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AUser’sGuidetothe2016NationalAcademyReporton“TheEconomicandFiscalConsequencesofImmigration”

GeorgeJ.Borjas*September22,2016

Introduction

TheNationalAcademyofSciences(NAS)hasjustpublishedamajorreportonTheEconomicandFiscalConsequencesofImmigration.TheNationalAcademypanelthatpreparedthereportconsistedofabout20socialscientists,includingeconomists,sociologists,anddemographers.TheprojectwasledbyFrancineBlau,aprofessorofeconomicsatCornell,andChristopherMackie,whoisastudydirectorwiththeCommitteeonNationalStatisticsattheNAS.FranandChrisdidanamazingjobbringingthisverycomplicatedprojecttofruitionoverathree-yearperiod.Theywere(very)patient,fair,professional,andmadesurethatalltheworkdonebythemembersofthepanelwassomehowweavedintoacohesivewhole--andthat'snosmallfeat!AnddidIsaytheywereverypatient?

Fulldisclosure:IwasamemberoftheNASpanelthatpreparedthereport,butanythingIsayinthisseriesofpostsreflectsonlymytakeaboutwhatisinthereportandwhat,Ithink,isimportant.Thesepostshavenotbeenreadorvettedbyanyoneinthepanel.

Ithinkthereporthasfourmajorconclusions.Butitisnear300,000wordslongwithbigchunksofitwrittenin"technical-ese,"comprehensibleonlytotrainedeconomistsandlikelytoappealonlytoimmigrationgeeks.SoI'mgoingtowritefivepoststhattogethermakeup"AUser'sGuide."TheUser'sGuidewilllinktothemaintablesandfiguresinthereportthatdocumentthoseconclusions.

LetmestartbygivingabriefoutlineofmyUser'sGuide.Allquotesbelowarefromthereport'ssummary:

1 Therehasbeenaslowdowninassimilationduringtheimmigrants'lifetime(User'sGuide,1)."AstimespentintheUnitedStateslengthens,immigrants’wagesincreaserelativetothoseofnativesandtheinitialwagegapnarrows.However,thisprocessofeconomicintegrationappearstohaveslowedsomewhatinrecentdecades;therateofrelativewagegrowthandEnglishlanguageacquisitionamongtheforeign-bornisnowslightlyslowerthanitwasforearlierimmigrantwaves."

2 Immigrationhasaharmfuleffectontheearningsoflow-skillworkers(User'sGuide,2):"Whenmeasuredoveraperiodof10yearsormore,theimpactof

*ProfessorofEconomicsandSocialPolicy,HarvardKennedySchool;ResearchAssociate,National

BureauofEconomicResearch;andProgramDirector,ProgramonLaborMobility,IZA.

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immigrationonthewagesofnativesoverallisverysmall.However,estimatesforsubgroupsspanacomparativelywiderrange,indicatingarevisedandsomewhatmoredetailedunderstandingofthewageimpactofimmigrationsincethe1990s.Totheextentthatnegativewageeffectsarefound,priorimmigrants—whoareoftentheclosestsubstitutesfornewimmigrants—aremostlikelytoexperiencethem,followedbynative-bornhigh-schooldropouts,whosharejobqualificationssimilartothelargeshareoflow-skilledworkersamongimmigrantstotheUnitedStates."

3 Immigrantsandtheirdependentchildrencreateafiscalburden(User'sGuide,3;andUser'sGuide,4):"Onaverage,individualsinthefirstgenerationaremorecostlytogovernments,mainlyatthestateandlocallevels,thanarethenative-borngenerations...For2013,thetotalfiscalshortfall(i.e.,theexcessofgovernmentexpendituresovertaxes)was$279billionforthefirstgenerationgroup...Viewedoveralongtimehorizon(75yearsinourestimates),thefiscalimpactsofimmigrantsaregenerallypositiveatthefederallevelandnegativeatthestateandlocallevels."Butthesefiscalimpactestimatesare,rightly,stampedwithaConsumerWarninglabel:"Assumptionsplayacentralroleinanalysesofthefiscalimpactsofimmigration."

