Zach Broderick - Brandeis University



Zach Broderick

10/18/06

Econ 8b – T,F 9am

Peter Zamborsky

The Economics of Immigration Reform

The current number of illegal aliens estimated to be in the United States is approximately 11 million people.1 This phenomenal number is a testament to the broken immigration system in the country at present. In May 2006, the US Senate approved a bill on immigration reform that mandates deep and expansive changes to the current infrastructure, the most significant in decades. Supported by both the President and the majority of the Senate but facing stiff opposition from the House, the bill puts millions of illegal immigrants on the path to citizenship, while putting millions of others on the trail to deportation. Such a massive change in policy and infrastructure, combined with the possible movement of millions of people in the workforce, presents a daunting economic change, the details of which have not been fully explored. Furthermore, different political groups and social classes will experience widely varying effects if the bill if signed into law, further complicating the issue.

The following will explore the implications of the bill from an economic standpoint, in order to decide whether or not its passage would be advantageous to the country, or whether it is even feasible to make such a decision. The contents of the bill will be analyzed briefly, and the following questions will be asked: Why does the President and the Senate support the bill, but not the House? What are the economic and political reasons behind this? Most importantly, what would be the economic implications of the bills passage, and how do the effects differ between certain groups? What connections can we draw from the answers to these questions?

1. The Comprehensive Immigration Reform Act of 2006 (see figure 1 for details)

The Comprehensive Immigration Reform Act of 2006, or S. 2611, was approved by the Senate on May 25, 2006, after extensive debate. Proposed by Senators John McCain and Ted Kennedy, it promised to curb illegal immigration while offering the American dream to all. The bill was approved by all but four Democrats, but the Republicans were almost split on the issue, with a slight majority voting against.2 This may have come as a surprise to some, as the bill represented the vision of President Bush himself, and had his full support, as well as being a bipartisan effort. However, the amount of controversial material in the bill, which represents the most significant change to immigration law in decades, is legitimate reason enough for the skepticism of the Republicans.

The bipartisan nature of S. 2611 is apparent in its desire to please everyone. It contains several key, but seemingly at times conflicting provisions. The first is a mandate to build some 420 miles of triple layers fence on the US-Mexican border, supplemented by another 700 miles of vehicle barriers. Additionally, the provision reimburses states the funds necessary for building detention centers to hold no less than 20,000 additional illegals for deportation, as well as stiffer penalties for those who help smuggle them across the border. These measures make up the bill’s strategy for severely decreasing illegal immigration from Mexico, and in the process satisfies those constituents calling for increased border control and who are concerned about the massive influx of Mexican aliens into the Southwestern United States.

The second, more controversial part of the bill deals with illegals already in the country. For those who have lived in the US illegally for five or more years, the bill grants the opportunity of citizenship, provided the person in question learns English, pays back taxes, has no criminal record, and goes through the normal naturalization process. Those who have lived in the country for 2-5 years must relocate to an entry point but are automatically put in line to become citizens. Anyone living in the US less than two years faces deportation, with no promise of potential naturalization.3 This section of the bill largely appeals to the Latino population and Democrats, though the deportation of millions of illegals does not sit well with this sector.

The third provision of the bill is meant to placate both the Latino voters and the business interests of the US, whose profits depend upon the cheap labor provided by unskilled immigrants. This section provides for the admission of 200,000 guest workers annually, and increases the amount of employer and H-1B visas. A “blue card” program is created for 1.5 million undocumented agricultural workers and their families as well. This allows significantly more immigrants to enter the country legally for work related purposes, without necessarily allowing them permanent residence or the prospect of citizenship.

It is worthwhile to note that the December before S.2611 was passed by the Senate, the House approved their own immigration reform act. The House version was far harsher on immigrants, cracking down on employers of illegals and making it a felony to be in the US illegally. The bill did not provide any path to citizenship for those already living in the country, and did not create any guest worker permits or additional visas. The bill sparked mass protest by Latino immigrants, and prompted President Bush and the Senate to draw up S.2611. 4 The stance of the House will be discussed shortly, as they are the primary opposition to the Senate bill being signed into law.

