Correction of paper

immigrationreform.pdf

Home >English homework help >Article writing homework help >Correction of paper

THE ECONOMIC BENEFITS OF

COMPREHENSIVE IMMICRATION REFORM

Raúl Hinojosa-Ojeda

The U.S. govemment has attempted for more than two decades to put a stop to unauthorized immigration from and through Mexico by implementing "enforcement-only" measures along the U.S.-Mexico border and at work sites across the country. These measures have failed to end unauthorized immigration and have placed downward pressure on wages in a broad swath of industries.

Gomprehensive immigration reform that legaUzes currently unau- thorized immigrants and creates flexible legal Umits on future immi- gration in the context of fuU labor rights would help American workers and the U.S. economy. However, the federal govemment's current poUcy is to step up its enforcement-only strategy without cre- ating a path to legaUzation for the miUions of undocumented immi- grants currently Uving in the country.

Despite evidence that comprehensive reform would raise the "wage floor" for the entire U.S. economy, to the benefit of both immigrant and native-bom workers, states such as Georgia, Alabama, and South GaroUna have responded to federal delay tactics by enact- ing laws that restrict the rights of immigrants and invite racial profil- ing by local law enforcement. The most weU-known of these laws is S.B. 1070 in Arizona, which remains largely unenforced due to legal chaUenges to its constitutionaUty by the U.S. Department of Justice.

Raúl Hinojosa-Ojeda is Founding Director of the North American Integration and Development Center at the University of California, Los Angeles. He wishes to thank Robert McCIeery and Fernando De Paolis of the Monterrey Institute for Intemational Studies, and Paule Cruz Takash and Juan Contreras of the NAID Center, for their assistance.

175

C A T O JOURNAL

S.B. 1070 is specifically designed to trigger a mass exodus of undoc- umented immigrants from the state by making "attrition through enforcement the public policy of all state and local govemment agen- cies in Arizona" (State of Arizona 2010). Other states such as Califomia, which attempted to take a similar path to Arizona's with its restrictive Proposition 187 in 1994, debate the merits of immigra- tion refonn while awaiting decisive action by the federal govemment.

The Arizona crackdown may play well politically for some local elected officials, but is it in the best economic interests of the state? The purpose of this article is to provide an answer to that basic ques- tion by presenting an economic analysis of the effect of different reform scenarios. If S.B. 1070-type laws accomplish the declared goal of driving out all undocumented immigrants, what effect will it actually have on national, state, and local economies? Conversely, what would be the impact on state economies if undocumented immigrants acquired legal status? The economic analysis in this arti- cle shows that the S.B. 1070 approach would have devastating eco- nomic consequences if its goals were accomplished.

The historical experience of legahzation under the 1986 Immigration Reform and Control Act indicates that comprehensive immigration reform would raise wages, increase consumption, create jobs, and generate additional tax revenue. Even though IRCA was implemented during a period that included a recession and high unemployment (1990-91), it stiU helped raise wages and spurred increases in educational, home, and small business investments by newly legalized immigrants. Taking the experience of IRCA as a starting point, we estimate that comprehensive immigration reform would yield at least $1.5 trillion in added U.S. gross domestic prod- uct (CDP) over 10 years.^ This is a compelling economic reason to move away from the current "vicious cycle" where enforcement-only policies perpetuate unauthorized migration and exert downward pressure on already low wages, and toward a "virtuous cycle" of worker empowerment in which legal status and labor rights exert upward pressure on wages.

'Similarly, an August 2009 report from the Cato Institute, which also uses CCE modeling, estimated that "a policy that reduces the number of low-skilled immi- grant workers by 28.6 percent compared to projected levels would reduce U.S. household welfare by about 0.5 percent, or $80 billion," while "the positive impact for U.S. households of legalization under an optimal visa tax would be 1.27 percent of CDP or $180 billion" (Dixon and Rimmer 2009).

176

COMPREHENSIVE IMMIGRATION REFORM

In this article, I use a computable general equiHbrium (CGE) model to estimate the economic ramifications of diree different sce- narios: (1) comprehensive immigration reform that creates a pathway to legal status for unauthorized immigrants in the United States and estabHshes flexible Hmits on permanent and temporary immigration that respond to changes in U.S. labor demand in the future; (2) a pro- gram for temporary workers only that does not include a pathway to permanent status or more flexible legal Hmits on permanent immi- gration in the future; and (3) mass deportation to expel aU unautho- rized immigrants and effectively seal the U.S.-Mexico border. In addition to the national-level analysis, I look at the effect of the two extremes of immigration reform (scenarios 1 and 3) on Arizona and CaHfomia, the former because mass depletion of the immigrant workforce is a real threat in Hght of S.B. 1070, and the latter because it is home to more immigrants than any other state. Within CaHfomia, I focus on Los Angeles County to see tlie effects of the different reform scenarios at the local level.

The CGE model shows that comprehensive immigration refonn produces the greatest economic benefits:

• Comprehensive immigration reform generates an annual increase in U.S. GDP of at least 0.84 percent. This amounts to $1.5 triUion in additional GDP over 10 years. It also boosts wages for both native-bom and newly legaHzed immigrant workers. The effects would generate a $5.3 biUion increase in CaHfomia, a $1.9 biUion increase in Los Angeles County, and a $1.68 bilHon increase in Arizona.

• The temporary worker program generates an annual increase in U.S. GDP of 0.44 percent. This amounts to $792 biUion of additional GDP over 10 years. Moreover, wages decHne for both native-bom and newly legaHzed immigrant workers.

• Mass deportation reduces U.S. GDP by 1.46 percent annuaUy. This amounts to $2.6 triUion in lost GDP over 10 years, not including the actual cost of deportation. (2) Wages would rise for less-skiUed native-bom workers, but would decHne for higher- sldUed natives, and would lead to widespread job loss. GaHfomia would lose 3.6 miUion jobs under this scenario and its economy would shrink $302 biUion. Los Angeles County would suffer 1.3 miUion job losses at a cost of $106 biUion to the county econ- omy. In Arizona, mass deportation would amount to 581,000 lost jobs and a $48.8 billion contraction of the state economy.

177

C A T O JOURNAL

America's current approach to immigration policy, exemplified by Arizona's S.B. 1070, is economically self-destmctive. A more forward- looking approach that puts all workers on a legal, even footing offers opportunity for a costless stimulus to local economies that improves fiscal balances in the short term and lays the foundation for robust, just, and widespread growth.