4 Thebottomline.(User'sGuide,5):TheNASreportdoesnotconductthefinal(andobvious)calculationthataddsuptheeconomicgainsandcomparesthatnumberwiththefiscalburden.Butanyonewithapencilandaproverbialback-of-an-envelopecandosousingthenumbersinthereport.TheonlytimetheNAScomesclosetoestimatingthetotalgainsiswhenitreportsthe"immigrationsurplus"--theincreaseintheaggregatewealthofnativesresultingfromtheproductivecontributionsofimmigrants.Althoughmuchisleftoutwhencalculatingthistheory-basedsurplus,itseemsevident(atleasttome)thatthebottomlineisverysimple:Theeconomicimpactofimmigrationis,atbest,anetwashfortheaveragenative-bornperson.Thegainsaccruingfromtheimmigrants'productivecontributionsareprobablyoffsetbythefiscalburden.Buteventhoughthemythicalaveragepersonisunaffected,somegroupsgainalotandsomegroupslosealot.

Finally,letmere-emphasizethatthisUser'sGuidefocusesontopicsthatIpersonallyfindinterestingandimportant.There'smuchmoreinthereport,including(longanddense)discussionsofimmigration,innovation,andeconomicgrowth,wherethefoundationalresearchisstillaworkinprogress.Nevertheless,theyprovideanexcellentintroductiontomanyresearchandpolicyquestions.

1.Assimilation

ItiswellknownthatimmigrantshaveaneconomicdisadvantagewhentheyfirstentertheUnitedStates.ManyarenotfluentinEnglish;theyarenotfamiliarwithhowtheUSlabormarketworks;andonandon.Soitisnotsurprisingthat,atfirst,theyearnfarlessthan

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natives.Overtime,theimmigrantslearnthelanguage,acquirenewskills,andbeginto"catchup"orassimilatetothenativenorm.

Economicassimilationisobviouslyanimportantcomponentofanyassessmentoftheimpactofimmigration.Anddespiteallthehypeclaimingthatimmigrantstodayareassimilatingjustaswellasearlierwavesdid(includinganotherNASreportfocusingspecificallyonassimilationandreleasedjustoneyearago;here'sthatreportandthemediaspin),thenewNASreportgivesafarmorerealisticandmeasuredassessmentofthesituation.

Chapter3,whichsummarizestrendsintheskillsofimmigrants,isquitedetailed.Butthereisonetable(Table3-12)andonefigure(Figure3-6)thatspeakvolumesaboutwhatreallymatters.Here'sthetable:

Thistablereportstheage-adjustedpercentwagegapbetweenspecificimmigrantwavesandnativesatdifferentpointsintime.Thetableobviouslyshowsthattherewasalotofwagegrowthforimmigrantswhoarrivedinthe1960sand1970s,butfarlessforimmigrantswhoarrivedinthe1980sand1990s.Forexample,the1965-1969arrivalshada23.5%wagedisadvantageatthetimeofarrival,andthishadnarrowedtoa12.0%disadvantageafter10years.Butthe1995-99arrivalshada27.3%wagedisadvantageatthetimeofarrival,anditwasstill26.9%after10years.Asthereportmodestlyputsit:

Maleimmigrantswhoarrivedbetween1965and1969experiencedrapidgrowthintheirrelativewages,whichallowedthemtoclosethegapwithnative-bornpeers.Thisindicationofeconomicintegrationhasshownsignsofslowinginmorerecentdecades.Therelativewageprofilehasflattenedsomewhatacrossrecentarrivalcohorts,indicatingaslowingrateofwageconvergence.

Andthenhere'sthefigure:

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Itshowsthatimmigrantswhocameinthe1970sbecamefluentinEnglishatafasterratethantheimmigrantswhoarrivedinthe1980sand1990s.Thisishowthepaneldescribesthefinding:

Thesetrendsgenerallycorroboratethefinding...thatearliercohortsofimmigrantsexperiencedmorerapidlanguageassimilationthanrecentcohorts.

