Study: Illegal Immigrants Account for 3% of GDP

Originally published by: Wall Street JournalNovember 22, 2016

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Granting amnesty to illegal-immigrant workers would boost the U.S. economy more than trying to deport them, according to new research that highlights a tension between Republican plans to both crack down on unauthorized workers and rejuvenate growth.

Image result for border crossing imageThe study, by two economists at City University of New York, puts the economic contribution of the U.S.’s seven-million-plus illegal workers at 3% of private-sector GDP, or $5 trillion over a decade.

California’s private-sector economy would shrink by almost 7% if its unauthorized workers, which make up 10% of its workforce, were removed, the study found.

“If you lost them, it would be a significant hit, in the order of the Great Recession,” said Ryan Edwards, one of the authors, who emphasized the diversity of illegal workers’ characteristics and contributions. “It’s a mistake to think they have low amounts of education and work mainly in agriculture. The impact would be felt across a broad range of industries, including finance and IT, where they sometimes have similar earnings to native workers.”

Unauthorized workers in the U.S. earned $580 a week on average across all industries, more than 40% less than U.S.-born workers. In finance and information sectors, though, where they still made up 2% of employment, they almost earned the same, around $1,300 a week.

The output of the construction, agriculture and hospitality sectors, whose workforces are made up of between 10% and 18% unauthorized workers, would fall by up to 10%, the research suggests.

President-elect Donald Trump took a tough line against illegal workers in this year’s election campaign, promising earlier this year help remove “at least 11 million people in this country that came in illegally” (a figure that includes dependents and nonworkers). But his administration’s exact policies remain unclear. He has at times said he would focus on those who commit crimes.

The study found 55% of the 7.1 million estimated unauthorized workers in the U.S. were from Mexico, 13% or 900,000 from Asia and most of the rest from Central and South America. While their overall contribution to the economy was 3%, that’s less than their 5% employment share would warrant. This is partly because they have lower skills—fewer than 10 years of education instead of almost 14 for U.S.-born workers—and also partly because of their illegal status.

“If you face the risk of being deported, you invest in fewer skills, and employers will have more market power over you given you have less ability to pick and choose jobs,” Mr. Edwards said. The study, which used a series of special U.S. Census Bureau surveys taken from 2011 to 2013 to infer the characteristics of unauthorized workers, found documented foreign-born workers were about 25% more productive than undocumented workers based on their incomes, even with the same level of education and experience.

Granting unauthorized workers amnesty would increase their productivity by 20%, equivalent to 0.6% of GDP, the study finds. “That’s real money we’re leaving on the table,” Mr. Edwards said, acknowledging such a move could create incentives for other immigrants to come to the U.S. illegally seeking work.

In 1986, President Ronald Reagan signed legislation that granted amnesty to illegal workers who had arrived before 1982 and worked continuously in the U.S. for five years. One study found it increased the wages of those workers taking up the offer by 15% between 1986 and 1992.

Previous research has shown an influx of lower-skilled workers can lead to lower wagesfor earlier waves of immigrants and native-born high-school dropouts. Mr. Edwards said an exodus of immigrant workers could put upward pressure on wages for remaining workers.

“The big question is to what extent people would join the labor force [if they left],” he said.

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