Enforcement-Only Policies Are Costly, Ineffective, and Counterproductive

In March 2006, Michael Cherioff, then secretary of Homeland Security, stated: "When you try to fight economic reality, it is at best an expensive and very, very difficult process and almost always doomed to failure" (Alden 2006). The current enforcement-only approach to unauthorized immigration is not cost-effective and has not deterred unauthorized migrants from coming to the United States when jobs are available. Rather, enforcement-only policies have wasted billions of taxpayer dollars while pushing unauthorized migration further underground. These policies have produced a host of unintended consequences: more deaths among border crossers, greater demand for people smugglers, less "circular migration" in favor of more "permanent settlement" among unauthorized immi- grants, and further depressing of wages in low-wage labor markets. To date, significant declines in unauthorized immigration have occurred only during downturns in the U.S. economy when labor demand is dampened. Ironically, demographic trends in Mexico will likely accomplish what tens of billions of dollars in border enforce- ment clearly have not: a decline in the supply of migrants from Mexico who are available for jobs in the United States.

High Costs and No Benefits

The number of unauthorized immigrants in the United States has increased dramatically since the early 1990s despite equally dramatic increases in the amount of money the federal govemment spends on immigration enforcement. Since 1992, the year before the current era of concentrated immigration enforcement along the U.S.-Mexico border, the annual budget of the U.S. Border Patrol has increased by 714 percent, from $326 million in Fiscal Year 1992 to $2.7 billion in FY 2009 (DHS 2009). The cost ratio of Border Patrol expenditiires to apprehensions has increased by 1,041 percent, from $272 per

178

COMPREHENSIVE IMMIGRATION REFORM

apprehension in FY1992 to $3,102 in FY 2008. At the same time, the number of Border Patrol agents stationed along the sonthwest bor- der has grown by 390 percent, from 3,555 in FY 1992 to 17,415 in FY 2009 (DHS 2004, 2008, 2009).

The budget for U.S. Customs and Border Protection, the Border Patrol's parent agency within the Department of Homeland Security, has increased by 92 percent from $6.0 bilUon in FY 2003 to $11.3 biUion in FY 2009. The bndget of Immigration and Gnstoms Enforcement (IGE), the DHS's interior-enforcement counterpari to GBP, has increased by 82 percent, from $3.3 biUion in FY 2003 to $5.9 biUion in FY 2009 (DHS 2011). Yet the nnautliorized immigrant population of the United States has roughly tripled in size over the past two decades, from an estimated 3.5 miUion in 1990 to 11.9 mU- Uon in 2008. The number of unauthorized immigrants in the country appears to have declined sUghtly since 2007 in response to the reces- sion which began at the end of that year (Passel and Gohn 2009: 1; Hoefer, Rytina, and Baker 2009: 1-2; U.S. Immigration and Natnralization Service 2003: 10).

The fact is that nearly aU nnanthorized migrants stiU eventuaUy succeed in entering the United States despite tens of billions of dol- lars of immigration-enforcement spending since the early 1990s. Wayne GomeUns and his coUeagnes at the University of Galifomia, San Diego, have conducted a long-term stndy of" nnanthorized migration and found that the vast majority of unandiorized immi- grants (92 to 98 percent) keep trying to cross the border until tliey make it (Passel and Gohn 2008: 1; Hoeer, Rytina, and Baker 2009: 1). GomeUus has concluded that "tightened border enforcement since 1993 has not stopped or even disconraged migrants from entering the United States. Neither the higher probability of being apprehended by the Border Patrol, nor the sharply increased danger of clandestine entry through deseris and mountainous terrain, has discouraged potential migrants from leaving home"—^provided tliat U.S. jobs are available (Gomelius et al. 2008: 3). Gomelius and his team have also fonnd that far fewer Mexicans are coming to the United States with the onset of recession in December 2007 (Gomelius 2006).

The Unintended Consequences of Border Enforcement

Enforcement-only border policies have not stopped or even slowed the pace of nnauthorized immigration, but they have distoried

179

GATO JOURNAL

the migration process in ways that produce unintended consequences which are detrimental for both the U.S. economy and unauthorized migrants tliemselves.

L Making the Southwestem Border More Lethal. By channeUng unauthorized migrants through extremely hazardous mountain and desert areas, rather than the relatively safe urban corridors used in the past, the concentrated border-enforcement strategy has contributed to a surge in migrant fataUties since 1995. The U.S. Govemment AccountabiUty Office (2006) has esti- mated that the number of border-crossing deaths doubled in the decade foUowing the beginning of enhanced border- enforcement operations (see GomeUus 2009). A report by the American Givil Liberties Union of San Diego and Imperial Gounties estimates that 5,607 migrants died while crossing the border between 1994 and 2008 (AGLU 2009).

2. Creating New Opportunities for People Smugglers. Stronger enforcement on the U.S.-Mexico border has been a bonanza for the people-smuggling industry. Heightened border enforcement has made smugglers essential to a safe and suc- cessful crossing by closing safer, traditional routes. Wayne GomeUus's research in mral Mexico shows that more than 9 out of 10 unauthorized migrants now hire smugglers to get them across the border. Only a decade ago, use of smugglers was the exception rather than the mle (Jimenez 2009:19). And the fees that smugglers charge have tripled since 1993. By January 2006, the going rate for Mexicans was $2,000 to $3,000 per head, and there is evidence of a further rise since that time (GomeUus 2006). But, even at these prices, it is stiU economi- cally rational for migrants—and, often, their relatives Uving in the United States—to dig deeper into their savings and go deeper into debt to finance iUegal entry.

3. Promoting Permanent Settlement in the United States. Given the high costs and physical risks of unauthorized entry, migrants have a strong incentive to extend their stays in the United States; and the longer they stay, the more probable it is that they wiU settle permanendy (Preston 2009).