TheNASanalysisoftrendsinimmigrantskillsbringstotheimmigrationdebateanewandimportantfact:Therehasbeenaslowdownintheeconomicassimilationofimmigrants.Eventhoughwedonotyetfullyunderstandwhythisslowdownoccurred,thereisacrucialquestionlurkingunderneath:Whatdoestheassimilationslowdownmeanforthefuture?

Anaside:BewareofadjectivesandadverbsintheNASreport.LookatTable3-12andFigure3-6,andaskyourself:Istheassimilationslowdownnumericallysignificant?Thisishowthereport'ssummarydescribesit:"TherateofrelativewagegrowthandEnglishlanguageacquisitionamongtheforeign-bornisnowslightlyslowerthanitwasforearlierimmigrantwaves."Maybeit'sjustme,butthefindingthatthereisnowagegrowthwhatsoeverbythetimeyougettothe1995-1999waveisatadstrongerthantheclaimthatassimilationis"nowslightlyslower."

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2.LaborMarketImpact

Chapter5ofthereport,entitled"EmploymentandWageImpactsofImmigration,"weighsinatover32,000words(forcontext,that'soverhalfthelengthofmynewbook,WeWantedWorkers).Iamcynicalenoughtoknowthatmostofthepeoplewhowillbothertowadethroughtheverbiagearefishingfor"talkingpoints"thatwillsupporttheirideologicalpointofview.Butthey'llbemissingsomething.Thisis,byfar,thebestandmostextensivesurveyofadifficultandvoluminousliterature.Thereport'semphasisonthediversityoffindings,andthemanycaveatsthatgoalongwiththosefindings,reflectsthedoubtsanduncertaintyintheexistingacademicliterature.

Havingsaidthat,westillneed"stylizedfacts"tohelpusthinkaboutthisissue.Theverylongchapteronlyhastwotables(inthemaintext).Andthosetwotablessummarizethekeyinsightsfromtheliterature.Soletmedescribewhatthosetwotablesdo,andnotethetake-awaypoints.

Table5-1,copiedverbatimfromtablesthatIpublishedinmytechnicalbookImmigrationEconomics,summarizestheevidencefrom"structuralmodels"ofthelabormarket.InplainEnglish.Let'sassumethatalltheimmigrantswhoarrivedbetween1990and2010enteredthecountryallatonce.Wearethengoingtostreamthesedatathroughamathematicalmodelthatpurportstodescribehowthelabormarketworks.Thismathematicalexercisethenletsus"see"howthemarketreactsinthe"shortrun"(theinstantaftertheimmigrantsarrive)andthe"longrun"(afterthemarkethasfullyadjustedtotheirentry).

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AlthoughIampersonallyresponsibleforintroducingthistypeofstructuralsimulationinthesecondhalfofmy2003QuarterlyJournalofEconomicspaper,I'mnotabigfanofit.Why?Becausethemathematicalmodelbuildsinmanyassumptions,andassumptionsmatter.Thisopensupthedoorforalotofmischiefandobfuscation,asdifferent

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researchersplaywithdifferentassumptionsandendupproducingdifferentanswers.Letmequotethereportonwhatitiswelearnfromthistypeofstructuralanalysis:

Thekeydifferencesinthestructuralstudiesliteraturecanbelinkedbacktothestudies’modelingassumptions.Allowingcapitaltoadjust(i.e.,movingfromashort-runtoalong-runscenario)reducestheestimatednegativeeffectsacrosstheboard[GoingfromPanelAtoPanelBofthetable]...Thesimulationsalsoshowthatallowingforimperfectsubstitutionbetweenimmigrantsandnatives[goingfromScenario1toScenario2]doesnotgreatlyattenuatethewageimpactofimmigrationonhighschooldropouts.Thereisstilla2to5percentwageloss,dependingonwhetheronelooksatthelongrunorshortrun...Thescenariothatdoesleadtoamuchlowernegativeorevenpositiveimpactofimmigrationonthelowestskilledworkersistheonethatalsoincorporatesthepossibilitythathighschooldropoutsandhighschoolgraduatesareperfectsubstitutes[goingfromScenario1toScenario4].

