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U.S.-Mexico Migration Issues

Testimony before the Senate Judiciary Committee

Subcommittee on Immigration

September 7, 2001

Stephen Moore

Senior Fellow in Economics

Cato Institute

Thank you Senator Kennedy and Senator Brownback for the privilege of being asked to testify before your Committee on the impact of U.S. Mexico migration issues.

In this testimony I wish to make three points to the Committee. First, I wish to refute the widely held myth that immigration from Mexico is out-of-control or out of line with historical levels of immigrants admitted from our Southern neighbor. The percentage of immigrants coming from Mexico and other Central American nations is very much in line with rates of immigration for much of this region of the world for the past 100 years.

Second, the economic impact of immigration over the past two decades has been highly positive. An economic consensus has begun to emerge that U.S. workers and industry benefit from a generous immigration policy. In fact, many of our competitors from other industrial nations have begun to grudgingly concede that U.S. immigration policy has allowed the U.S. to attract many of the top minds and talents from around the world. Mexican President Vicente Fox was exactly right when he asked President Bush in their recent meeting: How can it possibly be that Mexican immigration has hurt the U.S., when your economy has performed so well over the past two decades? The answer is that on balance Mexican immigration has been a benefit not a burden to our economy. Even though Mexican immigrants tend to be less skilled and less educated than American workers and immigrants from other regions of the world, these migrant workers fill niches in our workforce that help our economy perform at a high level of efficiency.

Finally, I wish to comment on the legislative proposal to allow temporary guest workers into the U.S. I believe this policy would be highly desirable both in terms of reducing the flow of illegal immigration and in helping our vital agricultural and service industries attract the workers they need to remain competitive.
Point #1. Immigration Levels Are Not Out of Control, Nor Is Immigration from Mexico Especially High

A popular myth about current U.S. immigration policy is that the number of immigrants admitted has reached unprecedented heights. Here are the basic historical facts. In the 20th century America experienced two great waves of immigration to these shores: the first occurred in the early 1900s when huge throngs of European exiles the tempest tossed from Germany, Ireland, Italy, Poland, Sweden, Russia, and elsewhere arrived by ship and entered through Ellis Island. The second great wave began roughly 25 years ago and continues to this day.

Our current immigration levels range from the moderately high to the historically normal range depending on what measurement we use. Certainly in absolute numbers the U.S. has increased quotas substantially. We now add about 1 million new foreigners every year to the stock of Americans, which is about equal to the historical peak levels of the early 1900s. See Figure 1.

On the other hand, Pat Buchanan and Forbes writer Peter Brimelow, author of Alien Nation, are dead wrong in lambasting this flow as a kind of out of control alien invasion. The most meaningful way to measure our capacity to absorb immigrants into our culture and our economy is to calculate the number of people admitted relative to the size of the population already here. We now admit almost 4 new immigrants per year for every 1,000 Americans, which is a higher rate than in the past 50 years, but still only about half the historical average. See Figure 2. About 10% of Americans today are foreign born, which is just below our historical average, but is up a lot from 6% in the early 1970s. See Figure 3.

An issue of direct relevance to the recent negotiations between George W. Bush and Vicente Fox is whether immigration from Mexico has reached levels that are abnormally high. That is to say: How has the ethnic composition of the "new immigrants,@ changed over time? The 2000 Reform Party presidential candidate, Patrick Buchanan, has insisted that immigration is causing America to lose its "white European culture" and there are many Americans who agree with him. A prediction by Census Bureau demographers that whites may soon by a minority in Texas and California has received front page billing in many newspapers. The Census Bureau also predicts that Hispanics who now constitute 8% of the U.S. workforce, will constitute more than 20% by 2050. This is not just a cultural issue. Some economists maintain that the Europeans of earlier periods brought to the U.S. had much higher skill levels than the Asian and Hispanics do today.

It turns out that although Latino immigration has been on the rise in the past two decades, the current percentage of immigrants from Spanish-speaking nations like Mexico is only slightly higher than historical levels. See Figure 4. It is very true that since the enactment of the 1965 Immigration Act, the ethnic composition of immigration has changed markedly--but not in ways that most people suspect.