4. Depressing Low-Wage Labor Markets. The enhanced enforce- ment regime moves unauthorized workers further under- ground, lowering their pay and, ironicaUy, creating a greater

180

COMPREHENSIVE IMMIGRATION REFORM

demand for unauthorized workers. A 2008 report from the Federal Reserve Bank of Adanta analyzes how this vicious cycle is activated and then expands as firms find themselves forced to compete for the supply of cheaper, unauthorized labor (Brown, Hotchkiss, and Quispe-Agnoli 2008). When a firm cuts costs by hiring unauthorized workers for lower wages, its competitors become more likely to hire unauthorized workers for lower wages as well in order to benefit from the same cost savings (Massy, Durand, and Malone 2003: 128-133).

Demographic Trends in Mexico

Migration flows from Mexico to the United States can be explained in large part by differences in labor demand and wages between the two countries, but economists also estimate that about one-third of total immigration from Mexico over the past four decades is the result of higher Mexican birth rates (Brown, Hotchkiss, and Quispe-Agnoli 2008). However, Mexico has begun to experience what will soon be a major reduction in the supply of new entrants into the North American labor force. As a result, Mexican migration to the United States is expected to continue declining in near future.

The birth rate in Mexico has fallen from nearly seven children per mother in the mid-1960s to just 2.2 today, barely above replacement rate and only slighdy higher than the U.S. level of 2.1. Mexico's birth rate is expected to fall below replacement level over the coming decade (Hanson and Mclntosh 2007). This is one of the fastest declines in fertility ever recorded in any nation. In the 1990s, when unauthorized migration from Mexico reached record levels, its work- ing-age population was growing by one million each year—today that growth rate is 500,000 (United Nations 2008: 67).

Although the United States will continue to attract many Mexicans seeking higher wages and a better life, the population pressures of the past two decades are already starting to recede, and a reduction in the pressures to migrate to the United States will likely follow. An early indication of this shift is seen in the increasing age of appre- hended migrants. The share of apprehended immigrants under the age of 25 was 3.0 percentage points lower in 2008 compared to 2005, while the share of'those over the age of 35 was 2.5 percentage points higher (Sedaño 2008).

181

CATO JOURNAL

Lessons from the Immigration Reform and Control Act of 1986

The recent history of U.S. immigration poHcy also offers impor- tant insights into the economic benefits of providing unauthorized immigrants with legal status and the drawbacks of immigration- reform efforts that are not sufficiently comprehensive in scope.

The 1986 Immigration Reform and Control Act granted legal status to 1.7 miUion unauthorized immigrants through its "general" legaHzation program, plus another 1.3 million through a "Special Agricultural Workers" program (Rytina and Simanski 2009: 2). Studies of immigrants who benefited from IRCA's gen- eral legaHzation program indicate that they soon eamed higher wages and moved on to better jobs—and invested more in their own education so that they could eam even higher wages and get even better jobs.

Higher wages translate into more tax revenue and increased con- sumer purchasing power, which benefits the pubHc treasury and the U.S. economy as a whole. But IRCA failed to create flexible Hmits on future immigration that were adequate to meet the growing labor needs of the U.S. economy during the 1990s. As a result, unautho- rized immigration eventuaUy resumed in the years after IRCA (despite an initial decHne), thereby exerting downward pressure on wages for aU workers in low-wage occupations.

Surveys conducted by Westat, Inc. for the U.S. Department of Labor found that, on average, the real hourly wages of immigrants who acquired legal status under IRCA's general legaHzation program had increased 15.1 percent by 1992 (four to five years after legaliza- tion in 1987 or 1988). On average, men experienced a 13.2 percent wage increase and women a 20.5 percent increase (Massey, Durand, and Malone 2003: 90). Based on the same survey data, economists Sherrie Kossoudji and Deborah Cobb-Clark (2000) found that 38.8 percent of Mexican men who received legal status under IRCA had moved on to higher-paying occupations by 1992 (Smith, Kramer, and Singer 1996: 102).

Other researchers have also analyzed these survey data and sup- plemented them with data from additional sources—such as the 1990 Census and the National Longitudinal Survey of Youth—in an effort to determine how much of the wage increase experienced by IRCA beneficiaries was the result of legalization per se, as opposed to the many other variables that influenced wage levels for differ- ent workers in different occupations during the same period of

182

COMPREHENSIVE IMMIGRATION REFORM

time. Although the findings of these researchers vary according to the economic models they use, the results are uniformly positive:

• Economist Francisco Rivera-Batiz (1999) estimated that, by 1992, the very fact of having legal status had resulted in a wage increase of 8.4 percent for male IRCA beneficiaries and 13 per- cent for female IRCA beneficiaries—independent of any increase in eaming power they might have experienced as a result of acquiring more education, improving their mastery of English, or other factors (Kossoudji and Cobb-Clark 2000).

• Economists Catalina Amuedo-Dorante, Cynthia Bansak, and Stephen Raphael (2007) estimated that, by 1992, real hourly wages had increased 9.3 percent for male IRCA beneficiaries and 2.1 percent for female IRCA beneficiaries—independent of broader changes in the U.S. economy that might have impacted wage levels generally (Rivera-Batiz 1999).

• Kossoudji and Cobb-Clark (2002) estimated that, by 1992, legalization had raised the wages of male IRCA beneficiaries 6 percent—independent of broader changes in the U.S. and Califomia economies that might have impacted wage levels generally (Amuedo-Dorantes, Bansak, and Raphael 2007).

The experience of IRCA also indicates that legalization greatly increases the incentive for formerly unauthorized workers to invest in themselves and their communities—to the benefit of the U.S. economy as a whole. As Kossoudji and Cobb-Clark (2002) explain, the wages of unauthorized workers are generally unrelated to their actual skill level. Unauthorized workers tend to be concen- trated in the lowest-wage occupations; they try to minimize the risk of deportation even if this means working for lower wages; and they are especially vulnerable to outright exploitation by unscrupulous employers. Once unauthorized workers are legalized, however, these artificial barriers to upward socioeconomic mobility disappear.

IRCA allowed formerly unauthorized workers with more skills to command higher wages, and also provided a powerful incentive for aU newly legalized immigrants to improve their English-language skills and acquire more education so they could eam even more. Kossoudji and Cobb-Clark (2000) estimate that if the men who received legal status under IRCA had been "legal" throughout their entire working lives in the United States, their wages by 1992 would

183

C A T O JOURNAL

have been 24 percent higher because they wonld have been paid in relation to their actnal skiU level since arriving in the conntry— and wonld therefore have had an incentive to improve their skiUs to further increase their earning power (Kosssoudji and Gobb-Glark 2002).

