using this model in conjunction

with immigration, this theory holds that native workers generally seek jobs in the

primary sector of the economy where higher skills are required, pay is better and job

status is secure. The shortage of labour in the secondary sector forces employers to

turn to immigrant, unskilled labour to meet the less-stable demand (Espenshade

1995).

Dual Market Theory in Practice: Illegal Immigrants in the US

There are several other theories that seek to explain immigration and its relationship

to the labour market. Dual labour market theory is beneficial in understanding illegal

immigration, however, because it accounts for the characteristics that separate the

illegal immigrant, low-wage sector from the rest of the labour market. In addition,

research has found that competing immigration and labour market theories*the Neoclassical and the Marxist, for example*are not mutually exclusive with a dual labour market but are, instead, complementary in explaining the labour market

effects of immigration (Meyers 2000).

So why is illegal immigration in the US labour market best modelled by a

predominantly dual labour market approach? First, illegal immigrants are more

temporary than legal immigrants and fit the profile of labour needed by secondary-

sector jobs. Second, illegal immigrants are more willing than legal immigrants and

native workers to take jobs where high labour turnover and poor working conditions

have become a part of the labour process (Marcelli 1999). Thus, the inherent

characteristics of illegal immigrant labour cause these immigrants to take jobs in the

secondary sector. Furthermore, illegal immigrants are ideal representatives of the dual

labour market model since they pose little threat of crossing over between markets.

As evidence of the segmentation of the labour market between a secondary sector

filled by illegal immigrants and a primary sector comprised of native workers, studies

by, amongst others, Espenshade (1995), Massey (2005) and Massey et al. (2002), have

shown that illegal immigrants occupy unskilled jobs that involve low wages, tend to

be temporary and where working conditions are harsh, unpleasant and unsafe. For

example, while only 4.3 per cent of workers in the entire labour force are

1042 R. Nadadur

undocumented, 20 per cent of farming occupations, 17 per cent of cleaning

occupations, 12 per cent of construction and 11 per cent of food preparation

occupations are held by undocumented workers (Passel 2005). Furthermore, in

examining a variety of specific occupations in the secondary sector in 2004, the

number of undocumented immigrants ranged between 20 and 27 per cent.

Additional evidence of the segmentation of the labour market between skilled

workers and illegal immigrants can be traced to the fact that undocumented

immigrants are paid less than other workers. Illegal immigrants receive the same

wages as native and legal immigrant workers with comparable levels of skill, therefore

the difference in overall wages can be attributed to the lack of labour market

experience and human capital that characterise illegal immigrants (Espenshade 1995;

Massey 2005; Massey et al. 2002). Specifically, the education levels of illegal

immigrants only open certain jobs to them. For example, it is estimated that 32

per cent of undocumented adults did not complete 9 th

grade compared to only 12 per

cent of legal immigrants and 2 per cent of natives (Espenshade 1995). Consequently,

the limited educational levels that characterise illegal immigrants and the lower pay

that they earn serve to demonstrate that only the secondary portion of the labour

market is accessible to them.

The final evidence of the segmentation of the labour market between a secondary

sector open to illegal immigrants and a primary sector is the fact that illegal

immigrants show a great deal of mobility between jobs in the secondary sector. For

example, studies have shown that illegal agricultural workers transfer to other

unskilled jobs as time progresses and they acquire more US-specific skills (Marcelli

1999). Nonetheless, illegal workers have not adequately shown the ability to leave the

secondary labour market for the primary. While basic economic theory suggests that

workers in the labour market increase wages and enhance job opportunities by

gaining experience and knowledge over time, the lack of mobility for illegal

immigrants from the secondary to the primary sector confirms that the labour

market is segmented and prevents this type of upward mobility (Woodrow-Lafield

1999).

