Steve Scores Another Bullseye.

As usual, Steve Malanga presents facts, figures and flawless reason in a debate that is dominated by feelings. If Mr. Malanga were to get sufficient air time, we can be certain that Janet Murguia of La Raza would unleash a campaign to get his "hate speech" taken off the airwaves.

How Unskilled Immigrants Hurt Our Economy

By Steven Malanga

A handful of industries get low-cost labor, and the taxpayers foot the bill.

The day after Librado Velasquez arrived on Staten Island after a long, surreptitious journey from his Chiapas, Mexico, home, he headed out to a street corner to wait with other illegal immigrants looking for work. Velasquez, who had supported his wife, seven kids, and his in-laws as a campesino, or peasant farmer, until a 1998 hurricane devastated his farm, eventually got work, off the books, loading trucks at a small New Jersey factory, which hired illegals for jobs that required few special skills. The arrangement suited both, until a work injury sent Velasquez to the local emergency room, where federal law required that he be treated, though he could not afford to pay for his care. After five operations, he is now permanently disabled and has remained in the United States to pursue compensation claims.

“I do not have the use of my leg without walking with a cane, and I do not have strength in my arm in order to lift things,” Velasquez said through an interpreter at New York City Council hearings. “I have no other way to live except if I receive some other type of compensation. I need help, and I thought maybe my son could come and work here and support me here in the United States.”

Velasquez’s story illustrates some of the fault lines in the nation’s current, highly charged, debate on immigration. Since the mid-1960s, America has welcomed nearly 30 million legal immigrants and received perhaps another 15 million illegals, numbers unprecedented in our history. These immigrants have picked our fruit, cleaned our homes, cut our grass, worked in our factories, and washed our cars. But they have also crowded into our hospital emergency rooms, schools, and government-subsidized aid programs, sparking a fierce debate about their contributions to our society and the costs they impose on it.

Advocates of open immigration argue that welcoming the Librado Velasquezes of the world is essential for our American economy: our businesses need workers like him, because we have a shortage of people willing to do low-wage work. Moreover, the free movement of labor in a global economy pays off for the United States, because immigrants bring skills and capital that expand our economy and offset immigration’s costs. Like tax cuts, supporters argue, immigration pays for itself.

But the tale of Librado Velasquez helps show why supporters are wrong about today’s immigration, as many Americans sense and so much research has demonstrated. America does not have a vast labor shortage that requires waves of low-wage immigrants to alleviate; in fact, unemployment among unskilled workers is high—about 30 percent. Moreover, many of the unskilled, uneducated workers now journeying here labor, like Velasquez, in shrinking industries, where they force out native workers, and many others work in industries where the availability of cheap workers has led businesses to suspend investment in new technologies that would make them less labor-intensive.

Yet while these workers add little to our economy, they come at great cost, because they are not economic abstractions but human beings, with their own culture and ideas—often at odds with our own. Increasing numbers of them arrive with little education and none of the skills necessary to succeed in a modern economy. Many may wind up stuck on our lowest economic rungs, where they will rely on something that immigrants of other generations didn’t have: a vast U.S. welfare and social-services apparatus that has enormously amplified the cost of immigration. Just as welfare reform and other policies are helping to shrink America’s underclass by weaning people off such social programs, we are importing a new, foreign-born underclass. As famed free-market economist Milton Friedman puts it: “It’s just obvious that you can’t have free immigration and a welfare state.”

Immigration can only pay off again for America if we reshape our policy, organizing it around what’s good for the economy by welcoming workers we truly need and excluding those who, because they have so little to offer, are likely to cost us more than they contribute, and who will struggle for years to find their place here.