A recent research project by the North American Integration and Development Genter at UGLA on the 20-year impact of IRGA doc- uments a nnmber of imporiant long-term improvements among pre- viously unauthorized immigrants. The study illustrates how removing the nnceriainty of nnauthorized status not only aUows legalized immigrants to eam higher wages and move into higher-paying occu- pations, and also enconrages them to invest more in their own edu- cation, open bank accounts, buy homes, and start businesses. These are long-term economic benefits that continue to accme weU beyond the initial five-year period examined by most other studies of IRGA beneficiaries (Kosssoudji and Gobb-Glark 2002).

Effective Immigration Reform Must Address Future Flows

Unauthorized immigration to the United States initially declined following the passage of IRGA (Takash and Hinojosa-Ojeda). However, IRGA failed to create flexible legal limits on immigration that were capable of responding to nps and downs in fntnre U.S. labor demand. It attempted to stop unanthorized immigration through employer sanctions that imposed fines on employers who "knowingly" hire unauthorized workers. Yet it was unable to put an end to nnauthorized immigration given the U.S. economy's continu- ing demand for immigrant labor in excess of existing legal limits on immigration, as weU as the ready availability of fraudulent identity docnments and the inherent difficulty of proving that an employer has "knowingly" hired an unanthorized worker.

A new, easily exploited nnauthorized popnlation arose in the United States dnring the economic boom of the 1990s. Moreover, the costs of employer sanctions were passed along to aU Latino workers (regardless of legal statns or place of birih) in the form of lower wages. This resnlted in pari from increased anti-Latino dis- crimination against job appUcants who "looked" as if they might be unauthorized, and in pari from the increased nse of labor contrac- tors by employers who wanted to distance themselves from the risk

184

GOMPREHENSIVE IMMIGRATION REFORM

of sanctions by having someone else hire workers for them—for a price which was ultimately paid by the workers (Orrenius and Zavodny 2001: 14).

Present-Day Economic Impact of Immigrants

Debates about the economic and fiscal impact of immigrants typ- icaUy oversimpUfy the role that immigrants play in our economy. But the impact that immigrants (or any cohort for that matter) have on the economy is multifaceted and complex. Immigrants are not just workers; they are also consumers and taxpayers. The effects of their labor and consumption on economic growth and fiscal health must be factored in as we consider how to address the situation of a large undocumented workforce. This section examines the economic and fiscal impact immigrants—documented and undocumented—cur- rendy make in Arizona. To understand the fuU potential impact of changes to immigration poUcy at the state and local levels, this paper also examines the impact immigrants currently make in GaUfornia and Los Angeles Gounty, the state and county with the largest immi- grant populations in the country.

As of 2008, immigrants accounted for 27.1 percent of the popula- tion in GaUfomia, 35.5 percent in Los Angeles Gounty, and nearly 15 percent in Arizona's population. Undocumented immigrants alone accounted for 7.4 percent of GaUfomia's population, 10.2 percent of Los Angeles Gounty's, and 7 percent of Arizona's (Davila, Pagan, and Grau 1998; PhiUips and Massey 1999; Orrenius and Zavodney 2003). Given that immigrants are predominantly drawn to the United States in search of improved economic opportunity, large numbers of these immigrants are in the workforce. That, in turn, means they also con- tribute significantly to the local economies.

In terms of 2008 gross product (the total value added by workers of goods and services produced in the considered area), immigrant work- ers added $492 biUion to GaUfomia, $177 biUion to Los Angeles Gounty, and $47.1 biUion to Arizona. The undocumented workforce by itself added $158 biUion to GaUfomia's gross product, $59 biUion to Los Angeles Gounty's, and $23.5 biUion to Arizona's. Similarly, the economic output of immigrant workers—the total value of aU goods and services produced in the economy—^was $900 biUion in Galifomia, $318 biUion in Los Angeles Gounty, and $84.6 bilUon in Arizona. Output of undocumented immigrant workers was $288 biUion

185

C A T O JOURNAL

in Califomia, $106 billion in Los Angeles County, and more than $42 billion in Arizona.

Immigrant workers do not only produce important goods and services; they also eam money that they spend in the local economy, contributing to economic g r o v ^ and job creation. Pre-tax eamings of immigrant workers are significant—$274 billion in Califomia, $96 billion in Los Angeles County, and $30 billion in Arizona, includ- ing $88 billion, $32 billion, and nearly $15 billion for undocumented workers, respectively. The output and spending of all immigrant workers has created 11.4 million jobs in Cdifomia, 3.7 million jobs in Los Angeles County, and 1.2 million jobs in Arizona, while the out- put and consumption of just undocumented workers has generated 3.6 million jobs in Califomia, 1.2 million in Los Angeles County, and 581,000 in Arizona. Rounding out this snapshot of immigrants' pres- ent economic contributions is the fact that immigrant workers pay billions of dollars in taxes. Just like native-bom citizens, immigrants pay personal taxes (Hke income tax and property tax), business taxes (like corporate profit taxes, dividends, and property taxes), and sales taxes. Our analysis estimates that immigrants paid $95 billion in taxes in Califomia in 2008, $32 billion in Los Angeles County, and $6 billion in Arizona. Undocumented immigrants paid $26 billion, $9 billion, and $2.8 billion, respectively. The upshot: Immigrants liv-

ing and working in the U.S., as exempKfied by our focus areas, make significant contributions to the overall prosperity of local economies. So what would happen if all the undocumented immigrants were driven from the United States? Conversely, what would happen if the country's undocumented immigrants were offered a path to legalize their status? We now turn to these questions.

Three Immigration Policy Scenarios

The federal govemment has three basic choices when it comes to immigration reform: comprehensive reform, use of temporary work- ers, and mass deportation. The economic impact of each of these three scenarios is analyzed over the course of 10 years by taking the historical experience of legalization under IRCA as a starting point and using a computable general equilibrium model (see Appendix).

The comprehensive immigration reform scenario yields the great- est benefits for the U.S. economy—roughly $1.5 trillion in additional

186

COMPREHENSIVE IMMIGRATION REFORM

GDP growth over 10 years—^while increasing wages for all workers. A program for temporary workers produces only half tlie economic gains of comprehensive immigration reform—$792 bilHon over 10 years—and lowers wages for aU workers. And mass deportation costs the U.S. economy $2.6 triUion in lost GDP over 10 years and causes widespread job losses, although it increases wages ordy for less-skiUed native-bom workers.

