Thursday, August 10, 2017

Trump's Cutting Legal Immigration In Half Would Not RAISE The U.S' Standard of Life

While the attempt to "repeal and replace" Obamacare seems to have little success, Trump has been making more waves in an area that he campaigned on heavily during the 2016 presidential campaign: immigration. Trump has not wasted much time in working on what he views as immigration reform. Trump has taken the steps to work on his border wall that will do nothing except waste taxpayer dollars. He has also taken steps on a pointless refugee ban and work towards mass deportation of undocumented workers, a plan that will in all probability cost the American people billions. There are a number on the Right that want to go after illegal immigration either because of [perceived or actual] national security threats or economic threats. I have noticed over the years that conservative pundits and policy wonks distinguish between legal immigration and illegal immigration. With Trump's latest immigration plan, that distinction no longer matters because Trump is now going after legal immigration.

Last week, President Trump supported the RAISE Act, a bill proposed by Senator Tom Cotton (R-AR). If passed, this would arguably be the largest immigration reform since the Immigration Reform and Control Act of 1986. The biggest measure taken under the RAISE Act would be to lower the number of green cards from 1 million to 500,000 cards. Although that is the main provision, that is hardly the only one. The RAISE Act also shifts immigration to a more skills-based system, cuts green cards for family members who are not spouses or minor children, eliminates the Diversity Visa Lottery, cut the number of refugees to 50,000 refugees, and has a scoring preference for English speakers. Per his press release, Cotton believes that the RAISE Act would spur economic growth and raise working American workers' wages. Trump also backed Cotton's play in a press release by saying that this merit-based immigration plan would protect workers, taxpayers, and the economy.

Part of the argument that Senator Cotton uses is that the U.S. would be keeping immigration at the average that it has been in the past 13 years. The major issue with Cotton's assertion is that he is looking at the number of immigrants, not the rate at which they enter the country. The Migration Policy Institute has immigration data dating back to 1820 (also see Census data). As the Cato Institute indicates, we need to measure rates instead of population inflow to account for population growth. When looking at immigration rates (see below), current immigration flows are 29 percent below the historical rate of 0.45 percent of the population. If the RAISE Act passes, the rate would fall 60 percent below the historical rate.

The question we have to answer is whether the RAISE Act would lower them to adverse levels or if the rates have historically been too high. One of the main premises behind this plan and justifying lower rates is that by limiting the number of low-skilled immigrants, working-class Americans would suffer less because they can better compete in the U.S. labor market. What I would like to do here is scrutinize the main points that support the underpinning of the RAISE Act.

Does Reducing Legal Immigration Boost the GDP?
In 2016, Moody's did an economic analysis of Trump's plans, including his immigration policies. Moody's found that if implemented, it would cause a recession that could last longer than the Great Recession.

A study looking at 18 developed countries found that both high-skilled and low-skilled migration improved productivity and GDP (Jaumotte et al., 2017). Immigration leads to labor specialization, which leads to increased productivity (Peri, 2009).

Economic literature also finds that when comparing over 100 countries from 1990 to 2011, immigration has a positive, but small, impact on economic freedom (Clark et al., 2015), which thereby contributes to the higher GDP. As a case study, Israel allowed for mass immigration of Russian Jews under its "Right to Return" law in the 1980s and 1990s. The result was that Israel was able to absorb the immigrants, and because of it, economic freedom actually improved (Powell et al., 2017).

In summation, reducing legal immigration does not boost the GDP. This public policy brief from the Manhattan Institute, this paper from the Federal Reserve Bank of Dallas, and this 2016 brief from Brookings Institution shows how increasing immigration increases economic growth. The Wharton School of Business provides a background brief showing the overall positive effects on the economy. You can also check out my economic analysis on immigration from four years ago when I came to the same conclusion.

Does Reducing Legal Immigration Boost Domestic Wages?
Trump is for the RAISE Act because it would "reduce poverty and raise wages." In economic theory, when you lower the number of workers in a market, the supply curve shifts upwards, which means that wages increase. However, there is some reason to doubt that. For one, as the Council for Foreign Relations reminds us, wage stagnation has multiple and intermingled factors, including trade policy, capital flows, education, and automation. As the OECD points out, wage stagnation is a problem facing all developed countries.

The National Academies of Sciences (NAS) released a report last year, and what did it conclude about wages? The impact is very small, and to the extent where there are negative impacts, it affects prior immigrants or native-born workers who do not have a high school education (which is still about 8 percent of the labor force). Even when comparing the data between economists Ottaviano and Borjas, the latter of whom is really skeptical about the positive effects of immigration, they both found that the overall effect is the same on native workers: a modest, negligible increase in overall wages (see below). The ones who were most heavily hit were previous immigrants. Employment data from 1991 to 2008 shows that immigrants boost both the productivity and wages of workers (Kemeny and Cooke, 2017). High levels of immigration lead to short-term and long-term increases in native wages (Ottaviano and Peri, 2006).

The last time the United States restricted immigration in a similar fashion was in 1964 when it eliminated the bracero program, which cut off a supply of 500,000 workers. What were the results? According to a study from the National Bureau of Economic Research, not only did wages stay stagnant, but they grew more slowly because farmers increased automation (Clemens et al., 2017). Another way of saying that is the last time the United States cut off immigration did not boost the wages of low-skilled American workers.

