Systems Thinking: Economic Impacts of Immigration
While as time passes immigrants are viewed more and more favorably, there can still be a sentiment that they can have a negative economic and social effects on a nation particularly in times of strain. Times of strain in the US would in my opinion include every year since the Great Recession if not longer.
I feel obligated to state there is no unanimous position on immigrants on either side of the political spectrum. For example on the economic effects of immigration even the Heritage Foundation agrees that “Whether low-skilled or high-skilled, immigrants boost national output, enhance specialization and provide a net economic benefit.” There is no such thing as an economic consensus, but immigration is generally viewed favorably by most.
That doesn’t stop the issue from becoming a useful tool. Therefore the immigration debate is a political debate first and an economic debate second. There will always be a need someone to blame for the fact that even when firing on all cylinders the modern US economy fails to take care of half its citizens.
Everything in economics has trade offs, but immigration has a lot of underappreciated cascading benefits.
For example the immigration surplus. “When immigrants enter the labor force, they increase the productive capacity of the economy and raise GDP. Their incomes rise, but so do those of natives. It’s a phenomenon dubbed the “immigration surplus,” -George W. Bush Presidential Center
I’m going to try to map out the interconnected effects of immigration on an economy.
Entrepreneurship
It can be a bit of a buzzword in modern discourse, but the fact is immigrants are disproportionately more entrepreneurial than domestic populations.
1. Entrepreneurship leads to increased productivity which increases growth, which increases tax revenue.
2. Entrepreneurship leads to more jobs which leads to higher wages, which leads to higher consumer spending, which leads to growth and tax revenue.
Consumer Spending
More people (particularly low income people*) means more consumer spending, which means more tax revenue, more GDP growth and a positive feedback loop with jobs and wages. More jobs mean higher wages to employ workers, who then have more money to spend, which creates demand for more workers.
More people means a larger tax base. Even as far as unauthorized immigrants most pay local, state, and federal taxes.
*The lower your income is the greater proportion of it must be immediately spent back into the economy.
Legalization
One of the issues brought up by immigration is legalization, and while it can be seen as a civil rights or social justice issue it has economic implications as well.
Legalization allows immigrants to move more freely to regions and industries where their skills are most effectively utilized. This leads to growth in two ways. One is that their productivity is maximized. The other is that they are able to move to where wages are the highest, which leads to higher consumer spending, which again increases growth.
Legalized workers are more protected by the law than illegal workers which means they can demand higher wages. One of the complaints about immigrants is that they make it hard for domestic workers to compete since they are willing to work for so little. Here is a potential solution.
While it’s true immigrants already contribute to the tax base, bringing them into the domestic labor force is one way to increase their tax contributions.
TL;DR Immigration as a negative does not belong as an economic concern. It is part of the political culture war. Economic concern trolling is just that, and it should be met with extreme skepticism.
PS. I kept the scope of this article narrow for the sake of concision, but it is important to note that the free movement of people is not just an issue of economics. It is an issue of morals and justice. For more discussion I recommend Rutger Bregman’s Utopia for Realists, Chapter 9. Summary here.