Scenario 1: Comprehensive Immigration Refonn

In this scenario, the U.S. govemment enacts immigration refonn that aUows unauthorized immigrants to come forward and register, pay an appHcation fee and a fine, and—if they pass a criminal back- ground check—eam legal status and, eventuaUy, U.S. citizenship. AppHcants would also be required to leam EngHsh and pay any back taxes owed. Any future levels of permanent and temporary immigra- tion to the United States would be based on the demand for labor in the United States.

AU immigrant workers in this scenario have fuU labor rights, which results in higher wages—and higher worker productivity—for aU workers in industries where large numbers of immigrants are employed. As wage and productivity levels rise, the U.S. economy's demand for new immigrant workers actuaUy decHnes over time as the market shrinks for easily exploited, low-wage, low-productivity workers.

This comprehensive immigration reform scenario generates an annual increase in U.S. gross domestic product of at least 0.84 per- cent. This amounts to $1.5 triUion in additional GDP over 10 years. Both native-bom and newly legaHzed immigrant workers would see their wages rise.

This scenario uses the parameters of the IRGA experience to sim- ulate the impact on the U.S. economy of the higher wages that would be eamed by newly legaHzed workers, as weU as the higher worker productivity which would result from the movement of workers into new occupations and from increased investment by workers in tlieir own education and skiUs. This model does not, however, capture a range of other economic benefits which have been documented among IRGA beneficiaries, such as increased household investments in the education of family members and increased rates of home ownership and small-business formation. The results of our

187

C A T O JOURNAL

modeling should therefore be viewed as a conservative, baseline esti- mate of the actual economic benefits which would flow from com- prehensive immigration reform.

Scenario 2: A Program for Temporary Workers Only

In this scenario, the U.S. govemment creates a new temporary- worker program that encompasses both currently unauthorized immigrants and future immigrants, but with limited labor rights and on a temporary basis only. Neither unauthorized immigrants nor future temporary immigrants would be granted a pathway to perma- nent status or U.S. citizenship.

Immigrant workers in this scenario have limited labor rights, which drive down wages and productivity for all workers in industries where large numbers of immigrants are employed. This legal immi- gration would respond to changes in U.S. labor demand, but at rela- tively low wages and without the buildup of human capital and labor productivity that occurs over time among permanently legalized workers. As a result, future levels of immigration are actually higher under this scenario than under comprehensive immigration reform because more workers are needed to produce the same level of out- put under lower-wage, lower-productivity conditions.

This scenario generates an annual increase in U.S. CDP of 0.44 percent, compared to the 0.84 percent CDP increase under comprehensive immigration reform. The temporary-workers sce- nario amounts to $792 billion of additional CDP over 10 years, com- pared to $1.5 trillion under comprehensive immigration reform. Wages also fall for both native-bom and newly legalized immigrant workers under this scenario.

Scenario 3: Mass Deportation

In this scenario, the U.S. govemment would deport more than 4 million immigrant workers and their dependents, or—if they are not already here—never allow them to enter the United States. This scenario is not a realistic policy option, but it serves as an extreme or boundary case against which we can evaluate the other two scenarios.

The mass deporiation scenario reduces U.S. CDP by 1.46 per- cent annually, compared to comprehensive immigration reform, which increases it by 0.84 percent annually, and the temporary- workers program, which increases it by 0.44 percent annually. This

188

COMPREHENSIVE IMMIGRATION R E F O R M

amounts to $2.6 trilKon in lost GDP over 10 years, compared to $1.5 triUion in additional GDP nnder comprehensive immigration reform and $792 billion in additional GDP nnder the temporary worker program. Wages do rise for less-skilled native-bom workers nnder this scenario, but they faU for higher-skiUed natives and the U.S. economy loses a large numbers of jobs.

It is imporiant to note tliat, while this scenario estimates the broader economic impact of mass deporiation, it does not take into account the actnal cost of mass deporiation. The Genter for American Progress has pegged this cost at somewhere between $206 biUion and $230 bUlion over five years (nsing 2008 data before release of GaUfomia-specific 2010 data by the U.S. Gensns Bnreau).

The Economic Benefits of Comprehensive Immigration Reform

The results of onr modeling snggest that comprehensive immi- gration reform would increase U.S. GDP by at least 0.84 percent per year. Using 10-year GDP projections prepared by the Gongressional Budget Office, this translates into a steadily increas- ing amonnt of added annual GDP over the coming decade. The 10-year total is at least $1.5 trillion in added GDP, which inclndes roughly $1.2 triUion in additional consumption and $256 billion in additional investment.

Gomprehensive immigration refonn brings snbstantial economic gains even in the shori mn—during the first three years following legalization. The real wages of newly legalized workers increase by roughly $4,400 per year among those in less-skiUed jobs dnring the first three years of implementation, and $6,185 per year for those in higher-skiUed jobs. The higher earning power of newly legalized workers translates into an increase in net personal income of $30 bil- lion to $36 biUion, which wonld generate $4.5 to $5.4 billion in addi- tional net tax revenne nationaUy, enongh to snppori 750,000 to 900,000 new jobs.

Ultimately, only the federal govemment can resolve the statns of the undocumented. But for the purposes of our analysis, we examine what would happen on a state and connty level if local workforces were fnUy legaUzed through comprehensive immigration reform.

In Galifomia, which faces a $25.4 biUion bndget shorifaU in 2011-12, this scenario would lead to a $27 biUion increase in labor

189

GATO JOURNAL

income (pre-tax salary and wage eamings) that would generate a $5.3 bilUon boost in tax revenue for the state and add 633,000 des- perately needed jobs to the economy. In Los Angeles Gounty, labor income would increase $10 biUion through legaUzation, leading to $1.9 biUion in additional net tax revenue and 211,000 new jobs. In Arizona, the same legaUzation scheme would generate $5.6 biUion more in labor income, leading to $1.68 biUion in tax revenue and an additional 261,000 jobs.