It is commonly believed that the big shift in the ethnic composition of immigrants in the 1970s, 80s, and 90s was toward allowing entry of more Hispanics from Central America and fewer Europeans. That is wrong. In fact, since the 1920s immigration from the rest of North America has remained steady at between 35 and 50 percent of the total. Hispanics have been coming to the U.S. in large numbers for 70 years. A 1988 U.S. General Accounting Office report concluded that the number of immigrants from Mexico has been "quite stable in this century." Over the past 10 years, there has been a rise in Mexican immigration flows, mostly because of legalization that occurred in the early 1990s.

What is different today than in 1965 is that European immigration has been supplanted by Asian immigration. Figure 5 shows that whereas in 1965 almost half of all immigrants came from Europe and 10 percent from Asia, by 1990 those percentages had essentially reversed (Moore, 1989, Heritage). I am not at all suggesting that there is a major problem with Asian immigration. To the contrary, Asian immigrants have from Cambodia, China, India, Japan, Pakistan, Taiwan, and Vietnam, for example-- been some of the most economically successful groups to ever come to these shores.

I am only suggesting to this Committee that if we were to allow more migrant workers to come from Mexico, this would not be a major shift from our historical immigration policies.

Mexican migrants have been coming to the U.S. for almost a century to work in agriculture and service industries. The flow will almost certainly continue regardless of actions taken by Congress. The only real issue is whether we will continue to treat these workers as second class citizens, or whether we will start to confer upon thesm the full protections of our laws and legal system. I believe that we ought to treat the Mexican migrant workers with the dignity and decency that they deserve and have earned over many decades of contributing to our country and our prosperity.

Point 2. The New Immigrants have been economically beneficial to the U.S. and will continue to play a critical role in coming decades.

Here is a little thought experiment. Imagine for a moment that we were transplanted back in time twenty years ago and that this were 1981, not 2001. And imagine further, that you all on this Committee, were told at the start of the 1980s that over the next two decades the United States would admit more immigrants some 15 million newcomers than during any other 20 year period in American history.

Given these conditions, if immigrants harm the U.S. economy or hurt American workers, we should certainly see some evidence of it by now.

But happily, the evidence is nowhere to be found. There has been no increased unemployment, no increase in the black-white wage differential, no decline in family incomes, and no rise in poverty. In fact, virtually every one of these economic statistics has run in exactly the opposite direction of what immigration skeptics like Professor George Borjas of Harvard, would have predicted. The U.S. had high levels of immigration in the 1980s and 1990s and we enjoyed great economic prosperity and wealth creation. Virtually all income groups recorded gains.

Let’s briefly examine each charge made by the restrictionists and see whether the facts fit the fears:

“Increased unemployment” Traditionally the overriding concern of Americans has been that foreigners will wrestle away jobs from U.S. born workers. Clearly that didn’ t happen in the 1980s or 90s. The U.S. unemployment rate is now between 4 and 5%. The U.S. economy has shown a remarkable ability to absorb new workers into the economy both natives and immigrants without causing job shortages. Between 1980 and 2000 the U.S. became a job creation machine, with some 35 million more Americans employed today than 20 years ago. Even more impressive is that even though the U.S. takes in nearly as many immigrants in a year as does all of Japan and Europe combined, it is the U.S. that now has the lowest unemployment rate in the industrialized world.

“Rising poverty rates” Do immigrants push Americans in the lower income into categories into poverty? Poverty rates are indeed high (26%) for first generation immigrant families, but what is noteworthy is that poverty rates for families of U.S. born parents, have fallen from about 15% in the early 1980s to a little over 10% in 2000. Americans have clearly not been pushed into poverty because of competition from the large scale immigration of the 1980s and 1990s.