Illegal Immigrants and Competition for Jobs in the Secondary Sector

Though the analysis up to this point has established that the labour market is

partitioned and that illegal immigrants predominantly occupy secondary-sector jobs,

one could argue that, even if the labour market takes on a dual structure, illegal

immigrants and native workers compete within the secondary sector. 3

As noted

above, an average of 24 per cent of undocumented workers are found in secondary-

sector jobs, implying that a significant number of native workers are also to be found

there.

While this analysis appears to be well founded, it assumes that there is a one-to-

one relationship between native workers and illegal immigrants; for every job that an

illegal immigrant occupies, he/she is competing directly with a native worker. Studies

Journal of Ethnic and Migration Studies 1043

suggest, however, that illegal immigrants offset a labour shortage in the secondary

sector and hence do not compete directly with native workers. For example, though

the native unemployment rate for food preparation jobs is 9 per cent (Camarota

2005), 25 per cent of these jobs are held by illegal immigrants (Passel 2005). Similarly,

though the native unemployment rate is 12 per cent in farming occupations

(Camarota 2005), illegal immigrants hold 20 per cent of them (Passel 2005). In short,

there are more jobs in the secondary sector than there are native workers to fill those

jobs. Further, the labour shortage in the secondary sector is growing. According to

Daniel Griswold, 4

the native high-school dropout rate has fallen to 10 per cent, an all-

time low, and is continuing to fall. This means fewer natives are drawn to unskilled

secondary-sector jobs. Thus, illegal immigrants only compete with native workers to

a limited extent; for the most part, these immigrants satisfy the growing labour

shortage in the secondary labour market.

Critics, such as Camarota (2005), who argue that native workers and illegal

immigrants compete within the secondary labour market also aggregate all local

labour markets in the US into a single one; proponents of this line of reasoning make

the neoclassical assumption that mobility between local labour markets in the US is

free. In reality, however, local labour markets in the US are isolated from one another

and mobility between them is restricted (Osterman 2001). In addition, the illegal

immigrant population is concentrated in certain cities and states. It is estimated, for

example, that 20 per cent of the 4.2 million labour-force participants in the Los

Angeles market are illegal immigrants of Latino origin (Marcelli 1999). Consequently,

the labour markets in cities with a high concentration of illegal immigrants have a

secondary sector filled by them. Labour markets in cities where illegal immigrants are

not found, on the other hand, employ native unskilled labour in the secondary

market. Accordingly, natives do work in secondary-sector jobs, as seen above.

However, they do not compete directly with illegal immigrants because they do not

necessarily work in the same local labour markets.

Illegal Immigrants, Complements and Wage Effects of Illegal Immigration

There is also a lack of evidence demonstrating that illegal immigrants and native

workers occupy the same jobs even when considering that some native workers work

in secondary-sector jobs alongside illegal immigrants. Marcelli (1999) demonstrates,

for example, that the index of dissimilarity between Mexican undocumented

immigrants and other workers in the labour force is 40.73. This index is measured

by ‘taking the difference between how a given ethno-racial group and all other labor

force participants are proportionally represented in each of the 42 occupational, 40

industrial and 8 class of worker categories, summing up the differences for each

group, and dividing each group by half ’ (Marcelli 1999: 200). To put this figure in

perspective, the index of dissimilarity for white immigrants to the US is 19.55,

indicating that they occupy much more similar jobs to other labour force

participants. Consequently, Marcelli argues that undocumented immigrants do not

1044 R. Nadadur

compete for the jobs of native US workers and that a continued flow of

undocumented immigrants would benefit the majority of persons residing in the

US by complementing their labour market position instead of competing for it

(Marcelli 1999). Evidence that illegal immigrants are complements in the labour

market has also been put forth by Djajic (1997), who demonstrates that, since natives

and illegal immigrants do not compete in the same sector for the same jobs, illegal

immigration provides benefits not only to capital but also to all native workers.