The wages of native-bom workers also increase under the com- prehensive immigration reform scenario because the "wage floor" rises for aU workers—^particularly in industries where large numbers of easily exploited, low-wage, unauthorized immigrants currently work. Wages for native-bom U.S. workers increase by roughly $162 per year for the less-skiUed and $74 per year for the higher-skiUed. Under the temporary worker program scenario, wages faU for both less-sldUed and higher-skiUed native-bom U.S. workers. And under the mass deportation scenario, wages for less-sldUed native-bom workers actuaUy rise, but only at the cost of significandy fewer jobs as the economy contracts and investment decUnes. The cost of this scheme to local economies, however, is staggering.

If GaUfomia's workforce were depleted by mass deportation, the resulting contraction of the economy would mean a loss of $176 bil- Uon in labor income and a reduction in gross product of $300 biUion, or 17 percent of the state economy. As a result, 3.6 miUion jobs would be lost. Los Angeles Gounty would be even harder hit, with the $60.1 biUion loss in labor income causing a 22 percent reduction in the local economy and the loss of 1.2 miUion jobs. Arizona's case is almost as severe, with the $29.5 biUion the state would lose in labor income as a result of mass deportation and the $48.8 biUion reduc- tion in gross product representing a 20 percent depletion of the economy and the loss of 581,000 jobs.

The benefits of additional U.S. GDP growth under the compre- hensive immigration reform scenario are spread very broadly throughout the U.S. economy, with virtuaUy every sector expanding. Particularly large increases occur in immigrant-heavy industries such as textiles, ferrous metals, transportation equipment, electronic equipment, motor vehicles and parts, nonelectric machinery and equipment, capital goods, mineral products, and constmction. In comparison, every sector experiences significandy smaUer gains

190

COMPREHENSIVE IMMIGRATION REFORM

under the temporary worker scenario, while every sector contracts under the mass deportation scenario.

Conclusion

The experience of IRCA and the results of our modeling both indicate that legalizing currently unauthorized immigrants and creat- ing flexible legal limits on future immigration in the context of fuU labor rights would raise wages, increase consumption, create jobs, and generate additional tax revenue—^particularly in those sectors of the U.S. economy now characterized by the lowest wages. This is a compelling economic reason to move away from the current "vicious cycle" where enforcement-only policies perpetuate unauthorized migration and exert downward pressure on already-low wages, and toward a "virtuous cycle" of worker empowerment in which legal sta- tus and labor rights exert upward pressure on wages.

Legalization of the nation's unauthorized workers and new legal limits on immigration that rise and fall with U.S. labor demand would help lay the foundation for robust, just, and widespread economic growth. Moving unauthorized workers out of a vulnerable under- ground status strengthens all working families' ability to become more productive and creates higher levels of job-generating consumption, thereby laying a foundation for long-term community revitalization, middle-class growth, and a stronger, more equitable national economy.

Appendix: Methodology

This article presents the results of a computable general equilib- rium modeling project on the United States and Mexico in the con- text of a multiregional world economy. It is designed to analyze scenarios of altemative immigration policies, as well as altemative trade policies (Coyle and Jaeger 2005). The results of this integrated CCE model allow us to analyze how these migration and trade poli- cies affect differently skilled labor within a common comparative framework.

As is typical in CCE models of this type, trade is motivated by both price differentials and regional characteristics of goods (Hinojosa- Ojeda et al. 2009). Services trade is included, such that none of the 29 sectors in the models is "purely nontraded." Trade liberalization can consist of reducing or eliminating manufacturing tariffs, all tariffs.

191

C A T O JOURNAL

or all barriers, including nontariff barriers. Immigration is motivated by real-wage differentials and influenced by immigration poHcies. Migrant remittances are expHcidy modeled, and are affected by any poHcy that affects migration levels or migrant eamings.

CGE models are typically used to mn "comparative static" exper- iments. An experiment is constmcted by changing key variables and observing how the equiHbrium adjusts. This gives the researchers an approximate picture of how the economy in the base year would have looked if the changes being simulated in a particular scenario had occurred years ago and the economy had fully adjusted to the change. A more accurate dynamic model would simulate how the economies would adjust over a period of time to poHcy changes made in the model's base year. This would aUow the incorporation of important factors such as savings and investment, demographic change, and human capital formation.

Our model simulates the effect of immigration poHcies primarily through two variables: (1) Raising or lowering the level of domestic wages eamed by migrants. For example, wages and productivity of legaHzed migrants increase with immigration reforms that grant those workers additional rights and encourage investments in their human capital. (2) Altering the responsiveness (elasticity) of migra- tion with respect to any given wage differential. For example, addi- tional enforcement lowers immigration for a given wage differential (Armington 1969).

Immigration and trade interact in the model in several important ways. The presence or absence of immigrants in a country affects the relative price of goods, and thus trade flows. Openness to trade affects wage levels, and thus immigration incentives. Remittances affect the balance of payments and thus trade flows. Remittances fur- ther fuel investment and growth in migrant-sending regions, thus affecting wages, prices, trade, and migration.

This article uses a global appHed general equiHbrium model that has been adjusted to take into account bilateral labor flows (Orrenius and Zavodny 2001: 14). The model, termed GMig2, represents a sig- nificant improvement on the model developed in Terrie L. Walmsley and Alan L. Winters (Hertel 1997). The GMig2 model takes advan- tage of the recent bdateral migration database developed by Parsons et al. (2005), which can track bdateral labor movements (Walmsley and Winters 2005). The global migration model (GMig2) is docu- mented by Terrie Walmsley et al. (2007b) and Parsons et al. (2005).

192

COMPREHENSIVE IMMIGRATION REFORM

The database used with the bilateral labor migration model (CMig2) is based on the CTAP 6 Data Base (Walmsley et al. 2007a) and is augmented with the bilateral migration data base developed by Parsons et al. (2005) and Dimaranan (2006), skill data from Docquier and Rapoport (2007) and Parsons et al. (2005), and remittance data from the World Bank (Ratha, D., and Xu, Z. 2008). Walmsley et al. (2007a) document the CMig2 database construction process.

The CMig2 model tracks both the home and host region of each person and worker. The home region is defined as the country of origin of the person or worker—^that is, his or her place of birtli in the database. The host region is the region in which the person resides or works. The labor force of skill i, located in region r (LFj,), and available to firms for production, is therefore the sum across home regions c of aU workers located in the host region r, as shown in equa- tion 1. This is the same for population in equation 2.

