The New Economics of Immigration

Affluent Americans gain; poor Americans lose

T HE United States is on the verge of another great debate over immigration. Thus far the focus of this still-inchoate debate has been on illegal immigration or welfare benefits to legal immigrants, not on the larger issue of the character and consequences of the current high levels of legal immigration. Economic factors by themselves should not and will not decide the outcome of this debate. But they will play an important role. Economics helps us to frame answerable questions about immigration: Who gains by it? Who loses? And in light of the answers to these questions, what should U.S. immigration policy be?

There have been two major shifts in immigration policy in this century. In the twenties the United States began to limit the number of immigrants admitted and established the national-origins quota system, an allocation scheme that awarded entry visas mainly on the basis of national origin and that favored Germany and the United Kingdom. This system was repealed in 1965, and family reunification became the central goal of immigration policy, with entry visas being awarded mainly to applicants who had relatives already residing in the United States.

The social, demographic, and economic changes initiated by the 1965 legislation have been truly historic. The number of immigrants began to rise rapidly. As recently as the 1950s only about 250,000 immigrants entered the country annually; by the 1990s the United States was admitting more than 800,000 legal immigrants a year, and some 300,000 aliens entered and stayed in the country illegally. The 1965 legislation also led to a momentous shift in the ethnic composition of the population. Although people of European origin dominated the immigrant flow from the country's founding until the 1950s, only about 10 percent of those admitted in the 1980s were of European origin. It is now estimated that non-Hispanic whites may form a minority of the population soon after 2050. More troubling is that immigration has been linked to the increase in income inequality observed since the 1980s, and to an increase in the costs of maintaining the programs that make up the welfare state.

These economic and demographic changes have fueled the incipient debate over immigration policy. For the most part, the weapons of choice in this debate are statistics produced by economic research, with all sides marshaling facts and evidence that support particular policy goals. In this essay I ask a simple question: What does economic research imply about the kind of immigration policy that the United States should pursue?

A Formula for Admission

EVERY immigration policy must resolve two distinct issues: how many immigrants the country should admit, and what kinds of people they should be.

It is useful to view immigration policy as a formula that gives points to visa applicants on the basis of various characteristics and then sets a passing grade. The variables in the formula determine what kinds of people will be let into the country, and the passing grade determines how many will be let into the country. Current policy uses a formula that has one overriding variable: whether the visa applicant has a family member already residing in the United States. An applicant who has a relative in the country gets 100 points, passes the test, and is admitted. An applicant who does not gets 0 points, fails the test, and cannot immigrate legally.

Of course, this is a simplistic summary of current policy. There are a lot of bells and whistles in the immigration statutes (which are said to be only slightly less complex than the tax code). In fact the number of points a person gets may depend on whether the sponsor is a U.S. citizen or a permanent resident, and whether the family connection is a close one (such as a parent, a spouse, or a child) or a more distant one (a sibling). Such nuances help to determine the speed with which the visa is granted. A limited number of visas are given to refugees. Some are also distributed on the basis of skill characteristics, but these go to only seven percent of immigrants.

Although the United States does not officially admit to using a point system in awarding entry visas, other countries proudly display their formulas on the Internet. A comparison of these point systems reveals that the United States is exceptional in using essentially one variable. Canada, Australia, and New Zealand have more-complex formulas that include an applicant's educational background, occupation, English-language proficiency, and age along with family connections.

Sometimes a host country awards points to people who are willing to pay the visa's stated price. Canada, for example, has granted entry to virtually anyone who would invest at least $250,000 in a Canadian business. Although this "visas-for-sale" policy is a favorite proposal of economists (if we have a market for butter, why not also a market for visas?), it is not taken very seriously in the political debate, perhaps because policymakers feel a repugnance against what may be perceived as a market for human beings. I will therefore discuss the implications of economic research only for policies in which points are awarded on the basis of socioeconomic characteristics, not exchanged for dollars.

What Have We Learned?

THE academic literature investigating the economic impact of immigration on the United States has grown rapidly in the past decade. The assumptions that long dominated discussion of the costs and benefits of immigration were replaced during the 1980s by a number of new questions, issues, and perceptions.

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