Hampering today’s immigration debate are our misconceptions about the so-called first great migration some 100 years ago, with which today’s immigration is often compared. We envision that first great migration as a time when multitudes of Emma Lazarus’s “tired,” “poor,” and “wretched refuse” of Europe’s shores made their way from destitution to American opportunity. Subsequent studies of American immigration with titles like The Uprooted convey the same impression of the dispossessed and displaced swarming here to find a new life. If America could assimilate 24 million mostly desperate immigrants from that great migration—people one unsympathetic economist at the turn of the twentieth century described as “the unlucky, the thriftless, the worthless”—surely, so the story goes, today’s much bigger and richer country can absorb the millions of Librado Velasquezes now venturing here.

But that argument distorts the realities of the first great migration. Though fleeing persecution or economic stagnation in their homelands, that era’s immigrants—Jewish tailors and seamstresses who helped create New York’s garment industry, Italian stonemasons and bricklayers who helped build some of our greatest buildings, German merchants, shopkeepers, and artisans—all brought important skills with them that fit easily into the American economy. Those waves of immigrants—many of them urban dwellers who crossed a continent and an ocean to get here—helped supercharge the workforce at a time when the country was going through a transformative economic expansion that craved new workers, especially in its cities. A 1998 National Research Council report noted “that the newly arriving immigrant nonagricultural work force . . . was (slightly) more skilled than the resident American labor force”: 27 percent of them were skilled laborers, compared with only 17 percent of that era’s native-born workforce.

Many of these immigrants quickly found a place in our economy, participating in the workforce at a higher rate even than the native population. Their success at finding work sent many of them quickly up the economic ladder: those who stayed in America for at least 15 years, for instance, were just as likely to own their own business as native-born workers of the same age, one study found. Another study found that their American-born children were just as likely to be accountants, engineers, or lawyers as Americans whose families had been here for generations.

What the newcomers of the great migration did not find here was a vast social-services and welfare state. They had to rely on their own resources or those of friends, relatives, or private, often ethnic, charities if things did not go well. That’s why about 70 percent of those who came were men in their prime. It’s also why many of them left when the economy sputtered several times during the period. For though one often hears that restrictive anti-immigration legislation starting with the Emergency Quota Act of 1921 ended the first great migration, what really killed it was the crash of the American economy. Even with the 1920s quotas, America welcomed some 4.1 million immigrants, but in the Depression of the 1930s, the number of foreign immigrants tumbled far below quota levels, to 500,000. With America’s streets no longer paved with gold, and without access to the New Deal programs for native-born Americans, immigrants not only stopped coming, but some 60 percent of those already here left in a great remigration home.

Today’s immigration has turned out so differently in part because it emerged out of the 1960s civil rights and Great Society mentality. In 1965, a new immigration act eliminated the old system of national quotas, which critics saw as racist because it greatly favored European nations. Lawmakers created a set of broader immigration quotas for each hemisphere, and they added a new visa preference category for family members to join their relatives here. Senate immigration subcommittee chairman Edward Kennedy reassured the country that, “contrary to the charges in some quarters, [the bill] will not inundate America with immigrants,” and “it will not cause American workers to lose their jobs.”

But, in fact, the law had an immediate, dramatic effect, increasing immigration by 60 percent in its first ten years. Sojourners from poorer countries around the rest of the world arrived in ever-greater numbers, so that whereas half of immigrants in the 1950s had originated from Europe, 75 percent by the 1970s were from Asia and Latin America. And as the influx of immigrants grew, the special-preferences rule for family unification intensified it further, as the pool of eligible family members around the world also increased. Legal immigration to the U.S. soared from 2.5 million in the 1950s to 4.5 million in the 1970s to 7.3 million in the 1980s to about 10 million in the 1990s.

As the floodgates of legal immigration opened, the widening economic gap between the United States and many of its neighbors also pushed illegal immigration to levels that America had never seen. In particular, when Mexico’s move to a more centralized, state-run economy in the 1970s produced hyperinflation, the disparity between its stagnant economy and U.S. prosperity yawned wide. Mexico’s per-capita gross domestic product, 37 percent of the United States’ in the early 1980s, was only 27 percent of it by the end of the decade—and is now just 25 percent of it. With Mexican farmworkers able to earn seven to ten times as much in the United States as at home, by the 1980s illegals were pouring across our border at the rate of about 225,000 a year, and U.S. sentiment rose for slowing the flow.