(1) LFt,r = X^E¡_,_r C

(2) POPr =

An increase in the number of migrant workers from region c to region r would reduce the number of workers in the labor-supplying region and increase the labor force of the labor-importing region. The populations would change in a similar way, since it is assumed that migrant workers move with their families.

Changes in the number of migrants can occur in two ways in the CMig2 model: as an exogenous change in the supply and/or demand for migrant workers, such as changes in quotas; or as endogenous movements of migrant workers in response to wage differentials. Movements in migrant workers occur endogenously in this report, except in the zero Mexican migration scenario, where a hypothetical enforceable quota of zero migrants from Mexico is set without allow- ing compensating flows based on changing wage differentials.

Migrants are assumed to respond to differences in the real wages between the home (RWi,c,c) and host (RWi,e,r) region. ESUBMIC in equation 3 is a parameter reflecting the extent to which migrants respond to differences in real wages; this parameter would also reflect any restrictions on migration flows imposed by the host or home country policies.

193

C A T O JOURNAL

Note that with endogenous movements responding to changes in real wages, migrants can either migrate or retnm home depending on the trade and/or migration policy's effect on real wages. Policies that increase real wage differentials lead to higher levels of migration, while those which reduce the wage differential lead to lower migra- tion levels (Walmsley et al. 2007a, 2007b).

Migrant workers are assnmed to gain a portion of the difference between their nominal wages at home and the nominal wages in the host region, reflecting the fact that their prodnctivities have also changed as they move from the home to the host region and interact with the resonrces and technology of that host region. Changes in real wages and incomes are also considered, since different purchas- ing power between regions is also an imporiant factor in the immi- grant's decision on whether to migrate (Timmer and van der Mensbmgghe 2001).

Ghanges in migration policies are implemented in two ways in this repori. (1) The responsiveness of migration to real-wage differentials (ESUBMIG) can be shocked to reflect changes in migration policy, which increase or decrease people's ability to migrate in response to wages. (2) The ratio of a migrant's wage in the host conntry to the home conntry wage can be altered to reflect changes in the prodnc- tivities of migrants resnlting from changes in migration policy. This ratio is referred to as BETA.

A tightening or loosening of migration policy involves reducing or increasing the responsiveness of migrants to wage differentials (ESUBMIG), and/or redncing or increasing the prodnctivity, or low- ering the ratio of migrant wages to home wages (BETA). The model is also consistent with standard trade theory—conntries benefiting from inward migration experience a decline in the marginal product/ wage of labor as they move down their marginal product curves, and prodnction increases as firms gain greater access to cheaper labor. Returns to capital also increase as capital becomes scarce relative to labor. The reverse is tme for those countries experiencing outward migration.

Remittances are also an important feature in the model. Remittances are assnmed to be a constant proportion of the income

194

GOMPREHENSIVE IMMIGRATION REFORM

received by migrant workers and flow out of the host country back to the permanent residents of the home country. Total remittances therefore increase as the number of new migrants or their wages increase. Remittances reduce the income of the migrants and increase the incomes of permanent residents back home. These remittances can have an important offsetting effect on the home economies (labor suppUers), on the incomes of permanent residents remaining at home, and on the current account balances of both the home and host countries. Thus migration works to narrow real-wage differentials between countries in two ways: raising labor productiv- ity in the sending country and lowering it in the receiving country ("leveUng down") and promoting improvements in Uving standards in sending regions through remittances (potentiaUy "leveUng up").

References

Alden, E. (2006) "Ghertoff Battered but Not Bowed by Year in Office." Financial Times (13 March).

American Givü Liberties Union (2009) Humanitarian Crisis: Migrant Deaths at the U.S.-Mexico Border. San Diego, GaUf : AGLU.

Amuedo-Dorantes, G.; Bansak, G.; and Raphael, S. (2007) "Gender Differences in the Labor Market: Impact of IRGA." American Economic Review 97 (2): 412-16.

Armington, P. S. (1969) "A Theory of Demand for Products Distinguished by Place of Production." Intemational Monetary Fund Staff Papers 16 (1): 159-78.

Brown, J. D.; Hotchkiss, J. L.; and Quispe-AgnoU, M. (2008) "Undocumented Worker Employment and Firm SurvivabUity." Federal Reserve Bank of Adanta, Working Paper No. 2008-28. (December).

GomeUus, W. A. (2006) "Impacts of Border Enforcement on Unauthorized Mexican Migration to the United States." Social Science Research Gouncil's Border Battles (26 September) AvaUable at www.borderbattles.ssrc.org/GomeUus.

(2009) "Gurrent Migration Trends from Mexico: What Are the Impacts of the Economic Grisis and U.S. Enforcement Strategy?" Genter for Gomparative Immigration Studies at the University of GaUfomia, San Diego (8 June). Available at www.üw.com/articles/2009,0707-comeUus.pdf

195

C A T O JOURNAL

Comelius, W. A.; Borger, S.; Sawyer, A.; Keyes, D.; Appleby, C ; Parks, K.; Lozada, C ; and Hicken, J. (2008) "Controlling Unauthorized Immigration from Mexico: The Failure of 'Prevention Through Deterrence' and the Need for Comprehensive Reform." Immigration Policy Center and the Center for Comparative Immigration Studies at the University of Califomia, San Diego (10 June).

Department of Homeland Security (2004) Yearbook of Immigration Statistics. Office of Immigration Statistics. Washington: DHS.

(2008) Yearbook of Immigration Statistics. Office of Immigration Statistics. Washington: DHS.

(2009) Provided to the author by Office of Public Affairs, U.S. Customs and Border Patrol. Washington: DHS (25 September).

(2011) "FY 2012 Budget-in-Brief." Washington: DHS. Available at www.dhs.gov/xlibrary/assets/budget-bib-iy2012.pdf.

Dávila, A.; Pagan, J. A.; and Crau, M. V. (1998) "The Impact of IRCA on the Job Opportunities and Eamings of Mexican-American and Hispanic-American Workers." International Migration Remeto 32 (1): 79-95.

Dimaranan, B. V. (ed.) (2006) "Clobal Trade, Assistance, and Production: The CTAP 6 Data Base." Center for Clobal Trade Analysis, Purdue University.

Dixon, P. B., and Rimmer, M. T. (2009) "Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform." Cato Trade Policy Analysis No. 40. Washington: Cato Institute (13 August).