Letmetranslateallthis.Twoassumptionshavebeenusedtoclaimthatimmigrantshaveonlyatrivialwageeffectonlow-skillnatives.Thefirstisthatlow-skillimmigrantsarenotproductive"clones"oflow-skillnatives--sothattheentryoflow-skillimmigrantsmayactuallybemakingthelow-skillnativesmoreproductive.ThisispreciselytheclaimfirstmadebyOttavianoandPeriadecadeago.Wenowknow,asPeri-coauthorEthanLewisconcludesinfootnote7ofhissurvey,thatthistypeofcomplementarityis,atbest,"verymodest."Notsurprisingly,theNASreportsthataccountingforthisissue"doesnotgreatlyattenuatethewageimpactofimmigrationonhighschooldropouts."Whatreallymattersisaddingintheotherassumption:thathighschooldropoutsandhighschoolgraduatesareproductiveclones.This,asthereportacknowledges,istheassumptiononeneedstogetthedatatofinally"confess"thatlow-skillworkersarenotharmedbyimmigration.

(Forthegeekyreader.Scenario2inTable5-1assumeslow-skillimmigrantscomplementlow-skillnatives;Scenario3assumeshighschooldropoutsandhighschoolgraduatesareproductiveclones;andScenario4assumesboth).

Theothertableinthechapter(Table5-2)skipsallthatmathandallthoseassumptions,andinsteadsummarizeswhatwefindwhenwesimplycorrelatewageswithimmigration(acrosscitiesorskillgroups).

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Thistableisa"let-the-data-decide"kindoftable(inPanelsAandB).Ithinkthisisafarmorecredibleapproach.AndthisiswhattheNASreportsaysaboutthosecorrelations:

Somenotablepatternsemerge...Nativedropoutstendtobemorenegativelyaffectedthanbetter-educatednatives(asindicatedbycomparingresultsfordropoutswiththeoverallresultsforallworkersorallmenorwomen).Theresultsinthetablealsosuggestthatthisnegativeeffectmaybecompoundedfornativeminorities.AltonjiandCard(1991)foundmore-negativeresultsforlow-educationblacksthanlow-educationwhites...CortésexaminedanumberofgroupsandfoundthelargestnegativeeffectsforHispanicdropoutswithpoorEnglish,aswellaslargernegativeeffectsforHispanicdropoutsthanforalldropouts.Thiscouldbebecausenativedropoutminoritiesaretheclosestnativesubstitutesforimmigrants.

InplainEnglish:theactualdataindicatethatthosenativeswhoaremostlikelytobeaffectedbytheimmigrantsbecausetheysharesimilarskillsare,infact,thenativesmostaffectedbythoseimmigrants.ThereisadeliciousironyinTable5-2thatIcannotresistpointingout.Lookandseewhicheconomisthasproducedthemostnegativeimpactofimmigrationonthewageoflow-skillworkers.IthappenstobenoneotherthanDavidCard.[FullDisclosure:Anotherpanelmemberwasresponsiblefortheconstructionofthetable].

And,aftereverythingissaidanddone,theNASreportconcludes:

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Whenmeasuredoveraperiodof10yearsormore,theimpactofimmigrationontheoverallnativewagemaybesmallandclosetozero.However,estimatesforsubgroupsspanawiderrangeandsuggestsomerevisionsinunderstandingofthewageimpactofimmigrationsincethe1990s...Theintensiveresearchonthistopicoverthepasttwodecades,summarizedinTable5-2,displaysamuchwidervariationintheestimatesofthewageimpactonnativeswhoaremostlikelytocompetewithimmigrants,withsomestudiessuggestingsizablenegativewageeffectsonnativehighschooldropouts...Thus,theevidencesuggeststhatgroupscomparabletotheimmigrantsintermsoftheirskillmayexperienceawagereductionasaresultofimmigration-inducedincreasesinlaborsupply,althoughtherearestillanumberofstudiesthatsuggestsmalltozeroeffects.