But an unusual coalition of business groups, unions, civil rights activists, and church leaders thwarted the call for restrictions with passage of the inaptly named 1986 Immigration Reform and Control Act, which legalized some 2.7 million unauthorized aliens already here, supposedly in exchange for tougher penalties and controls against employers who hired illegals. The law proved no deterrent, however, because supporters, in subsequent legislation and court cases argued on civil rights grounds, weakened the employer sanctions. Meanwhile, more illegals flooded here in the hope of future amnesties from Congress, while the newly legalized sneaked their wives and children into the country rather than have them wait for family-preference visas. The flow of illegals into the country rose to between 300,000 and 500,000 per year in the 1990s, so that a decade after the legislation that had supposedly solved the undocumented alien problem by reclassifying them as legal, the number of illegals living in the United States was back up to about 5 million, while today it’s estimated at between 9 million and 13 million.

The flood of immigrants, both legal and illegal, from countries with poor, ill-educated populations, has yielded a mismatch between today’s immigrants and the American economy and has left many workers poorly positioned to succeed for the long term. Unlike the immigrants of 100 years ago, whose skills reflected or surpassed those of the native workforce at the time, many of today’s arrivals, particularly the more than half who now come from Central and South America, are farmworkers in their home countries who come here with little education or even basic training in blue-collar occupations like carpentry or machinery. (A century ago, farmworkers made up 35 percent of the U.S. labor force, compared with the under 2 percent who produce a surplus of food today.) Nearly two-thirds of Mexican immigrants, for instance, are high school dropouts, and most wind up doing either unskilled factory work or small-scale construction projects, or they work in service industries, where they compete for entry-level jobs against one another, against the adult children of other immigrants, and against native-born high school dropouts. Of the 15 industries employing the greatest percentage of foreign-born workers, half are low-wage service industries, including gardening, domestic household work, car washes, shoe repair, and janitorial work. To take one stark example: whereas 100 years ago, immigrants were half as likely as native-born workers to be employed in household service, today immigrants account for 27 percent of all domestic workers in the United States.

Although open-borders advocates say that these workers are simply taking jobs Americans don’t want, studies show that the immigrants drive down wages of native-born workers and squeeze them out of certain industries. Harvard economists George Borjas and Lawrence Katz, for instance, estimate that low-wage immigration cuts the wages for the average native-born high school dropout by some 8 percent, or more than $1,200 a year. Other economists find that the new workers also push down wages significantly for immigrants already here and native-born Hispanics.

Consequently, as the waves of immigration continue, the sheer number of those competing for low-skilled service jobs makes economic progress difficult. A study of the impact of immigration on New York City’s restaurant business, for instance, found that 60 percent of immigrant workers do not receive regular raises, while 70 percent had never been promoted. One Mexican dishwasher aptly captured the downward pressure that all these arriving workers put on wages by telling the study’s authors about his frustrating search for a 50-cent raise after working for $6.50 an hour: “I visited a few restaurants asking for $7 an hour, but they only offered me $5.50 or $6,” he said. “I had to beg [for a job].”

Similarly, immigration is also pushing some native-born workers out of jobs, as Kenyon College economists showed in the California nail-salon workforce. Over a 16-year period starting in the late 1980s, some 35,600 mostly Vietnamese immigrant women flooded into the industry, a mass migration that equaled the total number of jobs in the industry before the immigrants arrived. Though the new workers created a labor surplus that led to lower prices, new services, and somewhat more demand, the economists estimate that as a result, 10,000 native-born workers either left the industry or never bothered entering it.