Regardless of whether or not illegal immigrants act as complements, however,

scholars have buttressed the claim that illegal immigrants do not adversely affect the

wages and earnings of other labour-force participants. For example, Espenshade

(1995: 214) argues that ‘undocumented migrants have little effect on the earnings of

individuals in five other labor force categories’, while Djajic (1997) holds that, in a

sufficiently segmented domestic labour market, native workers are largely insulated

from direct employment and wage effects of illegal immigration. Finally, statistical

evidence for the view that undocumented workers depress the wages of other

participants in the labour market is derived largely from case studies of a single

labour market (Camarota 2004, 2005). When the broader US economy is examined

adopting a dual labour market view, it is hard to find strong evidence of negative

wage effects on native workers. This can be attributed to the fact that a significantly

segmented labour market shields native workers from the wage effects of an influx of

illegal immigrants. 5

Furthermore, since illegal immigrants and native workers occupy

different jobs, the former cannot exert downward pressure on native wages.

In addition, when examining the effects of illegal immigrants on skilled native

workers in the primary sector, illegal immigrants confer significant economic benefit

by acting as gross complements to native skilled workers (Newman 2006). Dual

labour market theory suggests that skilled natives are averse to jobs that involve

manual labour or poor working conditions. This desire to avoid secondary-sector

jobs indicates that illegal immigrants have a comparative advantage in unskilled jobs.

Consequently, when illegal workers occupy secondary-sector jobs for less cost, it

allows skilled workers in the US to occupy primary-sector jobs where they have a

comparative advantage. The result is greater economic productivity. Although

unskilled native workers may theoretically lose from the influx of illegal immigrants

(evidence has not borne this out, as noted earlier), the overall income of the native

population increases; in theory, losses to native low-skilled labour are offset by the

benefits to native skilled labour (Massey et al. 1993).

Illegal immigrants also have positive effects on all participants in the US economy

by decreasing consumer costs. As low-wage undocumented workers immigrate to the

US to fill the secondary labour market, products and services become cheaper

because illegal immigrants work for lower wages, thus providing a kind of subsidy to

American consumers. For instance, as noted before, a significant portion of US farm-

workers are illegal immigrants who generally work for lower wages. As a result, the

Agriculture Department’s Economic Research Branch has found that American

consumers pay less for food than the citizens of any other industrialised country

Journal of Ethnic and Migration Studies 1045

(Katel 2005). Consequently, because illegal immigration serves to allow businesses to

minimise their costs of production in the secondary sector, it positively impacts

income of all native workers by decreasing consumer costs. Thus, on the whole,

research indicates that illegal immigrants do not take jobs away from native workers

and depress wages but, in fact, serve to spur economic productivity and decrease

consumer costs in the US.

Illegal Immigrants as Consumers

Illegal immigrants also positively contribute to the US economy as consumers in the

market. Though there have not been significant quantitative estimates of the

contribution that illegal immigrants make, it is important to acknowledge their

impact. Hinojosa (2005) estimates that 90 per cent of the wages that the

undocumented population earns are currently spent inside the US. As a result, he

holds that the total consumptive capacity of illegal immigrants remaining in the US is

around $450 billion (Cater et al. 2005).

Recent years have also witnessed a marked increase in the use of matrı́cula cards* photo identification cards given out by the Mexican consulate to Mexican nationals;

the Mexican government reports that a vast majority of matrı́cula applicants do not

have documented status (Delson and Gorman 2005). Nonetheless, these cards are

accepted as valid identification by companies such as Sprint, Costco and Wells Fargo,

which has, for example, opened 525,000 matrı́cula accounts (6 per cent of the bank’s

total). Another company*No Borders Inc.*sells debit cards to matrı́cula-holders on which they can store cash and send remittances home. In addition, health insurers

like Blue Cross of California have begun to sell health insurance to matrı́cula-holders.

The growth in acceptance of matrı́culas demonstrates the growing desire on the part

of US businesses to capture the consumer buying power of illegal immigrants.

Specifically, Business Week magazine reports that, ‘U.S. consumer companies*banks, insurers, mortgage lenders, credit-card outfits, phone carriers, and others*have decided that a market of 11 million potential customers is simply too big to ignore’

(Carter 2005). In addition, since 84 per cent of illegal immigrants are 18�44-year-olds and in their prime spending years (Passel 2005), the positive contribution that illegal

immigrants make as consumers is an important issue to recognise when considering

the economic consequences of illegal immigration.