Letmeaddanimportantcaveattothisquote.Thezeroaveragewageeffectinthelongrun("10yearsormore")isbasedonthestructuralestimatesreportedinTable5-1.Takealookatthelastcolumnofthattableandnotethatthelong-runimpactofimmigrationontheaveragewageofworkersisalwaysexactlyequalto0.0percent,regardlessofwhichscenariowelookat.Whataremarkablestatisticalcoincidence!

Asthepanelitselfacknowledges,however,thiszerowageeffectisbuiltinbythemathematicsofthemodel:"Inthecaseofstructuralstudies,whencapitalisassumedtobeperfectlyflexible,[average]wageeffectsonnativesarezero,althoughthisresultisbuiltinbytheoreticalassumptions."Putbluntly,claimsthatthelong-runeffectofimmigrationontheaveragewageis"smallandclosetozero"havenothingtodowiththedata.Thatresultisinsteadaby-productofamathematicalassumptionusedtoconstructthemodelofthelabormarket.

And,tomakemattersworse,thismathematicalassumptioncascadesovertoeveryothernumberreportedinTable5-1.Afterall,thewageeffectsforthevariousskillgroupsmustaverageouttozero.Thismeansthateachparticularwageimpactneedsto"alignitself"aroundzerosothattheweightedaverageoftherelevantnumbersindeedaddsuptothemathematicallybuilt-in0.0longrunwageeffect.Putbluntly:Table5-1shouldcomestampedwithabigUsersBewaresign.

3.Short-RunFiscalImpact

TheNASpanelcalculatedtheshort-runfiscalimpactbycomparingthecostofprovidingpublicservicestoimmigrantswiththetaxesthatthoseimmigrantspayinaparticularyear.BothChapter8andChapter9giveestimatesoftheshort-runfiscalimpact.Chapter8includesfederalexpendituresandtaxeswhencalculatingtheimpactin2013,whileChapter9focusesontheimpactatthestateandlocallevelfortheyears2011-2013.

Table8-2isthekeyshort-runtableinChapter8.TheNASpanelusedeightalternativescenariostocalculatethefiscalimpact.

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IthinkScenarios1and5arethemostinterestingones,androughlydefinetheextremes.Scenario1assumesthatthecostofprovidingpublicgoods(suchasnationaldefense)isthesameforanimmigrantasitisforanative,whileScenario5assumesthatimmigrantsdonotincreasethecostofpublicgoodsatall.Thereare55.5millionpersonswhoareeitherimmigrantsortheminorchildrenofimmigrants(thatis,theirdependents).AndthisishowthereportdescribesthefiscalimpactofthisgroupunderScenario1:

Thetotalfiscalburdenis$279billionforthefirstgenerationgroup(averageoutlaysof$15,908minusaveragereceiptsof$10,887,multipliedby55.5millionindividuals).

ItisequallyeasytoestimatethefiscalburdeninScenario5,whereimmigrantsareassumednottoincreasethecostofpublicgoodsatall.Theaverageoutlayisthen$11,669andtaxreceiptsremainat$10,887,creatingafiscalburdenof$43.4billion.ThereporttriestoputthesestatisticsincontextbynotingthattheUnitedStatesrunsafiscaldeficitexceedingoveratrilliondollarsayear,sothateveryoneisafiscalburden.Leftunsaidisanequallyimportantpoint:Someburdensareavoidable,andsomeburdensarenot.Wemaynotbeabletodomuchaboutthefiscalburdenofthenative-bornpopulation.Buttherearemanyobviouspolicyoptionsavailabletoensurethatthealready-largeburdenisnotfurtherincreasedbyimmigration.