In many American industries, waves of low-wage workers have also retarded investments that might lead to modernization and efficiency. Farming, which employs a million immigrant laborers in California alone, is the prime case in point. Faced with a labor shortage in the early 1960s, when President Kennedy ended a 22-year-old guest-worker program that allowed 45,000 Mexican farmhands to cross over the border and harvest 2.2 million tons of California tomatoes for processed foods, farmers complained but swiftly automated, adopting a mechanical tomato-picking technology created more than a decade earlier. Today, just 5,000 better-paid workers—one-ninth the original workforce—harvest 12 million tons of tomatoes using the machines.

The savings prompted by low-wage migrants may even be minimal in crops not easily mechanized. Agricultural economists Wallace Huffman and Alan McCunn of Iowa State University have estimated that without illegal workers, the retail cost of fresh produce would increase only about 3 percent in the summer-fall season and less than 2 percent in the winter-spring season, because labor represents only a tiny percent of the retail price of produce and because without migrant workers, America would probably import more foreign fruits and vegetables. “The question is whether we want to import more produce from abroad, or more workers from abroad to pick our produce,” Huffman remarks.

For American farmers, the answer has been to keep importing workers—which has now made the farmers more vulnerable to foreign competition, since even minimum-wage immigrant workers can’t compete with produce picked on farms in China, Chile, or Turkey and shipped here cheaply. A flood of low-priced Turkish raisins several years ago produced a glut in the United States that sharply drove down prices and knocked some farms out of business, shrinking total acreage in California devoted to the crop by one-fifth, or some 50,000 acres. The farms that survived are now moving to mechanize swiftly, realizing that no amount of cheap immigrant labor will make them competitive.

As foreign competition and mechanization shrink manufacturing and farmworker jobs, low-skilled immigrants are likely to wind up farther on the margins of our economy, where many already operate. For example, although only about 12 percent of construction workers are foreign-born, 100,000 to 300,000 illegal immigrants have carved a place for themselves as temporary workers on the fringes of the industry. In urban areas like New York and Los Angeles, these mostly male illegal immigrants gather on street corners, in empty lots, or in Home Depot parking lots to sell their labor by the hour or the day, for $7 to $11 an hour.

That’s far below what full-time construction workers earn, and for good reason. Unlike the previous generations of immigrants who built America’s railroads or great infrastructure projects like New York’s bridges and tunnels, these day laborers mostly do home-improvement projects. A New York study, for instance, found that four in ten employers who hire day laborers are private homeowners or renters wanting help with cleanup chores, moving, or landscaping. Another 56 percent were contractors, mostly small, nonunion shops, some owned by immigrants themselves, doing short-term, mostly residential work. The day laborer’s market, in other words, has turned out to be a boon for homeowners and small contractors offering their residential clients a rock-bottom price, but a big chunk of the savings comes because low-wage immigration has produced such a labor surplus that many of these workers are willing to take jobs without benefits and with salaries far below industry norms.

Because so much of our legal and illegal immigrant labor is concentrated in such fringe, low-wage employment, its overall impact on our economy is extremely small. A 1997 National Academy of Sciences study estimated that immigration’s net benefit to the American economy raises the average income of the native-born by only some $10 billion a year—about $120 per household. And that meager contribution is not the result of immigrants helping to build our essential industries or making us more competitive globally but instead merely delivering our pizzas and cutting our grass. Estimates by pro-immigration forces that foreign workers contribute much more to the economy, boosting annual gross domestic product by hundreds of billions of dollars, generally just tally what immigrants earn here, while ignoring the offsetting effect they have on the wages of native-born workers.

If the benefits of the current generation of migrants are small, the costs are large and growing because of America’s vast range of social programs and the wide advocacy network that strives to hook low-earning legal and illegal immigrants into these programs. A 1998 National Academy of Sciences study found that more than 30 percent of California’s foreign-born were on Medicaid—including 37 percent of all Hispanic households—compared with 14 percent of native-born households. The foreign-born were more than twice as likely as the native-born to be on welfare, and their children were nearly five times as likely to be in means-tested government lunch programs. Native-born households pay for much of this, the study found, because they earn more and pay higher taxes—and are more likely to comply with tax laws. Recent immigrants, by contrast, have much lower levels of income and tax compliance (another study estimated that only 56 percent of illegals in California have taxes deducted from their earnings, for instance). The study’s conclusion: immigrant families cost each native-born household in California an additional $1,200 a year in taxes.

