Tuesday, April 9, 2013

At current levels of around one million immigrants per year, immigration makes the U.S. economy (GDP) significantly larger, with almost all of this increase in GDP accruing to the immigrants themselves as a payment for their labor services

For American workers, immigration is primarily a redistributive policy. Economic theory predicts that immigration will redistribute income by lowering the wages of competing American workers and increasing the wages of complementary American workers as well as profits for business owners and other “users” of immigrant labor. The best empirical research that tries to examine what has actually happened in the U.S. labor market aligns well with economy theory: An increase in the number of workers leads to lower wages. The presence of all immigrant workers (legal and illegal) in the labor market makes the U.S. economy (GDP) an estimated 11% larger ($1.6 trillion) each year. This “contribution” to the aggregate economy, however, does not measure the net benefit to the native-born population. Of the $1.6 trillion increase in GDP, 97.8% 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. The standard textbook model of a competitive labor market yields an estimate of the immigration surplus equal to $35 billion a year — or about 0.2% of the total GDP in the United States — from both legal and illegal immigration. The immigration surplus of $35 billion comes from reducing the wages of natives in competition with immigrants by an estimated $402 billion a year, while increasing profits or the incomes of users of immigrants by an estimated $437 billion. The immigration surplus or benefit to natives created by illegal immigrants is estimated at around $9 billion a year or 0.06% of GDP — six one-hundredths of 1%. Although the net benefits to natives from illegal immigrants are small, there is a sizable redistribution effect. 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.

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