August 20th, 2015
Have A Question?
As you have gathered by now, I strongly believe that through the lens of Economics, we can rationally solve many of our problems today. Since scarce resources have alternative uses, how people in a society make choices has a significant impact on their ultimate standards of living.
Since Economics is the study of the maximization of scarce resources, it allows us to use reason to make good (and often hard) choices. We have all heard that “America is a nation of immigrants.” That’s true in many ways, but as with all broad statements, there is often a fallacy of division (inferring that since something is true in one or more of its parts, it must be true as a whole.) After all, there are many different types of immigrants with respect to cultural, skills and ethical norms.
For much of US history, immigrants came from countries and cultures that had much in common with the original British settlers. As a result, assimilation into the social norms of American Society (norms conducive to free markets, liberty and unprecedented economic growth: http://mattshafer.us/the-economic-history-of-the-world-in-three-lessons-lesson-3/#.VYni2-ugxLE) was rather easy for these immigrants. Also, for most of American history (at least up to the explosion of government intervention from the 1930s to 1960s), the size of government (and the services guaranteed by such “government”) was relatively small. Therefore, up until that time, immigrants could not expect to be taken care of; however, they could expect to find their own way in a vibrant, yet competitive, private-sector economy.
Since then, there have been significant changes to the dynamics of immigration in the US. Beginning in the mid 1960’s, two things happened:
As a result of these changes, we’ve had an explosion of immigrants from third-world, primitive and non-developed cultures, with low levels of skills and education[i]. Immigration over the past several decades has changed the nature of “America is a nation of immigrants.”
To understand how immigration affects the future of your wealth, you need to start with a few economic basics. GDP (Gross Domestic Product) measures the total value of goods and services sold each year (or total national income), and is the primary way we measure economic growth. The rate at which GDP grows annually is roughly the amount the economy grows. Your income is a part of the total national income; so if GDP is growing, it is generally good for your prospects for a pay raise. GDP growth comes from two sources:
Therefore, it stands to reason that since immigrants add to population growth, then it is a good thing for the economy. Economics suggest that this is true in the aggregate. “The presence of all immigrant workers (legal and illegal) in the labor market, makes the U.S. economy (GDP) an estimated 11-percent larger ($1.6 trillion) each year. This ‘contribution’ to the aggregate economy, however, does not measure the net benefit to the native-born population.”[ii]
Economists have long known that immigration redistributes income in the receiving society.
“Of the $1.6-trillion increase in GDP, 97.8 percent goes to the immigrants themselves in the form of wages and benefits; the remainder constitutes the ‘immigration surplus’ — the benefit accruing to the native-born population, including both workers, owners of firms and other users of the services provided by immigrants.
Illegal immigration reduces the wage of native workers by an estimated $99 to $118 billion-a-year, and generates a gain for businesses and other users of immigrants of $107 to $128 billion.
Because immigration (legal and illegal) increased the supply of workers unevenly, the impact varies across skill groups, with high-school dropouts being the most negatively affected group.
These workers are among the poorest Americans. The children of these workers make up a disproportionate number of the children in poverty: 24.8 percent of all children of the native-born working poor live in households headed by a high-school dropout.”[iii]
While immigration benefits our economy in the form of higher GDP growth (as I mentioned above), it can have a negative impact if immigrants use more government-provided benefits than they pay in taxes. This is mostly determined by the skills the immigrants bring with them. Research indicates that highly-skilled immigrants pay more in taxes than they consume in government services. Low-skilled immigrants tend to consume more government services than they pay in taxes.
So who are the proponents of continuing our current immigration policies (along with Amnesty) and why? As in all things Economic, just follow the incentives and the money:
Who bears the costs when the above groups benefit? Everyday working Americans—You and I! The middle class gets hit with the taxes (if they can remain middle class after the higher taxes). Those Americans who are struggling the most (low-income and low-skilled workers):
When considering all of this, is there any wonder Americans feel the middle class is shrinking and income inequality is growing? The future of our immigration policy is important to The Future Of Your Wealth!
[ii] Immigration and the American Worker A Review of the Academic Literature By George Borjas, 2013
[vi] Robert Justich and Betty Ng, “The Underground Labor Force is Rising to the Surface,” Bear Sterns, January 3, 2005.
[vii] U.S. Census Bureau.
[viii] U.S. Census Bureau.