“Lower wages for American-born” workers George Borjas has gained notoriety for the claim in his 1999 book Heaven’s Door: Immgration Policy and the U.S. Economy, that immigrants contribute to the widening income gap between the rich and poor in America. But the story is not nearly as dire as Borjas would have us believe. Median family income in the U.S. rose over the period 1981-1998 from $39,000 to $45,800 or by roughly 16 percent after inflation, according to recent Census Bureau data. Even more devastating to the hypothesis that the poor are losing ground because of immigration, is that family incomes even rose for Americans in the bottom 20% over this period. And in fact, if immigrants themselves are excluded from the picture, so we are only assessing the impact of migrants on U.S. born workers, incomes at the bottom of the income scale have risen substantially since 1980. Wage suppression does not appear to have occurred in this period of high immigration.

“Adverse competition with black workers” Borjas
and others have charged that the primary victims of
U.S. immigration policy are black Americans who often must
compete with foreigners for the same pool of low-skilled
jobs. But over the past 20 years of high levels of
immigration, the income gap between blacks and whites has
actually shrunk. Blacks earned 60 cents for every dollar
earned by whites in 1980 compared to 69 cents today. For
women that racial disparity has narrowed from 89 cents in
1980 to 94 cents for every dollar earned by a white.
Meanwhile, in 1999 the black and Hispanic unemployment rates
fell to their lowest levels since the data was disaggregated
by race in the early 1970s. In sum, the 1980s and 90s were
about the two best decades ever for the economic advancement
of black Americans. There is zero evidence that immigrants
stood in the way of this march toward economic equality.

“Lower economic growth” What about the biggest issue
of all: do immigrants reduce the rate of growth of the U.S.
economy? The Federal Reserve Board calculates that over
the past 20 years the U.S. economy has experienced a $10 to
$12 trillion increase in net wealth (even accounting for the
continuing stock market skid). The GDP has grown by
nearly 80 percent (after inflation), and the inflation rate
has fallen to nearly zero. In fact, Alan Greenspan has noted
on several occasions in congressional testimony, immigrant
workers have played a very useful role in smothering
inflation in the U.S. economy.

Certainly the fact that we had high scale immigration
And prosperity simultaneously in the 1980s and 90s in no
Way proves that immigrants caused the good times. But what
The last 20 years do demonstrate is that a welcoming
immigration policy can coexist with rapid economic growth,
falling unemployment, and improved living standards for
workers black and white.

Now, there are two possible explanations here for why the experience of the 80s and 90s has failed to confirm the anti-immigration movements case. The first is the one that the restrictionists would like us to buy: that we had this spectacular burst of economic progress, job creation, and new wealth, in spite of immigration. Who knows, the U.S. economy might have sprinted forward even more briskly if we hadn’t had the burden of all the newcomers from around the globe.

The alternative explanation seems entirely more plausible: that the immigration restrictionists have simply gotten the economic story of immigration all wrong.

The truth is that the immigration skeptics have always held a contrarian view within the economics profession on this issue. A number of years ago I conducted a poll of the past presidents of the American Economic Association and past American Nobel prize winners in economics and found to my surprise almost unanimous support for the proposition that immigration has been a very important factor in explaining rapid growth in incomes and output in the U.S. over the 20th century. Economists still argue over the size of the benefit to native-born Americans of immigrants with, for example the National Academy of Sciences recently speculating that the overall economic effect is a modest $10 billion a year contribution but very few argue that the impact is negative and that we are on balance worse off economically because of the presence of immigrants.

I have always maintained that immigrants add value to a modern economy in two ways. The first benefit derives from their age profile. Most immigrants come to the U.S. between the ages of 18-35. That is, they come at the start of their working years. This has two benefits: first, the human capital costs of education and child rearing are borne by the taxpayers of the sending country, not by U.S. taxpayers. Immigration really should be thought of as a reverse-form of foreign aid. I have calculated that the human capital foreign aid we import has a value to Americans of about $50 to $100 billion a year or roughly 3 times what we give to other nations in cash foreign aid payments. Second, because immigrants come to the U.S. when they are young with no corresponding parents who are eligible for Social Security and Medicare, they constitute a massive one-generation net benefit to the finances of both these programs. If we were to curtail all immigration for the next 25 years it would blow about a $1.5 trillion larger hole in the Social Security deficit. It is true that the immigrants will collect Social Security when they retire; but by that time they will have children paying into the system to cover their parents retirement costs.

