National Data | Illegals and the Economy

02/05/2004

Everyone knows the economy needs illegal alien labor, except economists. They think its contribution is fairly trivial.

Linda Chavez, for example, writes: "The American economy depends on these workers, who, along with legal immigrants, contributed significantly to the economic boom of the 1990s."

Harry P. Pachon, President of the Tomás Rivera Policy Institute, a Latino think-tank, claims in a New York Times article headed "Imagining Life Without Illegal Immigrants" [January 11, 2004, By Dean E. Murphy] that if illegal aliens were removed "There would be a ripple effect across the economy."

Bunk. The American economy is extremely large and complex, running at $11 trillion per year. Thousands of factors influence U.S. economic growth — most of them far more critical than illegal immigration.

Consider these facts:

Illegal immigrants are a significant but still small proportion of U.S. workers. There are about 5.3 million illegal aliens in the U.S. labor force, according to the Pew Hispanic Center (see table below). The total U.S. labor force is about 144 million i.e. illegal immigrants comprise about 3.7%. (There may be as many as twelve million illegals in the country — but that number includes dependents like children etc.)

Illegals' economic impact must be even smaller than their proportion of the workforce. On average, immigrants earn considerably below natives. Mexican male workers (legal and illegal) in the U.S. less than 10 years make just 38% of the annual average income of U.S. natives (see table below). Illegals certainly make less. If the average illegal immigrant earns, say, 30% of what natives make, the share of GDP attributable to these workers would be a mere 1.1% (3.7% times 30%).

Immigrants are also more likely to be out of work. Unemployment rates for foreign-born workers averaged 6.3% versus 5.7% for natives in 2002. Put differently, 94.3 of every 100 natives in the labor force actually work, compared to 93.7 of every 100 foreign-born individuals.

So illegals may produce about one per cent of GDP. But even this estimate has to be qualified. It doesn’t account for the wages lost by undercut and displaced native-born workers. And it doesn’t account for the substantial transfer payments from America taxpayers to illegals — education for their children (and welfare for their native-born children), emergency room care etc.

If the supply of illegal immigrants were to dry up, there would certainly be labor shortages in some sectors — fast food, cleaning services, seasonal agriculture, and lawn care. Employers in these sectors would scream. They lobby their Congressperson and gullible journalists. But ultimately, they would have to respond by offering higher wages and benefits to the remaining pool of unskilled workers. At the same time, they would look for ways to substitute new technology for labor.

The end result: maybe an imperceptible hiccup in aggregate GDP — coupled with a rise in GDP per U.S. worker. Most Americans would be better off.

[Number fans click here for tables.]

Edwin S. Rubenstein is President of ESR Research Economic Consultants in Indianapolis.

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