Immigration’s bottom line has shifted so sharply that in a high-immigration state like California, native-born residents are paying up to ten times more in state and local taxes than immigrants generate in economic benefits. Moreover, the cost is only likely to grow as the foreign-born population—which has already mushroomed from about 9 percent of the U.S. population when the NAS studies were done in the late 1990s to about 12 percent today—keeps growing. And citizens in more and more places will feel the bite, as immigrants move beyond their traditional settling places. From 1990 to 2005, the number of states in which immigrants make up at least 5 percent of the population nearly doubled from 17 to 29, with states like Arkansas, South Dakota, South Carolina, and Georgia seeing the most growth. This sharp turnaround since the 1970s, when immigrants were less likely to be using the social programs of the Great Society than the native-born population, says Harvard economist Borjas, suggests that welfare and other social programs are a magnet drawing certain types of immigrants—nonworking women, children, and the elderly—and keeping them here when they run into difficulty.


Not only have the formal and informal networks helping immigrants tap into our social spending grown, but they also get plenty of assistance from advocacy groups financed by tax dollars, working to ensure that immigrants get their share of social spending. Thus, the Newark-based New Jersey Immigration Policy Network receives several hundred thousand government dollars annually to help doctors and hospitals increase immigrant enrollment in Jersey’s subsidized health-care programs. Casa Maryland, operating in the greater Washington area, gets funding from nearly 20 federal, state, and local government agencies to run programs that “empower” immigrants to demand benefits and care from government and to “refer clients to government and private social service programs for which they and their families may be eligible.”

Pols around the country, intent on currying favor with ethnic voting blocs by appearing immigrant-friendly, have jumped on the benefits-for-immigrants bandwagon, endorsing “don’t ask, don’t tell” policies toward immigrants who register for benefits, giving tax dollars to centers that find immigrants work and aid illegals, and enacting legislation prohibiting local authorities from cooperating with federal immigration officials. In New York, for instance, Mayor Michael Bloomberg has ordered city agencies to ignore an immigrant’s status in providing services. “This policy’s critical to encourage immigrant day laborers to access . . . children’s health insurance, a full range of preventive primary and acute medical care, domestic violence counseling, emergency shelters, police protection, consumer fraud protections, and protection against discrimination through the Human Rights Commission,” the city’s Immigrant Affairs Commissioner, Guillermo Linares, explains.

Almost certainly, immigrants’ participation in our social welfare programs will increase over time, because so many are destined to struggle in our workforce. Despite our cherished view of immigrants as rapidly climbing the economic ladder, more and more of the new arrivals and their children face a lifetime of economic disadvantage, because they arrive here with low levels of education and with few work skills—shortcomings not easily overcome. Mexican immigrants, who are up to six times more likely to be high school dropouts than native-born Americans, not only earn substantially less than the native-born median, but the wage gap persists for decades after they’ve arrived. A study of the 2000 census data, for instance, shows that the cohort of Mexican immigrants between 25 and 34 who entered the United States in the late 1970s were earning 40 to 50 percent less than similarly aged native-born Americans in 1980, but 20 years later they had fallen even further behind their native-born counterparts. Today’s Mexican immigrants between 25 and 34 have an even larger wage gap relative to the native-born population. Adjusting for other socioeconomic factors, Harvard’s Borjas and Katz estimate that virtually this entire wage gap is attributable to low levels of education.

Meanwhile, because their parents start off so far behind, the American-born children of Mexican immigrants also make slow progress. First-generation adult Americans of Mexican descent studied in the 2000 census, for instance, earned 14 percent less than native-born Americans. By contrast, first-generation Portuguese Americans earned slightly more than the average native-born worker—a reminder of how quickly immigrants once succeeded in America and how some still do. But Mexico increasingly dominates our immigration flows, accounting for 43 percent of the growth of our foreign-born population in the 1990s.

