The New Americans: Economic, Demographic, and Fiscal Effects of Immigration

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Date: Mar. 1998
From: Population and Development Review(Vol. 24, Issue 1)
Publisher: John Wiley & Sons, Inc.
Document Type: Book review
Length: 1,558 words
Content Level: (Level 5)

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The New Americans, written by a distinguished panel of experts convened by the National Research Council to address the US Commission on Immigration Reform's 1995 request for an assessment of the demographic and economic effects of immigration, while not definitive, is the most comprehensive such analysis to date. Although not all panelists agree on how to interpret the findings, the book offers a current review of the literature on labor market and fiscal impacts and integration and provides sophisticated demographic and fiscal analyses. Fortunately, the authors reserve the more technical components for appendixes and in doing so render the study equally useful for nonspecialists and scholars.

The book begins with summary and introductory chapters, followed by a background chapter on US immigration and immigration policy. The rest of the volume addresses the demographic, labor market, fiscal, and social effects of immigration. The demographic chapter projects the US population by age, sex, and ethno-racial components to 2050. Two chapters (one theoretical, the other empirical) address the effect of immigration on employment and earnings of native-born American workers; two provide estimates (in one case annual, in the other long-term) of the net fiscal effects of immigration; and a final chapter discusses the social integration of immigrants into the United States.

Several topics not examined by the panel are the socioeconomic effects of immigration on sending countries, the effect of immigration on the environment, and immigrants' roles in entrepreneurship and research and development.

The study's most important conclusions are found in the demographic, labor market, and fiscal effects chapters. If current immigration flows continue (the medium assumption in the present study), the US population will rise from 263 million in 1995 to 387 million in 2050, and under any immigration scenario the proportionate share of both the Asian and Hispanic populations will rise. Continued current flows are unlikely to alter the sex composition of the population, but will boost the number of working-age persons available to provide for an aging US population.

Labor market theory and the evidence summarized in the volume suggest that native-born Americans with skills similar to those of immigrants may experience earnings reductions, while other native groups may receive a boost. To the extent that immigrant and native-born skill compositions differ, the country in the aggregate benefits ($1 billion to $10 billion per year). This range of estimates also depends on assumptions concerning the mobility of capital, goods, and services and does not take into account the immigrant-induced benefits received from lower-priced services not directly competing with domestic labor. If immigration and trade are substitute ways of obtaining the same output, or if no response to immigrant-induced higher returns to capital is assumed, then the estimated effects of immigration may be overstated. Although the immediate net fiscal effect of immigration is negative due to dominant local and state impacts (-$20 billion to -$15 billion per year), in the long run immigrants (and their descendants) pay more in taxes than they receive in public services, with federal revenues outweighing both state and local fiscal expenditures ($80,000 per average immigrant over the course of his or her lifetime).

While the chapters on immigration's effects on jobs and wages in the United States provide a good review of existing labor market research, a better use of the panel's time would have been to investigate further how the relationship between immigration and capital inflows would influence the authors' estimated effects. Moreover, an effort to test the reasonableness of the panel's assumption of constant returns to scale would have given more credibility to their findings. Differences between the "zero" and "very high" assumptions of future levels of immigration would likely affect the productivity of other factors, and thus returns to scale. In short, one hesitates to accept the panel's conclusions without a reconciliation of the seeming inconsistency between some of their assumptions and the implications of their demographic projections. For example, a discussion of how an assumption of decreasing or increasing returns to scale, or even alternative constant returns-to-scale functions, might alter the panel's findings would have been helpful. Finally, the panel's conclusion that labor market discrimination against immigrants is in effect nonexistent because human capital differences are correlated with wage levels is suspect, as is their assessment that employment-based entrants integrate substantially better than persons admitted under other admission categories. Myers (1998) provides recent evidence questioning the former assertion, and others (Duleep and Regets 1996; Lowell 1996; Myers 1998; Smith 1998) offer findings contrary to the latter.

The study's demographic and fiscal analyses offer more-substantial contributions. Demographers will find the population projections in Chapter 3 of great interest, particularly because this is the first analysis to incorporate changing rates of intermarriage and ethno-racial identification across generations using a conventional cohort-component model.