Chapter9presentsmoredetailedestimatesoftheshort-runfiscalimpact,focusingonexpendituresandtaxesatthestateandlocalgovernmentlevel.Thepanelallocatedexpenditureson"local"publicgoods(suchaspublicsafety,hospitals,andlibraries)onaper-capitabasistoimmigrantsandnatives.Table9-6isthekeytablethatsummarizestheevidence,andreportsthetaxesandexpendituresforthefirstgeneration(theimmigrants

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andtheirdependents).Hereistherelevanttable,whereIcutoutmostofthestate-specificrowstomakeitmorereadable(hereisthefulltable):

Nationwide,thetypicalimmigrantgeneratesafiscalshortfallatthestate-locallevelof$1,600annually.Thereare36.1millionsuchfirst-generation"households"(seeTable9-13inthereport),sothatthetotalshortfallisover$57billion(or$1,600times36.1million).Thisishowthereportdescribesthatfinding:

Firstgenerationindependentpersonunits(whichincludefirstandsecondgenerationchildrenassignedtoindependentfirstgenerationpersons)costthestatesonnetabout$1,600each...Theseestimatesofthefiscalimpactimplythatthetotalannualaggregateimpactofthefirstgenerationandtheirdependents,averagedacross2011-13,isacostof$57.4billion.

Thedataaresounambiguousthatitisveryeasytosummarizewhattheysay.Onayear-to-yearbasis,thetaxesthatimmigrantpaysimplydonotcoverthepublicexpenditurestheytrigger.Andtheshortfallseemstobeatleast$50billionannually.

4.Long-RunFiscalImpact

Bylookingonlyatexpendituresandtaxesduringagivenyear,thecalculationoftheshort-runfiscalimpactignoresthatsomeofthoseexpendituresactuallyyieldareturn.Thecostofsendingthechildrenofimmigrantstoschooltodayleadstohigherearningsforthosechildreninthefuture.Plustheagingofthenative-bornpopulationiscreatingseverefiscalproblems,asthereisnotenoughmoneytofundtheliabilitiesinSocialSecurityandMedicareunlesswedrasticallyraisetaxesorcutbenefits.Immigrationbringsinnewtaxpayerswhocanfundsomeofthoseliabilitiesinthefuture.

Chapter8oftheNASreportpresentsthecalculationofthelong-runfiscalimpact.Toseehowthisisdone,imaginethefollowingsequenceofevents.Animmigrantarrivestoday,

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payingtaxesandreceivingpublicservices.Thatimmigranthaschildren.Thosechildrenmaybecostly,buttheyeventuallygrowupandpaytaxes.Thechildrenhavechildren,andtheprocessgoeson.Thepaneldidthiscalculationby"tracking"theimmigrantandalldescendantsoverthe75-yearperiodafterarrivalandaddingupallthetaxespaidandexpendituresincurred.Thedifferencebetweentotaltaxesandtotalexpendituresisthelong-runfiscalimpact.

Table8-12isthekeytableinthechapter.

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Thetablehastwopanels.Thetoppanelreportsthelong-runimpactifwetrackedthetypicalimmigrantwhoarrivedbetween2011and2013,whilethebottompanelreportsthelong-runimpactifwetrackedthetypicalimmigrantnowlivingintheUnitedStates.Thetrackingoftheimmigrantwhoarrivedbetween2011and2013canbeverymisleading--justimaginewhatthefiscalimpactwouldlooklikeiftheUnitedStatessuddenlydecidedtoadmit300,000refugeesandwethentrackedthattypicalimmigrant.Thereareblipsinwhotheimmigrantsarefromyeartoyear,with"good"and"bad"years.Toavoidslantingthenumbersinanyparticulardirection,itisfarpreferabletotracktheaverageimmigrantinthecountry.

Thetableusesfourdifferentscenariostocalculatethelong-runimpact.Thescenariosdifferonwhattheyassumeaboutwhetherimmigrantsincreasethecostofpublicgoods,andonwhattheyassumeaboutthepathoftaxesandexpendituresoverthenext75years.AndthepanelhelpfullyaddedniceyellowhighlightstoTable8-12thatisolatethekeynumberresultingfromeachscenario.