One reason some ethnic groups make up so little ground concerns the transmission of what economists call “ethnic capital,” or what we might call the influence of culture. More than previous generations, immigrants today tend to live concentrated in ethnic enclaves, and their children find their role models among their own group. Thus the children of today’s Mexican immigrants are likely to live in a neighborhood where about 60 percent of men dropped out of high school and now do low-wage work, and where less than half of the population speak English fluently, which might explain why high school dropout rates among Americans of Mexican ancestry are two and a half times higher than dropout rates for all other native-born Americans, and why first-generation Mexican Americans do not move up the economic ladder nearly as quickly as the children of other immigrant groups.

In sharp contrast is the cultural capital transmitted by Asian immigrants to children growing up in predominantly Asian-American neighborhoods. More than 75 percent of Chinese immigrants and 98 percent of South Asian immigrants to the U.S. speak English fluently, while a mid-1990s study of immigrant households in California found that 37 percent of Asian immigrants were college graduates, compared with only 3.4 percent of Mexican immigrants. Thus, even an Asian-American child whose parents are high school dropouts is more likely to grow up in an environment that encourages him to stay in school and learn to speak English well, attributes that will serve him well in the job market. Not surprisingly, several studies have shown that Asian immigrants and their children earn substantially more than Mexican immigrants and their children.

Given these realities, several of the major immigration reforms now under consideration simply don’t make economic sense—especially the guest-worker program favored by President Bush and the U.S. Senate. Careful economic research tells us that there is no significant shortfall of workers in essential American industries, desperately needing supplement from a massive guest-worker program. Those few industries now relying on cheap labor must focus more quickly on mechanization where possible. Meanwhile, the cost of paying legal workers already here a bit more to entice them to do such low-wage work as is needed will have a minimal impact on our economy.

The potential woes of a guest-worker program, moreover, far overshadow any economic benefit, given what we know about the long, troubled history of temporary-worker programs in developed countries. They have never stemmed illegal immigration, and the guest workers inevitably become permanent residents, competing with the native-born and forcing down wages. Our last guest-worker program with Mexico, begun during World War II to boost wartime manpower, grew larger in the postwar era, because employers who liked the cheap labor lobbied hard to keep it. By the mid-1950s, the number of guest workers reached seven times the annual limit during the war itself, while illegal immigration doubled, as the availability of cheap labor prompted employers to search for ever more of it rather than invest in mechanization or other productivity gains.

The economic and cultural consequences of guest-worker programs have been devastating in Europe, and we risk similar problems. When post–World War II Germany permitted its manufacturers to import workers from Turkey to man the assembly lines, industry’s investment in productivity declined relative to such countries as Japan, which lacked ready access to cheap labor. When Germany finally ended the guest-worker program once it became economically unviable, most of the guest workers stayed on, having attained permanent-resident status. Since then, the descendants of these workers have been chronically underemployed and now have a crime rate double that of German youth.

France has suffered similar consequences. In the post–World War II boom, when French unemployment was under 2 percent, the country imported an industrial labor force from its colonies; by the time France’s industrial jobs began evaporating in the 1980s, these guest workers and their children numbered in the millions, and most had made little economic progress. They now inhabit the vast housing projects, or cités, that ring Paris—and that have recently been the scene of chronic rioting. Like Germany, France thought it was importing a labor force, but it wound up introducing a new underclass.

“Importing labor is far more complicated than importing other factors of production, such as commodities,” write University of California at Davis prof Philip Martin, an expert on guest-worker programs, and Michael Teitelbaum, a former member of the U.S. Commission on Immigration Reform. “Migration involves human beings, with their own beliefs, politics, cultures, languages, loves, hates, histories, and families.”

http://www.city-journal.org/html/16_3_immigrants_economy.html