Fiscal Impacts

This section offers an introduction to important issues regarding the fiscal impact of

illegal immigration by examining whether undocumented residents in the United

States receive more in publicly provided social services than they pay for in taxes. In

short, illegal immigrants impose costs on government that include enrollment in

public schools and the use of emergency health services. Further, many illegal

immigrants pay payroll taxes (such as Social Security) that are automatically

1046 R. Nadadur

subtracted from their pay and excise taxes that are incorporated into the prices of

goods such as fuel. Unfortunately, research done by, inter alia, Borjas and Hilton

(1996) and Berk et al. (2000), measuring the fiscal impact of illegal immigrants, has

yielded a range of competing estimates. As a result, though an exact monetary value

cannot be discerned, it appears that illegal immigrants impose an overall fiscal cost, a

cost that is concentrated at the state and local levels. Further research is necessary to

arrive at reliable figures in order to gauge the fiscal impact of illegal immigration.

Public Service Costs

In examining the use of public services by illegal immigrants, three distinct costs

stand out: health care, education and incarceration. Though the Illegal Immigration

Reform and Immigrant Responsibility Act (IIRIRA) of 1996 barred illegal immigrants

from most public services, federal law continues to provide illegal immigrants with

access to emergency medical services and assistance for pregnant women and infants.

However, since maternity/infant assistance is given not only to a mother, but also for

the benefit of US citizen children, the largest unilateral health cost that illegal

immigrants impose is by way of emergency care. In terms of education, the Supreme

Court decision Lau v. Nichols (1974) held that the rights of non-English-speaking

students were violated when public schools did not take steps to teach them the

language of instruction. Further, the case of Plyler v. Doe (1982) guaranteed illegal

immigrant children public education. 6

As a result, public schools are required to

provide education to all students regardless of immigration status and are prohibited

from requiring proof of status. The final major source of public costs stemming from

illegal immigration comes from incarcerating those illegal immigrants who commit

crimes while in the US.

Before looking at studies that have measured the fiscal costs of illegal immigrants,

it is important to examine the extent to which illegal immigrants are prone to use

public services. Specifically, in terms of gender distribution, 4.9 million or 56 per cent

of undocumented immigrants are adult males, 3.9 million or 37.5 per cent are adult

females and 1.6 million or 15.4 per cent are undocumented children (Passel 2005).

People have thus argued that the demographic distribution of illegal immigrants

indicates that they are not as likely to use government assistance because a wife or

child is probably a heavier user of public service compared to an adult male (Berk

et al. 2000). Furthermore, research on general trends in immigrant families indicates

that immigrants are less likely than natives to use public services (Borjas and Hilton

1996). An additional fear of being discovered by the immigration authorities could

potentially deter undocumented immigrants from utilising public services. For

example, a 2000 Health Affairs study determining health-care use among undocu-

mented immigrants found that they are far less prone to use any health-care service

available to them when compared with the resident population (Berk et al. 2000).

Regardless of their alleged propensity to shy away from public services, however,

figures indicate that illegal immigrants do utilise those services available to them. In

Journal of Ethnic and Migration Studies 1047

looking at estimates of health care, for example, a comprehensive report released by

the Center for Immigration Studies (CIS) in 2004 estimated that households headed

by illegal immigrants create health-care costs totalling $658 million yearly at the

federal level by imposing a significant burden on Medicaid and uncompensated

emergency care treatment (Camarota 2004). A similar study released by the

Federation of American Immigration Reform (FAIR) held that, in 2004, uncompen-

sated medical care accounted for $1.4 billion in illegal immigrant costs on California

(FAIR 2004). Since these studies focus on entire households, however, they do not

necessarily account for the fact that a significant portion of this service benefits US

citizen children and is, thus, not a fiscal cost imposed by illegal immigrants directly.

