Yeah, yeah, yeah, we’ve all heard that immigration grows the economy—but at least some people now realize that virtually all that growth is captured by the immigrants themselves in the form of wages, leaving native-born Americans essentially no better off. (And that’s before transfer payments, like K-12 education).
Still, it seems that very few people realize the real dirty little secret of immigration: its key effect is within the native-born American community, redistributing income from labor to capital by beating down wages.
Thus VDARE.com Editor Peter Brimelow has described the Gang of Eight Amnesty/ Immigration Surge bill (S.744) as “a looting of the U.S. economy that can only be compared to the Russian oligarchs’ theft of assets as the Soviet Union collapsed.” Below, we attempt to quantify that looting.
S.744 proposes a minimum of 33 million lifetime work permits in the first decade alone (11 million to current illegal immigrants, 11 million to new legal immigrants admitted by continuing the current system, 5 million via chain migration of relatives of who have applied but are waiting for their slot and 6 million additional legal immigrants through new or expanded existing categories of immigration).
By, adding 33 million immigrants to the labor force S.744 could indeed eventually mean a total one-time increase in GDP by $660 billion, or by 4.4%, based on an assumed $20,000 average income per each new immigrant. And recent research (see below) indeed suggests that immigrants will receive about 98% of the gain.
So for native-born Americans, the primary impact of S.744 will be an enormous transfer of wealth from workers to their employers and other wealthy individuals who hire immigrants a.k.a. Facebook’s Mark Zuckerberg.
The difference between what the winners win and the losers lose is called the immigration surplus. It measures the net income gain accruing to native-born Americans in aggregate as a result of immigration.
In a paper published earlier this year, Harvard economist George Borjas estimated the current immigration surplus to about $35 billion, or a miniscule 0.24% of GDP. [Immigration and the American Worker A Review of the Academic Literature, By George Borjas, CIS, April 2013]
This fairly modest surplus is the difference between an enormous $437 billion gain accruing to American employers and a slightly less enormous $402 billion wage loss suffered by native-born American workers.
We here update Professor Borjas’ immigration surplus calculation to reflect the likely surge in admissions triggered by passage of S.744:
Estimated Costs and Benefits of Immigrants
in the U.S. Labor Market Post S.744
Contribution of all immigrants
Immigration surplus (net gain to native-born)
Loss to native-born American workers
Gain to native American businesses
Total GDP increase attributable to all immigrants
Total income increase captured by immigrants
Note: The calculation assumes that the foreign-born share of the labor force rises from 15% to 17.9% in the decade following passage of S.744.
In our update to Borjas, we project that S. 744 will expand the foreign-born labor force from its present 15% to about 18% within about 10 years. Plugging 18% into the Borjas formula we get an immigration surplus of about 0.34% of GDP—or about $53 billion in a $15.7 billion economy. The gain to American corporations attributable to S.744 works out to about $99 billion—the difference between the $437 billion America corporations currently receive (with immigrants are 15% of the labor force) and the $536 billion they will get when 18% of the labor force is foreign-born.
Three factors influence our immigration surplus calculation:
The negative wage elasticity implies that immigrant and native-born American workers of similar education and skill levels are substitutes for each other, so that an increase in the supply of one group reduces the demand for, and wages of, the other. To most economists, this is a self-evident truth.
A negative wage elasticity is key to the immigration surplus. Borjas writes:
The formula for the immigration surplus contains another important insight: The gains from immigration are intimately linked to the wage loss suffered by workers. Ironically, the United States gains more from immigration the greater the drop in the wage of workers who compete with immigrant labor. [My emphasis.]
Immigrants who entered the country from 1990 to 2010 reduced the average annual earnings of American workers by $1,396, according to Borjas.
Similarly, in percentage terms, wage losses incurred by the least-educated workers are more than double those of the highly-educated.
Gainers do include stockholders of publicly-traded companies whose profits rise as immigrants displace Americans on company payrolls. Arguably, with tens of millions of Americans invested in the market through their retirement accounts, this is potentially a large pro-immigration constituency.
But for workers in middle-class occupations—teachers, construction workers, health care professionals, government workers, etc.—the stock market gains attributable to immigration are likely dwarfed by the wage losses.
But even these lucky few should think twice. If history is any guide, those 33 million additional immigrants will receive far more in federal benefits than they pay in taxes. Obamacare will only add to the imbalance.
How long can it be before higher Federal taxes rob wealthy Americans of their ill-gotten immigration gains?