Others familiar with the sparse immigrant fiscal accounting literature will be pleased to find the most comprehensive analyses currently available. The panel provides both annual and long-term fiscal estimates, and is careful not simply to measure public service use and tax contributions at the household level in the latter estimates. The panel justifies using the individual as the unit of analysis, given that changing immigrant-citizen household composition is difficult to measure and that adult children of immigrants may no longer live in their parents' household and are likely to be working and paying taxes. While these explanations are true, the authors fail to mention perhaps the most important reason for individual-level analysis. Because many immigrant households include both immigrant and citizen members, by assigning all household members the legal status of the household head it is impossible to distinguish between public assistance use by immigrants and by citizens (Biasberg and Sorensen 1997). Marcelli and Heer (1998) show that using the household-level approach can significantly inflate the estimated level of immigrant use relative to citizen use, and that unauthorized Mexican immigrants use public assistance programs at a similar or lower rate than others in Los Angeles County. Hayes-Bautista and Rodriguez (1997) show that the average immigrant from Mexico and El Salvador receives similar or lower levels of public assistance than the average person in the United States. The panel also addresses the issue of whether a pubic service is more publicly or privately consumed by illustrating how one would adjust estimates of government expenditures on immigrants downward in light of a service's publicness. For example, less should be attributed to the cost of immigration when $10,000 is spent on a public park than when an immigrant receives $10,000 in means-tested entitlements.

Regrettably the authors of certain chapters, for example those on labor market and fiscal impacts of immigration, fail to incorporate findings reported elsewhere in the study. As noted above, while the demographic chapter offers a wide range of population projections, the labor market chapters fail to consider the implications of this for returns-to-scale assumptions. The labor market analyses concluded that native-born workers in complementary lines of employment earn higher wages due to the presence of immigrants. Neglecting to include the marginal taxes paid by these individuals in the fiscal chapters, as well as those resulting from an inflow of new capital arising from immigration, biases the study's overall fiscal results in the negative direction. These two factors, combined with the bias introduced by the use of the household as the unit of analysis in the chapter estimating annual fiscal effects, moreover, create the distinct possibility that the negative results reported there are overly pessimistic.

The New Americans, the most comprehensive study to date on the economic consequences of US immigration, advances our understanding of the likely demographic and fiscal effects of immigration. On the other hand, the study does not tell us much new about the labor market impact or integration of immigrants, nor does it sufficiently connect the findings from its demographic, labor market, and fiscal chapters. Surprisingly, in its final report to Congress, Becoming an American, the US Commission on Immigration Reform relied on the most unconvincing portions of the panel's research to recommend shifting toward a more nuclear family-based and skills-based immigration policy. In sum, the immigration debate continues even after the panel's impressive work, which despite its limitations is assuredly the cornerstone of future progress in the field.

ENRICO ANTHONY MARCELLI Center for U.S.-Mexican Studies University of California, San Diego


Biasberg, Nikki and Elaine Sorensen. 1997. Do Immigrants Use and Need JTPA? Washington, D.C.: The Urban Institute.

Duleep, Harriet Orcutt and Mark Regets. 1996. "Admission criteria and immigrant earnings profiles," International Migration Review 30, no. 2:571-590.

Hayes-Bautista, David E. and Gregory Rodriguez. 1997. Immigrant Use of Public Programs in the United States, 1996. Los Angeles: Center for the Study of Latino Health, UCLA School of Medicine.

Lowell, B. Lindsay. 1996. "Skilled and family-based immigration: Principles and labor markets," in Harriet Orcutt Duleep and Phanindra V. Wunnava (eds.), Immigrants and Immigration Policy: Individual Skills, Family Ties, and Group Identities. Greenwich, CT: JAI Press.

Marcelli, Enrico A. and David M. Heer. 1998. "The unauthorized Mexican immigrant population and welfare in Los Angeles County: A comparative statistical analysis," Sociological Perspectives, forthcoming.

Myers, Dowell. 1998. "Dimensions of economic adaptation by Mexican-origin men," in Marcelo M. Suarez-Orozco (ed.), Crossings: Mexican Immigration in Interdisciplinary Perspectives. Cambridge, MA: David Rockefeller Center for Latin American Studies and Harvard University Press, forthcoming.

Smith, James P. 1998. "Progress across the generations," paper presented at the Annual Meetings of the American Economic Association, Chicago, 4 January.

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Gale Document Number: GALE|A20791194