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Immigrants give the US economy its vitality, according to economists Wendy Edelberg and David Dollar in this informative episode of the podcast Dollar & Sense. They show that immigrants are the main contributors to population growth and increased labor force participation in the United States, but it’s clear that some state and local communities disproportionately bear the costs of supporting some migrant groups. Edelberg and Dollar offer simple solutions to ease these local governments’ burdens.
- The economic dynamics of immigration in the United States are complex.
- Immigrants contribute significantly to America’s economy.
- Certain immigrant groups pose fiscal burdens on state and local governments.
The economic dynamics of immigration in the United States are complex.
Immigrants have historically made up about 15% of America’s population.COVID-19 affected the numbers meaningfully, causing visa issuance to plummet significantly between 2019 and 2020. The lag in reporting immigration statistics and census-driven population revisions muddy meaningful comparisons between pre- and post-pandemic immigrant numbers.
“So, my best guess…is that we’re still, insofar as immigration matters for the labor force, as much as 500,000 short of where you would have expected to be in the absence of the pandemic.”
Immigrants’ education levels prove an important determinant of their standing in the US labor market. They are disproportionately represented in the cohorts educated at levels both greater and less than the average US citizen, with few falling into a middle ground. In a perfect world, the skill sets of the immigrant population would complement rather than substitute for those of native-born residents. But the reality is different. The arrival of less-educated immigrants negatively affects the compensation of US citizens who lack a secondary education, as the former substitute for the latter in the job market. The downward pressure on the wages of less-educated immigrants already in the United States intensifies when new immigrants arrive.
Immigrants contribute significantly to America’s economy.
Immigrants add substantially to US population growth and will continue to do so for the foreseeable future. This growth – along with labor force participation rates higher than those of US citizens – exerts a powerful effect on America’s economy. Immigrants fuel increases in productivity; many receive patents more quickly than native-born Americans and arrive with crucial training and complementary abilities.
“We are a country of immigrants. And absolutely, this is one of our superpowers.”
Immigrants are a driving force behind America’s economic strength. Contrast, for example, the effect of immigrants on the US economy with the dearth of immigration into China and Japan. The economic outlook for these two countries over the long term – if their restrictive policies continue – is negative.
Certain immigrant groups pose a fiscal burden on state and local governments.
Local governments bear most of the financial costs of immigration. At the federal level, immigrants pay more taxes than natural-born citizens but lack eligibility for many federal benefits. By contrast, immigrants are an expense for state and local governments, because immigrants generate less sales tax income than US citizens do. Yet immigrants enjoy greater local benefit eligibility, particularly for their children. Over the longer term, the value of immigration at both the federal and state/local levels is positive, though less for the latter because of the lower tax base. State and local governments extract a net positive benefit from immigrants with secondary educations, but those lacking education impose a greater fiscal burden.
“The fiscal benefit that really should be transferred from the federal government to state and local governments should be about $2,500 per what we’ve called…impact index immigrants…those who have recently arrived without a college degree.”
For those communities whose less-educated immigrant population is significantly large, the federal government should allocate them money, principally for education and health care. Such a redistribution could occur through Impact Aid, under which the federal government reapportions funds to communities where Washington, DC, has placed federal entities – such as a military facility – that result in a lower tax base.
About the Podcast
Director of the Hamilton Project Wendy Edelberg is a senior fellow in economic studies at the Brookings Institution, where David Dollar hosts the podcast Dollar & Sense.