There has long been evidence that immigration is good for the economy. New research from Wharton explores the issue by looking at the differences between nonimmigrants and immigrants in the United States.
The researchers modeled various policies that could change both the size and the composition of the immigrant population so that they could gauge the implications in terms of both tax revenues and government spending.
The impact of immigration
The model allows the researchers to examine the impact of immigration according to both the number of immigrants arriving and any changes in the legal status of existing immigrants.
“In the first case, our modeled scenarios increased (or decreased) legal immigrant inflows for a five-year period in the 2020s, and in the second case, we legalized different portions of the unauthorized population,” the researchers explain. “In both cases, we projected changes to the population dynamics resulting from these policies—birth rates, marriage rates, size of the workforce, and other characteristics of the population.”
The principal finding from the analysis is that there are real and tangible long-term economic benefits from temporary increases in legal immigration rates.
“The main channel through which larger inflows of legal immigrants bring about fiscal benefits in the long run is by increasing the working age population, which contributes to the production of the country, raising tax revenues,” the researchers explain. “As the newly admitted immigrants retire and collect Social Security benefits, it leads to an increase in federal expenditures, but, in the long-run, there is still a net revenue increase when children of immigrants decrease the old-age dependency ratio of the economy when they grow up.”
Multi-generational effects
What’s more, this boost tends to be both long-lasting and multi-generational, as the children of the new immigrants themselves enter the workforce. The data showed that a six-year increase in immigration of around 25% results in an increase in per capita GDP of 0.08% and a 0.41% fall in total government debt by 2032. This continues to grow until 2052, when the increases in GDP per capita reach 0.30% and the fall in government debt reaches 1.34%.
The researchers show that any policies that legalize unauthorized immigrants tend to imply a tradeoff between the higher wages secured by newly legalized workers and an increase in government debt to fund any extra spending on social programs for those people.
“On the one hand, labor income for newly legalized workers increases due to access to formal labor markets,” the authors explain.
On the other hand, however, newly legalized workers can be less educated than natives and so earn less than the average worker, which makes them more likely to require social support.
“These two effects dominate and, in the long run, increase the government’s debt burden,” they conclude.