Another example is the Mariel boat lift, when a massive amount of Cuban refugees were absorbed into the Florida economy in 1980. What does the research show? With the possible exception of high school dropouts, wages went up for native workers. What the bracero and Mariel examples show is that a sudden and large influx of immigrants does not adversely affect native workers' wages.

Are Immigrants More Likely to Be on Welfare?
Current law prevents legal immigrants from accessing means-tested welfare for five years. Needless to say, there are certain exceptions, such as pregnant women and children. One of the arguments to justify the RAISE Act is that immigrants are more likely to use welfare than native citizens. The Trump administration uses a study from the Center for Immigrant Studies to bolster this claim, a study which I refuted back in 2015. A few points to help answer this question:
  1. When compared to similarly situated natives, poor immigrants are less likely to use welfare services than poor native-born citizens (Ku and Bruen, 2013). The amount that immigrants contribute to Medicare (Zallman et al., 2013) and Social Security (Anderson, 2005) have been found to be net positive towards the programs. If U.S. natives consumed Medicaid at the same rate that immigrants did, we would pay 42 percent less in Medicaid. 
  2. Not only do legal immigrants pay taxes, but they pay enough where their net contribution to the economy is positive, and their fiscal impact is near net-zero (Nowrasteh, 2014). 
  3. The labor participation rate of Mexican immigrants, which is comparable to that of native-born citizens, suggests strongly that they are here to work, not to be on welfare. Another fact to further prove this notion: during the Great Recession, net Mexican migration fell to zero or less, and has not since increased. 
  4. The government spends so much more on the native-born through means-tested welfare and Social Security. If your concern is about the government accruing more debt, then the focus should be on all welfare reform, not just welfare reform for a small percentage of the U.S. population.
Should We Be Cutting Back on Low-Skilled Immigrants?
Whether we should have skilled immigrants is much less controversial than whether we should have low-skilled immigrants. The major provision of the RAISE Act is to cut green cards by nearly 500,000 to have a higher percentage of high-skilled immigrants (although the bill does nothing to raise the number of total green cards awarded to high-skilled immigrants). The Brookings Institution points out that low-skilled immigration grew during the 1990s and early 2000s, after which, it plateaued in 2007 (Hanson et al., 2017).

Proponents of RAISE think that having a skills-based immigration approach is uncontroversial since such countries as Canada, Australia, and New Zealand. The European Union also has a Blue Card, which is a worker permit that prefers high-skilled labor. As the Cato Institute pointed out recently, the systems in Australia and Canada are much more open to immigration than the United States, and thus not comparable. More to the point, if the United States does not open its doors to high-skilled immigrants, these other countries will take them, thereby causing the United States to lose its competitiveness in the global market.

When we ask the question of whether there are too many or too few low-skilled immigrants, it assumes that there is some magic number we should stick to once we reach it. The problem with this is that markets change because supply and demand of multiple markets having various interactions with one another are in flux.

But first, let's keep our own history in mind. In 1940, 88 percent of European immigrants did not have a high school degree, yet when we take a look at historical employment data, that did not stop labor market growth. If anything, a lot more jobs were created. The U.S. job market was able to handle both an increase in immigrants and women entering the workforce. Not only has the U.S. labor market been resilient, but there is a demand for low-skilled workers. As the Bipartisan Policy Center points out, there is high demand for these immigrants in construction, hospitality, healthcare, and agriculture.

Low-skilled immigrants are more helpful than simply filling current labor shortages. Low-skilled immigrants can actually raise the wages of native workers (Foged and Peri, 2016). Why? Because low-skilled immigrants have skills that are complementary to native workers (Peri and Sparber, 2009), which means they are not in competition (also see NAS report mentioned earlier). Even for those who did end up switching jobs, they usually got better-paying jobs. Essentially, it gives the native-born a better push to do better in the job market. Allowing people to reside where their work is most valuable creates greater productivity, which is why immigration helps boost the GDP (see previous question above).

Should We Be Cutting Back on Refugees?
The Refugee Processing Center has data dating back to 1975 (see below). When looking at the history of refugees, this country has been able to absorb larger amounts of refugees than the RAISE Act is intending to admit. In addition to the previous questions I asked being applicable to refugees, there is the additional question as to whether refugees are a threat to our national security. As I detailed in February, the short answer to that question is a resounding "No!"

Other Points Worth Remembering
  • Immigration improves the productivity of U.S. firms (also see here), as well as spurs Americans to attain more education.
  • This country is losing its market dynamism, and without more immigration, we'll see our economy become less vibrant and great. 
  • Since the United States' fertility rate is below replacement rate, we need to focus on increasing immigration to improve labor force growth, increase our fertility rate, and increase economic productivity. 
  • In the third presidential debate, Trump stated that amnesty was unfair for the ones who were waiting in line. If the RAISE Act passes, he will effectively screw over so many those waiting in line because he will take them out of the line if they cannot get admitted within a year after the RAISE Act passes.
You know that something is wrong when 1,470 economists from multiple sides of the political spectrum have to sign a letter telling President Trump about the benefits of immigration. The only group of U.S.-born workers that you could even begin to plausibly argue are harmed by more immigration is high school dropouts, and that is even tenuous. On net, immigration has decidedly been a benefit for the United States. This country could use some immigration reform, but cutting green cards by nearly 500,000 while doing nothing to raise the number of skilled immigrants does nothing to advance the United States' national interest. Passing the RAISE Act would effectively set U.S. immigration policy back at least half a century.

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