Estimating the Economics of Immigration Reform

 12.5.2013 | After the Senate passed the comprehensive immigration reform bill S. 744 last June, there was enough momentum to think headway might be possible in 2013. But the divided House has run out the clock, as majority whip Kevin McCarthy confirmed a vote on immigration won’t come until 2014.

While the House waits to present and vote on legislation that will determine the future for about 11 million undocumented immigrants, they might want to look into research evaluating the potential impact of immigration reform.

Luckily, the Urban Institute has done much of the legwork for them. Their recent review, “Understanding the Economic and Fiscal Impacts of Immigration Reform,” examines six seminal studies that have forecasted the potential economic impact of reforms similar to those being debated by Congress now.

The first three studies, from the Immigration Policy Center, the Congressional Budget Office, and the Center for American Progress, agreed that “legalization and increased legal immigration would expand the economy and boost tax revenues.” The studies estimate GDP gains ranging from 0.3 percent to 0.8 percent annually, or about $83 to $150 billion. Over a decade those numbers are estimated to equal out to $832 billion to $1.5 trillion. This growth would come from legalized immigrants paying more taxes and increasing economic activity.

When it comes to economic activity, it’s worth noting that one in six small business owners were born in another country, according a Fiscal Policy Institute report based on census data. Immigrant-owned small businesses employ 4.7 million people, and produce $776 billion in receipts annually. While immigrants’ businesses tend to be smaller than those of US-born citizens, immigrant-owned businesses still accounted for 30 percent of all small business growth between 1990 and 2010.

The untapped potential of entrepreneurs is just one of the factors that would contribute to GDP growth if immigration reform becomes law. Of course, the estimates depend on a number of factors—growth in the labor force and the increase in earnings of the newly legalized immigrants—but across the board, the studies found immigration boosts GDP.

The next three studies included in the review, another from the Congressional Budget Office, the National Research Council, and the Heritage Foundation, measured net fiscal impacts, or government revenue minus government costs like education or social welfare programs. While the studies analyzing economic impact found similar bottom lines, the findings regarding the net fiscal impacts vary greatly.

The CBO study predicted the most positive result. It found that if a bill similar to S. 744 was passed it would reduce the deficit by $158 billion from 2014 to 2023 and another $685 billion from 2024 to 2033 (in 2010 dollars). On the other end of the spectrum, the Heritage Foundation report found a $5–6 trillion cost over the current law in 51 years. The NRC study meanwhile found a loss of $2,400 per immigrant per year until 2034, after which the numbers turn positive.

The contradictions are attributed to large differences in the studies’ methodologies and assumptions. For example, the number of undocumented immigrants the studies assume will become legal range from 7.7 million to 10 million. The time spans they consider differ too, as the CBO estimate considers a 10 to 20 year horizon, whereas the NRC’s horizon is 300 years, taking several generations and retirement into account. Because of these differences, the review suggests further investigation to pin down the ramifications of reform.

While there are discrepancies surrounding net fiscal impact, Manuel Pastor and John Mollenkopf, in their  paper, “Struggling over Strangers or Receiving with Resilience? The Metropolitics of Immigrant Integration,” suggest support systems for immigrants contribute to stronger metro areas. Pastor and Mollenkopf examine seven metro areas and their reactions to immigration “shock” waves. Among other conclusions: weaker integration infrastructure and hostile attitudes toward immigrants diminish economic potential and hurt a region’s resiliency.

They explain that the first aspect of reform is designing policies that maximize immigrants’ potential. “But the second aspect of reform is implementation,” they write, “including whether the federal government will make sufficient resources available to process applications and to help metropolitan regions accelerate the immigrant integration process, thereby maximizing economic and social outcomes.”

While some aspects of reform’s ramifications remain foggy, it seems supporting and welcoming immigrants integration continues to be key for strong metro areas.

Photo / Kansas Sebastian


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