Thelong-runfiscalimpactispositiveonlyifimmigrantsdonotaffectthecostofpublicgoodsandweassumethatfuturetaxratesandbenefitpaymentswillfollowtheprojectionsmadebytheCongressionalBudgetOffice(CBO).Ifyougetridofeitherofthoseassumptions,thepositivelong-termimpactofanimmigrantcontributinganetof+$58,000overthenext75yearsbecomesalossaslargeas-$119,000.TheroleofassumptionsingeneratingtheanswerleadstoseveralboldedbulletpointsintheNASreport:

Forward-lookingprojectionsofthenetfiscalimpactofanadditionalimmigrantanddescendantsgeneratearelativelywiderangeofpossibleresults.

Thefuturepathoffiscalpolicyisimportantforassessingthefiscalimpactsofimmigrants.

Thetreatmentofspendingonpublicgoodsisimportantforassessingthefiscalimpactofimmigrants.

Letmetranslate.Assumptionsmatter,anddifferentassumptionsleadtowildlydifferentanswers.IthinkthereisanelephantintheroomthattheNASreportalludesto,butcannotbringitselftosayoutloud.SoIwill:Allestimatesofthelong-runfiscalimpactareuseless!

Itisextremelyeasytomanipulateassumptionsandendupwitheitherlargepositiveorlargenegativelong-runimpacts.Doyouwantalargepositivenumber--assomepeopleinthedebatesurelydo?Thenpickayearwherethenewimmigrantslookparticularly"good,"assumethattaxeswillgoupinthefuture,andignorepublicgoods.Doyouwantalargenegativenumber--assomeotherpeopleinthedebatesurelydo?Thenpicka"bad"year,assumeimmigrantsincreaseexpendituresinpublicgoods,andassumethattaxesandexpendituresstayintheircurrentpathfortheremainderofthiscentury.

Iwouldalsoadd:Don'tbefooledbytheCBO"experts"whoclaimtoknowhowtaxesandexpenditureswillevolveoverthenext75years.Thosesameexpertscouldn'tevenpredict

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Obamacareenrollmentjustafewmonthsago.Whatdotheyreallyknowabouttaxesandexpendituresintheyear2075?

Onefinalpoint.Table8-12alsoreportsthelongrunfiscalimpactforimmigrantsineacheducationgroup.Regardlessofscenario,itisobviousthatlow-skillimmigrantsimposeafiscalburdeninthelongrun,butthatimmigrantswithatleastacollegeeducationarefiscallybeneficial.

5.TheBottomLine

Immigrantshavebothalabormarketimpactandafiscalimpact.Dotheeconomicgainsgeneratedbyworkingimmigrantsoutweighthefiscalburdenthatimmigrantsimpose?TheNASreport(probablywisely)avoidsputtingtwoandtwotogether,butthereportcontainsallthenecessaryingredientstoletusdoitourselves.Solet'stakeacrackatit.

Thereisafiscalburden.Acrossalllevelsofgovernments,theannualburdenrangesfromaminimumof$43billiontoamaximumof$299billion,dependingonwhatisassumed(Table8-2ofthereportshowsalleightscenarios).AsInotedearlier,theestimatesofthelong-runimpact,whichincorporatesthetaxesandexpendituresoftheimmigrantanddescendantsovera75-yearperiod,areuselessandeasilymanipulatedtoproducewhateverlargepositivenumberorlargenegativenumberonewants.

Nowlet'sfindoutwhatthereportsaysaboutthe"immigrationsurplus,"theincreaseinwealthaccruingtothenativepopulationasaresultofimmigration.Asimmigrantsenterthelabormarketandreducethewageofnatives,theyincreaseprofitsfortheemployers.Plustheimmigrantsthemselvesproduceadditionaloutput,generatingevenmoreprofits.Intheend,theaggregatewealthofnatives--bothworkersandfirms--rises,andthereisaredistributionofwealthfromworkerstofirms.ThereportpresentsitsestimateoftheimmigrationsurplusinChapter4:

Immigrantlaboraccountsfor16.5percentofthetotalnumberofhoursworkedintheUnitedStates,which...impliesthatthecurrentstockofimmigrantsloweredwagesby5.2percentandgeneratedanimmigrationsurplusof$54.2billion,representinga0.31percentoverallincreaseinincomethataccruestothenativepopulation.