2. Immigration Politics

The politics of S.2611 are quite complex, especially compared to most other issues in this highly polarized political climate. First and foremost, the bill is heavily endorsed by President Bush, yet it is the Democrats who are largely responsible for the bill’s support in the Senate. Republicans in the Senate are split, with the majority opposing the bill5. Meanwhile, the House of Representatives, whose political makeup is similar to that of the Senate, is overwhelmingly opposed to the bill in its current form.6 Certainly a puzzling situation, but not one that cannot be cleared up with sound economic analysis.

President Bush finds himself in a tight position on the immigration issue, torn between his two bases: big business and the conservative right. The reason for this lies in their opposing economic interests. Basic economic theory on immigration tells us that an influx of labor into the market drives wages down. The majority of Mexican illegals crossing the border are unskilled workers, who will do the jobs natives do not want to, and for far less, often less than the minimum wage. This is highly beneficial for big business, which happens to be Bush’s biggest sponsor.

However, by this same reasoning it is clear why conservatives are unhappy with immigration. The conservative base tends to be white and Southern, often with a nativist outlook due to their proximity to the border. It is their wages that are being driven down and their jobs that are supposedly being taken. It is their communities whose social programs experience the strain of increased population, especially in the lower income classes. For these reasons, the opposition to immigration and to the Senate bill was and is largely a conservative cause. The fact that most Latino immigrants vote Democrat is just one more, though purely political, reason.

The solution to Bush’s problem comes in the bill’s multifaceted approach. Increased border security in the form of a giant fence and vehicle barriers, as well additional detainment centers for deportees, is meant to appease the conservative base that wants illegal immigration ground to a halt at whatever cost. The deportation of aliens with less than two years of residency serves this purpose also. The sections that appeal to business interests are the guest worker permits and additional visas, which guarantee a consistent stream of cheap labor. Thus the President is able to appeal to both his voters and his donors.

The bill has an added benefit of appealing to a third base—namely, Latino voters who support the section of the bill that allows for naturalization of illegals already in the country. An issue close to their hearts, it will no doubt garner some Republican votes and support from a largely Democratic community. This has the additional benefit of gaining support from Democrats, who would be thrilled to have a few million additional votes in the form of newly naturalized immigrants. This is the result of a rare intersection of the interests of big business and liberal Democrats.

With the Democrats overwhelmingly on board, it is easy to see why the Senate approved the bill. Even though the majority of Republicans opposed it, there were enough who were appeased by the pro-business and pro-border control provisions to push the bill through. Those Republicans in the Senate who opposed it were largely concerned with the naturalization of illegal residents. They likened it to granting amnesty to felons who had broken into the country instead of going through the proper channels, and punishing those who took the time to do so. 7

Why, then, was the reaction of the House so different? After all, the political makeup of both chambers of Congress is largely the same. The answer lies in the fundamental structure of the houses themselves. Because of the House’s population based representation, there are far more representatives from the larger Southwestern states than in the Senate, which has a disproportionate amount of representatives from small Northeastern states and sparsely populated Midwestern states that are less affected by immigration. Opponents in the House claim that they want illegal immigration stopped before citizenship is granted to those already here8; otherwise, there would be a perpetual stream of new US citizens flooding across the border.

Another important reason for the House opposition stems again from the larger representation of the states that bear the brunt of immigration. It has been shown that, even over multiple generations, it ends up costing state governments a considerable amount per immigrant, even if the federal government sees a net benefit. Multiply that by the disproportionate amount of immigrants present in certain states, and there is considerable cause for concern. The November elections also likely played an important role in the opposition, as many members risk loosing their seats if they do not appease an angry base.

