Big immigration reform bill, big boost to US economy? Meh.

Analysis indicates that the Senate's big immigration reform bill, approved Thursday, would have more positive effects than negative – over time. But for the first few years, unemployment would rise and wages would fall, especially in low-skill jobs.

Damian Dovarganes/AP
Immigrant students join a coalition of immigrant rights supporters on a 24-hour vigil calling on Congress to pass immigration reform outside the Federal Building in Los Angeles on Thursday. The US Senate approved the legislation on a rare, bipartisan vote, 68 to 32.

An immigration reform plan just passed by the US Senate would affect the US economy in complex but largely positive ways.

That’s the view of many mainstream economists, including Congress’s own nonpartisan financial forecasters.

The economy would become healthier in part because fewer people would be illegal immigrants working in the shadows, and because the bill would boost the number of high-skill immigrants who are often job creators.

Of course, the economic forecasts don’t settle the deep partisan debates over the reform legislation. Critics of comprehensive reform worry that the legislation puts “amnesty” ahead of law and order, and ends up luring fresh hordes of illegal immigrants. The nonpartisan Congressional Budget Office estimates that the Senate bill will reduce illegal immigration by only 25 percent.

And, even if you judge solely on the economic projections, the picture isn’t wholly positive.

For example, for its first few years reform would push unemployment a bit higher and average wages a bit lower, according to CBO estimates this month.

The basic elements of the Senate’s comprehensive reform legislation, passed Thursday, are:

  • Significantly tighter border security, including doubling the number of agents patrolling the southern border.
  • Stricter enforcement against employment of illegal workers, through an E-Verify program that checks new hires, plus antifraud measures.
  • Granting legal status to many of some 11 million unauthorized immigrants, who meet certain requirements, along with a path to citizenship.
  • Expanded immigrant visa programs, and expanded programs for nonimmigrant visas including for H-1B (high-skilled) workers and for agricultural guest workers.

In general, the economic impacts seem to give more fodder to reform supporters than to critics.

As economists at the CBO put it, the reform should make both the workforce and capital investment more productive over the long term, “leading to higher GDP, higher wages, and higher interest rates.”

That view flies in the face of a longstanding concern: that immigrants will diminish job opportunities and push down wages of native-born workers. But so far, a growing body of economic research refutes this view.

Jobs and wages. With immigration reform, as with other moves that expand the number of foreign-born people in the labor force, many independent analysts don’t predict harm to average US workers.

For one thing, new foreign workers are also new consumers who fuel economic demand. So an expanding workforce doesn’t mean more people competing for the same number of jobs.

“Immigration flows are ultimately just too small as a share of the US labor force to have large impacts on wages once the labor market adjusts to the supply increase,” writes Jared Bernstein, a former Obama administration economist. “The labor force is always growing along with population, and if anything, demographics [are] pointing toward slower supply growth [of workers]."

But he argues that there’s still a significant short-term challenge, if reform is enacted.

Reform as outlined by the Senate would boost the supply of low-wage immigrant labor, primarily through more people getting visas that allow them to seek US jobs. That could be especially challenging for low-wage, less-educated native-born workers, in the first few years after reform. “You will feel this competition, significantly, in your job offers and your paycheck,” Mr. Bernstein predicted in a blog post earlier this year.

One force could work in the opposite direction: As the once-“undocumented” are able to compete more fully in the labor market, their bargaining power would rise and the incidence of exploitation would diminish. That would have a positive effect on pay for low-skill jobs.

The CBO analysis of Senate legislation, as it was emerging in mid-June, predicts that the unemployment rate would be higher for the first few years under reform – by about 0.1 percentage point – in part because of “temporary imbalances” between worker supply and employer demand in particular occupations.

“Average wages would be lower by about 0.1 percent in 2023 and higher by about 0.5 percent in 2033 than projected under current law,” the CBO predicts. That’s because of the initial hurdle of absorbing new workers, followed by later positive effects on productivity.

Investment and productivity. The CBO economists, citing empirical research, predict that “an influx of immigrants, particularly highly skilled immigrants, would lead to increased innovation and task specialization.”
Over time, that should make each unit of labor or investment capital a bit more productive, helping to boost each worker's output of goods or services. (And that increase in productivity opens the door to the just-mentioned rise in wages over the long term.)
But the impact may not be a large one. Gross domestic product (GDP) per capita would be 0.2 percent higher in 2033, compared with a no-reform scenario, the CBO estimates.

A rise in productivity would also push up the rate of return on business investment in things like office or factory equipment. In turn, that could push up interest rates a bit, as the government would face greater competition from the private sector when seeking to borrow from investors.
Federal budgets. Speaking of the government, the Senate bill has some significant budget implications. The reforms would add to direct spending as more people become eligible for federal benefit programs. Spending would also go up because of the law’s push to tighten border security, crack down on document fraud, and check the legal status of newly hired workers by expanding the program known as E-Verify.
But as spending goes up, the CBO predicts that federal tax revenue would go up even more. The net result for federal deficits, by its analysis, would be to “decrease federal budget deficits by $197 billion over the 2014-2023 period and by roughly $700 billion over the 2024-2033 period.”
That wouldn't eradicate budget deficits, but it would be more than small change.

Critics say the CBO may be taking a rosy view, and that such deficit reductions may not materialize if America’s future immigrants skew toward the low-skill rather than the high-skill end of the spectrum.
And some economists warn against viewing expanded immigration as a panacea for the financing challenges that face Medicare and Social Security as the ranks of older Americans grow. Yes, new legal immigrants will pay payroll-tax dollars into the system. But they will also be owed benefits down the road.
If immigration reform does reduce federal deficits, that would help restrain the worrisome growth of the national debt. As the government borrowed less, the economy would have more savings available for private-sector investment.

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