Thisshortparagraphcontainsalotofimportantinformation.First,theimmigrationsurplusisrelativelysmall,about$54billion.Unfortunatelythereportdoesnotgiveatransparentestimateofthesizeofthewealthtransferfromworkerstofirms,reportinginsteadthat,onaverage,wageswentdownby5.2percent.Itwouldbebetteriftheyhadreportedthenumberofdollarsinvolvedinthattransfer.Thatnumber,itturnsout,wouldbeabout$500billion.(Ageekyfootnoteattheendofthispostexplainshowyoucangetthatnumber).So,yes,immigrantscreatedanadditional$54billionworthofnewwealth,butabyproductofthatcreationwasawealthtransferofhalf-a-trilliondollars.

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Thereportcautionsthatthisisanestimateoftheshort-runeconomicgains,basedontheassumptionthattheeconomyhasnotyetadjustedtotheentryofimmigrants.Obviously,the42millionimmigrantsnowinthecountryenteredoveraperiodofmanyyears.Andeconomictheoryimpliesthat,overtime,ascapitaladjusts,theimmigrationsurplusdwindlesdowntoalmostnothing.Asthereportputsit:

Overthecourseofdecades...capitalhashadplentyoftimetoadjust,andsotheseestimatescanatbestbedescribedasupperlimitsthatexaggeratetherealimpactofimmigrationonnativewagesandoverallincomes.

Iwouldaddanotherhugecaveattothe$54billionestimateofthesurplus.Itignoresalltheexternalitiesthatimmigrantscreatealongtheway.Theexternalitiesarebothgood--theentryofextremelyhigh-skillimmigrantssurelyacceleratesinnovation,makesusmoreproductive,andhasabeneficialimpactoneconomicgrowth.Andbad--theentryofsomehigh-skillimmigrants,suchasthosewhoenrolledinflightschoolsandlearnedtoflyplanesandthenflewthemonSeptember11,2001,canmakeusallmuchworseoff.Thepaneldidnoteventrytoquantifythevalueofallthemanypositiveandnegativeexternalities(and,infact,neitherhasanybodyelse).So,intheend,allwereallyhavetogoonisanestimatedsurplusof$54billionintheshortrun.

Ifwethentakethereport'sestimatesofthesurplusandthefiscalburdenatfacevalue,itisself-evidentthat:

Theimpactofimmigrationontheaggregatewealthofnativesis,atbest,awash.

Instead,theimpactofimmigrationisdistributional.Thosewhocompetewithimmigrantsareeffectivelysendingbillionsandbillionsofdollarsannuallytothosewhouseimmigrants.

Toreiterate,theimpactofexternalitiescanradicallychangethisconclusion(ineitherdirection).Butnotethatevenifbeneficialexternalitiesdominated,theywouldhavetobeawfullyimportant--theywouldneedtoquintuplethecurrentestimateoftheimmigrationsurplusfrom$54billionto$270billion--tooffsetthehigh-endestimatesofthefiscalburden.

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Forthegeekyreader:

Thisishowtocalculatethat$500billiontransferinthebackofanenvelope.ThecalculationoftheimmigrationsurplusreportedinChapter4oftheNASreportassumesthatGDPis$17.5trillion;that65%ofGDPgoestoworkers;andthat16.5%percentoftheworkforceisforeign-born.Thereportalsosaysthat"thecurrentstockofimmigrantsloweredwagesby5.2percent."

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Becauseonly65%ofGDPgoestoworkers,thatmeansthatthetotalearningsofallworkersis$11.4trillion(or0.65×17.5).Butbecauseonly16.5%ofworkersareforeign-born,thefractionoftotalearningsthatgoestonativeworkersis$9.5trillion(or0.835×11.4).TheNASreportsaysthatnativeearningsfellby5.2percent,sothatthewagetransferfromnativeworkerstoemployersis$494billion(or0.052×9.5).