Another important study released by the Urban Institute in 1995 showed aggregate

Medicaid and emergency care costs of $445 million annually in the seven states with

the highest concentration of undocumented immigrants 7

(Clark et al. 1994).

Although the study was undertaken before 1996 legislation barred illegal immigrants

from significant health-care benefits, and the monetary value measured has not been

adjusted for 10 years of inflation, the range of findings that these three studies present

indicates that there has not been sufficient consensus regarding the health costs of

illegal immigrants. This reflects the conclusion reached by a Government Account-

ability Office (GAO) study which held that ‘until reliable information is available on

undocumented aliens and the costs of their care, accurate assessment of their

financial effect on hospitals will remain elusive’ (GAO 2004a).

A similar need for further research is found in estimating the costs of educating

illegal immigrant children. The CIS estimate released in 2004 indicated that

education costs $371 million per year at the federal level (Camarota 2004). The

estimate, however, did not include state-level expenditures on education which

account for the majority of education costs. In looking at state-level costs, the 2004

FAIR study found that illegal immigrants impose a $3.2 billion yearly cost on

education in California. As noted before, these studies focus on household

expenditures and do not take into account US citizen children as part of illegal

immigrant households. Finally, the Urban Institute study of 1995 found that

education was the highest public expenditure that illegal immigrants imposed,

accounting for a total of $3.08 billion dollars in the seven states surveyed, with

California bearing a burden of $1.3 billion annually. Thus, similar to health-care

costs, the monetary values found by the studies summarised here do not paint a

consistent picture. As a result, according to a GAO report on education, ‘the current

information available is not sufficient to quantify the costs of educating illegal alien

school-children’ (GAO 2004b: 1).

Finally, in examining incarceration costs, a study released by the Urban Institute in

2000 based on the initial estimates of the 1995 study indicated that 14,262 illegal

immigrants were identified among state prisoners in 1995 from California, Texas,

New York, Florida, Illinois, Arizona and New Jersey. Based on the costs of housing

single prisoners, the total cost of incarcerating illegal immigrant prisoners was $474.2

million per year in the seven states, with California facing a cost of $367.7 million

1048 R. Nadadur

(Clark and Anderson 2000). The 2004 FAIR study, on the other hand, reported that

incarceration cost California alone $1.4 billion in 2003. Consequently, the disparity in

measurements indicates that sufficient agreement has also not been reached as to the

incarceration costs of illegal immigrants. The general conclusion that can be drawn

from these figures, however, is that illegal immigrants do impose a distinct fiscal cost

in terms of health care, public education and incarceration.

Taxes

So do illegal immigrants’ tax contributions actually pay for the fiscal cost that they

generate? Unfortunately, this question not been adequately researched. This lack of

data is complicated by the fact that there is no means of discriminating tax revenues

collected from illegal immigrants alone from total tax revenues collected (Camarota

2004). The Urban Institute estimated in 1995 that illegal immigrants paid about $1.9

billion in taxes 8

in the seven states studied ($732 million to California) and, in fact,

accounted for a marginal fiscal surplus at the aggregate level (Clark et al. 1994). Once

again, these numbers do not show a consistent pattern; nonetheless, considering that

the remainder of the US immigrant population paid $15.1 billion in income and

payroll taxes in 2004 (Camarota 2004), the trend seems to indicate that illegal

immigrants pay much less in taxes than legal immigrants given their relative

population. According to Passel (2005), 19 per cent of immigrant income and payroll

taxes were paid by undocumented immigrants in 2004 while undocumented

immigrants made up 29 per cent of the immigrant population in that year. Though

this could demonstrate the fact that illegal immigrants are enjoying benefits without

paying their share of tax revenue, it is also important to note that illegal immigrants

earn significantly less than legal immigrants and, thus, would pay less in taxes.

