Chapter 22

Immigration

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Objectives

• Legal and illegal immigration

• Economic immigration as human capital investment

• Effects of immigration

• Effects of illegal immigration

• Reform of immigration law

22-2

Immigration Facts

• Economic immigrants

• Legal immigrants–Averaging 1 million per year

–Quotas, refugees, and H1-B provision

–One-third of population growth

–One-half of labor force growth

22-3

Immigration Facts

• Illegal immigrants–Estimated from Census data

–350,000 per year on average

–High proportion from Mexico and Central America

–Total of 12 million residing in 2007, half from Mexico

22-4

ImmigrationU.S. Immigrants by Country of Origin, 2007, measured in 1000’s

Mexico

China

Philippines

India

Columbia

Haiti

Cuba

Vietnam

Dominican Republic

El Salvador

0 50 100 150 200

Source: U.S. Citizenship and Immigration Services 22-5

Decision to Migrate

• Earnings opportunities–Increase value of human capital

• Moving costs

• Distance–Follow beaten path

• Age

• Other factors22-6

Economic Effects

• Personal gains–Economic benefits exceed costs

• Other issues–Uncertainty and imperfect

information

–Backflows

–Skill transferability

–Self-selection22-7

Migration Model

• Understand economic outcomes

• Assumptions– U.S. and Mexico

– Labor demand greater in U.S.

– No long-term unemployment

– Labor quality the same

– Migration has no cost

– Wage differentials key factor

– Migration is legal 22-8

Migration Model

Wag

e R

ate

United States Mexico

Quantity of Labor(Millions)

Quantity of Labor(Millions)

Du Dm

aA

bd D

B

We

Wag

e R

ate

We

c f F C

Wu

0 0

Wm

Immigration impacts wages, employment, and output

g

G

22-9

Migration Model

• Wage rates will equalize

• In the U.S.:– Wage rate falls

– Employment up

– Output up

• In Mexico:– Wage rate rises

– Employment down

– Output down 22-10

Migration Model

• Overall effects:–World output up

–Efficiency gains

• Other effects–Brain drains

–U.S. natives lose wage income

–U.S. businesses gain income

22-11

Migration Model

• Complications and modifications

• Migration costs not zero

• Remittances redistribute income

• Backflows: temporary migration

• Immigrant workers as complementary vs. substitute labor

• Expansion of capital in some industries

22-12

Migration Model

• Unemployment in Mexico–Which workers migrate?

• Fiscal impacts–Fiscal burden > taxes paid

• Wages will not equalize

• Research findings are mixed

22-13

Illegal Immigration

• Employment effects

• Two extreme views

• Fixed number of jobs in economy–Immigrant employment decreases

domestic employment 1-for-1

• Immigrant work undesirable–No domestic workers displaced

22-14

Illegal Immigration

• Wage effects–Substitute labor vs. complementary

labor

–Unskilled labor wages stay low

• Price effects–Cheap labor keeps prices low

• Fiscal impacts can be sizeable

• Other concerns 22-15

Immigration Reform

• Long history of immigration quotas

• Immigration Reform and Control Act of 1986

• Legal immigration limit up to 700,000 per year

• 2007 proposal to reform immigration law defeated

• Remains controversial issue22-16

Key Terms

• economic immigrants

• legal immigrants• illegal immigrants• H1-B provision• human capital• beaten paths• backflows• skill transferability• self-selection

• efficiency gains from

migration• brain drains• remittances• complementary

resources• substitute resources• negative self-selection• compensating wage

differential22-17

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International Trade

22-18