Friday, July 30, 2010

Immigration debate on wrong track

Vijay K. Mathur

Published in Standard-Examiner, July 25, 2010, Ogden, UT

Many states like Arizona have passed or are considering laws and/or regulations to stop or curtail illegal immigration. Many conservatives, including Tea Party loyalists, are pushing for increased enforcement at the border of U.S. and Mexico and supporting Arizona's law to stop the flow of illegal immigration from Mexico.

But measures like enhanced border enforcement, passing Arizona-type laws, and other patchwork state regulations will not make much dent in the supply of illegal immigrants. These wrong-headed approaches do not recognize that economic incentives presented by economic opportunities guide the flow of illegal immigrants.

Let us look at some data on illegal immigration. Department of Homeland Security reports that from January 2000 to January 2006 there was a 37 percent increase in illegal immigrants, 61 percent were from Mexico; 61 percent were concentrated in nine states. California and Texas had more illegal immigrants than Arizona. This implies that this problem is primarily of Mexican origin, concentrated in a few states. It has generated disproportionate reaction by politicians without regard to the underlying causes of illegal immigration.

Estimates from the Center of Immigration Studies show that illegal immigrants declined by 13.7 percent from the peak in the summer of 2007 to the first quarter of 2009. This is primarily a result of diminishing job opportunities due to the severe recession. Since most illegal immigrants from Mexico have low skill levels, their unemployment is more sensitive to business cycles. Economists Pia M. Orrenius and Madeline Zavodny, in their recent 2010 study, note that between the first quarter of 2007 and the second quarter of 2009, the unemployment rate of Mexican immigrants rose from 4.2 percent to 11.3 percent, while the rate for non-Hispanic whites increased from 3.7 percent to 7.8 percent. Their study also shows that Mexican immigrants' employment also responds more positively to the economic upswing than that for non-Hispanic whites.

It seems clear that job opportunities in the U.S. relative to Mexico have significant impact on immigration, legal or illegal. In the labor market, wages are determined by supply and demand for labor. In a competitive market (without any controls and interventions), given supply, wages rise when demand increases, and given demand, wages fall when supply increases. Legal or illegal immigration increases the supply of labor, thus pulling down the wages when there is no offsetting increase in demand.

It irritates many natives if their employment and wages are driven down by illegal immigrants who may be paid less than minimum wage, especially in a low growth economy. This irritation increases when illegal immigrants use some of the tax-supported public safety-net programs. However employers, who are always trying to minimize labor cost, have an incentive to hire illegal immigrants who are willing to work more hours at lower wages. An example of this could be found in the non-compliance of E-verify by most Utah businesses since the state law requires only voluntary compliance. I am sure you will not see many employers demonstrating against illegal immigration or lobbying for laws against illegal immigration.

Do immigrants lower wages and employment opportunities for natives? The evidence is not very conclusive. There is some evidence of small downward effect on wages, especially in lower-skilled jobs. However, as long as employment opportunities are significantly better and wages are higher than in Mexico, and employers are not targeted and heavily punished for employing illegal immigrants, illegal immigration from Mexico will continue despite Arizona-type laws and border enforcement.

There is a need for comprehensive reform in immigration laws at the federal level with basic features such as 1) self-financed guest worker program in occupations with labor shortages and where entry fees are a flat percentage of the average wage in an occupation, 2) path to legal status for current illegal immigrant with penalties, 3) comprehensive E-verify data-base for status verification by employers and stiff penalties for employers for noncompliance, and 4) no public benefits to illegal immigrants once the guest worker program is implemented. The Center of Immigration Studies estimates that when all direct and indirect taxes paid and all costs are included, illegal households created net fiscal deficit of $10 billion in 2002 for the federal government, and it is expected to increase close to $29 billion if amnesty is granted.

Perhaps the outcry against illegal immigration will subside when the economy is growing robustly enough so that natives' employment and wage opportunities are better than they are now. Economic growth has a powerful influence not only on economic opportunities but also on the political climate and mood of nations. However, economic growth has to be broad-based to calm the fears of the general population and resentment against immigration -- legal or illegal. Harvard Professor Benjamin Friedman remarks, "the value of rising standard of living lies not just in the concrete improvement it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of people."

Mathur is former chair of the economics department and is now professor emeritus of economics at Cleveland State University, Cleveland, Ohio.

1 comment:

Priya Narasimham said...
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