3. Projected Economic Effects

Due to the multifaceted nature of the bill and the lack of data on illegal aliens, it is extremely difficult to predict what the resulting economic effects would be if the bill were signed into law. However, it is possible to make an educated conjecture based on economic theory and the data available, however scant it may be. The main question that needs to be answered is: would the passage of this bill be good for the American economy?” After all, that is where the majority of concerns stem from—the effect of illegal immigration on the labor force, wages, and the economy as a whole.

An especially difficult aspect of this analysis is that the bill is meant to both stop illegal immigration and encourage legal immigration, and so it is not sufficient to apply the basic theories of whether or not immigration itself is good or bad. Instead we must look at what effect each aspect is likely to have on the economy, and then look at their net effect. An appropriate place to start would be the cost of the program itself, since it involves an immense overhaul in infrastructure. New detention facilities must be constructed, a giant fence built, border patrol force increased, and a bureaucracy set up to manage visas, crack down on employers, and start the naturalization process for those already in the country.

The Congressional Budget Office (CBO) commissioned a study on the economic and budgetary effects the bill was likely to have around the time of its passage. They predicted that a mandatory expenditure of 48 billion was necessary to implement the bill’s provisions9. More than half of these funds are necessary for tax credit refunds, though many of the immigrants will have to pay back taxes as well. An additional 81 billion dollars is projected to be needed to sustain the program over the next 10 years10. This is a considerable expenditure for a government program and should be taken into account as part of the overall economic analysis (see figure 2).

The guest worker program and the increase in visas are expected to increase the workforce by 2.5 million by 2016, however11. Basic economic theory states that this is beneficial to the economy, though perhaps biased towards the producers, as this more efficiently distributes the labor force. A larger labor force is likely to cause an increase in GDP, as there are more goods and services being produced. Indeed, the CBO originally estimated a 0.3-0.4% initial increase in GDP and a later increase of 0.8-1.3%. However, it was later decided that these figures were likely to be significantly lower after the bill was altered to more strictly limit immigration, particularly with employer verification. Additionally, 44 billion dollars in additional income taxes would be expected as legal immigrants started paying taxes12. This would be especially valuable to the ailing Social Security fund, helping to ease the impending catastrophe as most immigrants are young and the baby boomers are on their way out. 13

The economics of border security and the measure to discourage illegal immigration are a little trickier, as how well they are implemented has a huge effect on their success. In the past, increasing border security, even significantly, has not resulted in a notable decline in illegal immigration14. It is worthwhile to note that 40-50% of illegal immigrants enter the country legally, simply not leaving after their visas expire15. The more effective part of the bill may be the employer verification—if employers face fines for hiring illegals, they will be less likely to do so, and therefore the incentive to come over illegally will be reduced. Theoretically, this would reduce illegal immigration and instead encourage Mexican to use the newly formed legal avenues of entry.

What conclusions can we draw from these predictions? As we’ve established, the bill is likely to increase the work force more than shrink it, and so we would expect the economy to benefit, despite the costs associated with implementing the bill. The CBO study confirms this, concluding that there will likely be a small benefit to the economy16. However, as was predicted earlier, the burden would likely be unevenly bore by state governments, giving significant legitimacy to the concern of border states in the House. Overall, economically, S2611 would be beneficial to the country, if implemented correctly and predictably. However, its passage is dependent on political, not economic factors, and so the bill in its current form is not likely to see the light of day without heavy modification.

End Notes

1. From “Cost of Senate Immigration Bill Put at 126 Billion”, Washington Post, 8/22/06:

2. From the Washington Post Vote Database:

3. From “Senate Approves Immigration Bill”, Washington Post 5/25/06:

4. See #3

5. See #2

6. From “Senate passes immigration bill”, CNN, 5/26/06:

7. From “Senate Passes Sweeping Immigration Bill” MSNBC 5/25/06:

8. See #8

9. From “Testimony on the Budgetary Impact of Current and Proposed Border Security and Immigration Policies” from the Congressional Budget Office:

10-16. See #9

Figure 1.

Figure 2.

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