Second, skilled-immigrants of late have had a profoundly positive impact on the high-tech and information age economy. A 1999 study by the Public Policy Institute of California found that almost one of every four technology firms in the state were founded by either a Chinese or Indian immigrant. The study also found that roughly one of every three scientist and engineer in Silicon Valley was an immigrant. Just one immigrant alone, Hungarian refugee Andy Grove, co-founder of Intel is probably personally responsible for the high-paying jobs of 10,000 Americans. So much for the job displacement argument.

Certainly, the United States from an economic standpoint would be best off if we moved more toward a skill-based immigration selection criteria and de-emphasized family connections as the main gateway to entry. And in permitting more Mexican immigrants to come to the U.S. on a permanent basis, we should be attentive to how this might change the average skill levels of immigrants. Mexicans, for example, tend to have several years of fewer schooling than do Europeans and many Asian migrants, and thus their earnings potential in the U.S. is far more limited.

Point 3. Guest Worker Programs Can Help Reduce Illegal Immigration

I would maintain that one of America’s most crucial foreign policy and national security goals should be to help keep the Mexican economy on a path toward rising incomes and prosperity. If Mexico could sustain a rate of economic growth of 5% per year, which it is capable of with the right set of market-based economic and tax policy changes, within one generation the average income Mexican worker can rise to near the level of a middle income American worker today.

If the Mexican economy were to plunge into a deep and sustained recession, the push-factor of immigration@ would impel millions of migrants to attempt to pour over the border into the United States. The commitment by Presidents Bush and Fox to integrate the U.S. and Mexican economies through free trade and more open immigration policies will help the U.S. economy somewhat and will help the Mexican economy hugely. NAFTA and immigration are economic safety valves for Mexico and they must not be turned off. These policies ensure that Mexican migration to the U.S. remains orderly, managable and legal, not chaotic and illegal.

A top priority for the U.S. should be to find ways to discourage illegal immigration flows from Mexico and other nations. Over the past 50 years the U.S. government has attempted many policies to try to deter illegal immigration. The employer sanctions law, put in place in 1986 has been a grand failure and should be repealed. It encourages employers to discriminate against foreign looking workers and it turns businesses into INS enforcement agents.

One policy has worked extremely effectively and that is guest worker programs. The Figure shows that in the late 1950s and early 1960s, when the U.S. allowed as amnay as 400,000 legal temporary workers to come to the U.S. and gain employment in U.S. agriculture, the number of illegal immigrants plummeted. See Figure 6. Although there were clearly problems with the guest worker program in the early 1960s in terms of below standard working conditions for the Mexicans, from the point of view of reducing illegal immigration the policy was a grand success. Migrant workers will come to the U.S. through lawful channels if they are given the opportunity. I urge this Congress to consider implementation of a guest worker program for U.S. agriculture to help with the severe labor shortage for American farmers and to dramatically curtail illegal immigration.

In sum, I believe a temporary guest worker program combined with a limited, earned legalization program for those in the U.S. for at least 10 years should be considered. Ten percent of the guest workers= wages should be held in an escrow account that would be returned to the workers when they leave to go back to their home country. Social Security payroll taxes should be collected from these workers and paid in benefits at retirement age to these workers conditional on their not violating U.S. immigration laws during their lifetime. Criminal penalties should be imposed on smugglers who sneak illegal immigrants into the U.S. Cash fines should be imposed on illegal immigrants and illegal entrants should forfeit their opportunity to participate in guest worker programs or other legal immigration channels. In other words, the U.S. should say yes to legal immigration and a resounding no to illegal immigration. I believe a guest worker program could be the lynchpin of an effective border enforcement strategy.

Thank you again, Mr. Chairman for the opportunity to share my thoughts on these critical economic issues.