Docquier, F., and Rapoport, H. (2007) "Skilled Migration: The Perspective of Developing Countries." Institute for the Study of Labor, Discussion Paper No. 2873 (June).

Coyle, R., and Jaeger, D. A. (2005) "Deporting the Undocumented: A Cost Assessment." Washington: Center for American Progress (July).

Hanson, C. H., and Mclntosh, C. (2007) "The Creat Mexican Emigration." NBER Working Paper No. 13675.

Hertel, T. W. (ed.) (1997) Global Trade Analysis: Modeling and Applications. Cambridge, Mass: Cambridge University Press.

Hinojosa-Ojeda, R.; McCleery, R.; DePaolis, F.; and Walmsley, T. (2009) "North American Altemative Scenarios: Immigration Reform, NAFTA and the Clobal Economy." Working Paper.

196

C O M P R E H E N S I V E I M M I G R A T I O N R E F O R M

Commission for Labor Cooperation (CLG) seminar on "Population and Aging and Labor Market Interdependence in North America" (Febmary).

Hoefer, M.; Rytina, N.; and Baker, B. C. (2009) "Estimates of the Unauthorized Immigrant Population Residing in the United States: January 2008." Washington: Office of Immigration Statistics, Department of Homeland Security (February).

Jimenez, M. (2009) "Humanitarian Crisis: Migrant Deaths at the U.S.-Mexico Border." San Diego, CaHf: American Civil Liberties Union of San Diego & Imperial Counties and Mexico's National Commission of Human Rights (1 October).

Kossoudji, S. A., and Cobb-Clark, D. A. (2000) "IRCA's Impact on the Occupational Concentration and Mobdity of Newly-Legalized Mexican Men." Journal of Population Economics 13 (1) (March): 81-98.

(2002) "Coming out of the Shadows: Leaming about ZLegal Status and Wages from the LegaHzed Population."

of Labor Economics 20 (3) (July): 598-628. Massey, D. S.; Durand, J.; and Malone, N. J. (2003) Reyond Smoke

and Mirrors: Mexican Immigration in an Era of Economic Integration. New York: RusseU Sage Foundation.

Orrenius, P. M., and Zavodny, M. (2001) "Do Amnesty Programs Encourage Illegal Immigration? Evidence from the Immigration Reform and Control Act (IRCA)." Federal Reserve Bank of Atlanta, Working Paper No. 2001-19 (November).

(2003) "Do Amnesty Programs Reduce Undocumented Immigration? Evidence from IRCA." Demography 40 (3): 437-^0.

Parsons, C. R.; Skeldon, R.; Walmsley, T. L.; and Winters, L. A. (2005) "Quantifying the Intemational Bdateral Movements of Migrants." Development Research Centre on Migration, GlobaHsation and Poverty, University of Sussex, Working Paper T13 (September).

Passel, J. S., and Gohn, D. (2008) "Trends in Unauthorized Immigration: Undocumented Inflow Now Trails Legal Inflow." Washington: Pew Hispanic Genter (2 October).

(2009) "A Portrait of Unauthorized Immigrants in the United States." Washington: Pew Hispanic Genter (14 April).

197

C A T O JOURNAL

Phillips, J. A., and Massey, D. S. (1999) "The New Labor Market: Immigrants and Wages after IRCA." Demography 36 (2) (May): 233-46.

Preston, J. (2009) "Mexican Data Show Migration to the U.S. in Decline." New York Times (14 May).

Ratha, D., andXu, Z. (2008) "Migration and Remittances Factbook." Washington: World Bank (Febmary).

Rivera-Batiz, F. L. (1999) "Undocumented Workers in the Labor Market: An Analysis of the Eamings of Legal and Illegal Mexican Immigrants in the United States." Journal of Population Economics 12 (1) (Febmary): 91-116.

Rytina, N., and Simansld, J. (2009) "Apprehensions by the U.S. Border Patrol: 2005-2008." Washington: Office of Immigration Statistics, Department of Homeland Security (June).

Sedaño, F. (2008) "Economic Implications of Mexico's Sudden Demographic Transition." Business Economics 43 (3) (July).

Smith, S. J.; Kramer, R. C ; and Singer, A. (1996) "Characteristics and Labor Market Behavior of the Legalized Population Five Years Following Legalization." Washington: Bureau of Intemational Labor Affairs, U.S. Department of Labor (May).

State of Arizona (2010) "Senate Bill 1070." Section 1. Arizona Senate, Forty-Ninth Legislature, Second Regular Session. Available at (http://www.azleg.gov/alispdfs/council/SB1070- HB2162.PDF).

Takash, P. C , and Hinojosa-Ojeda, R. (forthcoming) "The IRCA Stories: Household Surveys and Oral Histories 20 years after Legalization." North American Integration and Development Center, Working Paper, University of Califomia, Los Angeles.

Timmer, H., and van der Mensbmgghe, D. (2001) "Intemational Migration, Purchasing Power Parity (PPP) and the Money Metric of Welfare Cains." Paper prepared for the 9th Annual Conference on Clobal Economic Analysis, Addis Ababa, Ethiopia (15-17 June).

United Nations (2008) "Worid Population Prospects: The 2008 Revision." Department of Economic and Social Affairs/Population Division. New York.

U.S. Covemment Accountability Office (2006) "Illegal Immigration: Border-Crossing Deaths Have Doubled Since 1995." Washington: U.S. CAO CAO-06-770 (August).

198

COMPREHENSIVE IMMIGRATION REFORM

Walmsley, T. L., and Winters, A. L. (2005) "Relaxing Restrictions on the Temporary Movement of Natural Persons: A Simulation Analysis."/oumaZ of Economic Integration 20 (4): 688-726.

Walmsley, T. L.; Winters, A. L.; Ahmed, S. A.; and Parsons, G. (2007a) "Global Bilateral Migration Data Base: SkiUed Labor, Wages and Remittances." Genter for Global Trade Analysis, Research Memorandum No. 6, Purdue University (January).

(2007b) "Measuring the Impact of the Movement of Labour Using a Model of Bilateral Migration Flows." Genter for Global Trade Analysis, Technical Paper No. 28, Purdue University.

199

multiple sites or posted to a listserv without the copyright holder's express written permission. However, users

may print, download, or email articles for individual use.