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 This system was repealed in 1965, and family reunification became the central goal of immigration policy, with entry visas being awarded mainly to applicants who had relatives already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.