Data gathered by the Mexican Migration Project demonstrated that undocumented

immigrants do pay taxes; 66 per cent of undocumented migrants reported that their

employers withheld Social Security taxes from their pay and 62 per cent that

employers withheld income taxes (Massey 2005). Similarly, in a sample of

undocumented immigrants in Houston, Djajic (1997) found that 77 per cent paid

social security taxes and 73 per cent paid income taxes deducted from the general

pool. In addition, the Washington Post reports that, between 1990 and 1998, more

than $20 billion was unaccounted for in the Social Security fund; the government

believes that a significant portion of this payment came from illegal immigrants who

gave their employers false Social Security numbers (Sheridan 2001). Finally, illegal

immigrants have no choice but to pay excise taxes that are deducted directly from

purchases. Though further research is needed in this area, it would appear from the

limited studies that illegal immigrants do make tax contributions while using public

services. On the whole, however, it seems that illegal immigrants are a net fiscal cost

because estimates of their tax contributions do not match the costs they impose in

terms of public services.

Journal of Ethnic and Migration Studies 1049

State v. Federal

Though there are varying estimates of the exact monetary fiscal impact of illegal

immigration, the relationship between the federal and state governments is at the

centre of the debate. In a speech in 2003, for example, California Senator Diane

Feinstein said that ‘the federal government has consistently failed to respond to the

needs of state and local communities struggling to stay afloat on account of

the growing costs of illegal immigration’ (FAIR 2004). Specifically, the bulk of tax

contributions from illegal immigrants go to the federal government; costs, on the

other hand, are imposed at the state and local levels. For example, the 2004 GAO

report on the costs of emergency health care to illegal immigrants indicated that state

and local governments absorb the lion’s share of the costs of providing uncompen-

sated emergency medical care to undocumented immigrants. In short, though studies

have been inconsistent as to the monetary value of the fiscal impact of illegal

immigrants, they have reached a general consensus that illegal immigrants do impose

a significant fiscal cost on state and local governments. While households headed by

native-born individuals are typically a fiscal burden at the state and local levels as well

(Espenshade 1995), the allocation of revenues and costs between the federal and state

governments must be proportionate. A report released by the National Research

Council in 1996 thus calls for ‘federal aid to states and local areas because of the effect

of illegal immigration on public service costs’ (Edmonson and Lee 1996: 9).

Conclusion

This paper has overviewed a range of issues regarding illegal immigration. While it is

difficult to draw an overarching conclusion from the information surveyed, one can

infer that, in terms of economic consequences, illegal immigration benefits the US,

especially when considering that the US labour market is segmented between a

primary and a secondary sector. Future immigration policy should recognise that

illegal immigration has a significant and positive impact on the US economy.

When considering fiscal impacts, however, it appears that illegal immigrants are a

net fiscal cost. Though additional research is necessary to determine the specific

monetary fiscal costs that illegal immigrants impose and the tax contributions that

are made, it is important to note that fiscal costs are disproportionately borne at the

state and local levels. Consequently, the fiscal cost of illegal immigration is also a

question of the allocation of resources between federal and state governments.

Notes

[1] Personal interview with Steven Camarota, 18 April 2006.

[2] In looking at the composition of the illegal immigrant population, one can generally divide

the population into two groups: those entering the labour market and those seeking refuge in

the United States from persecution based on political or religious beliefs (for more, see Passel

2005).

1050 R. Nadadur

[3] Personal interview with Steven Camarota, 18 April 2006.

[4] Personal interview, 28 March 2006. Daniel T. Griswold is Director of the Center for Trade

Policy Studies at the Cato Institute in Washington, DC.

[5] It is important to note that, while shielding may take place in the short term, maintenance of

low-wage jobs generally hinders the development of high-wage jobs in the future.

[6] Lau v. Nichols (1974) US Supreme Court Center. Online at www.justia.us/us/414/563/; Plyler

v. Doe (1982) Oyez. Online at: www.oyez.org/oyez/resource/case/309/.

[7] These seven states are: California, New York, New Jersey, Texas, Florida, Illinois and Arizona.

[8] This includes income taxes, state sales, taxes and property taxes paid by undocumented

immigrants.

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