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Friends or Strangers: The Impact of Immigrants on the U.S. Economy.

It has become fashionable of late to view immiration as the answer to America's economic ills. Immigration ... can help provide us with whatever ills we may be lacking |and~ diminish labor shortges that may be coming our way," enthused Ben Wattenberg and Karl Zinmeister at the American Enterprise Institute's policy conference last December. st open the borders and-presto-we have just the workers we need to see us through the tough times ahead.

George Borjas, a professor of economics at the University of California at Santa Barbara, has written short, thoughtful book about immigration that should give the optimists pause. A cure for what ails the economy? It ain't that simple.

Borjas's book is loaded with statistics, inferences, arguments, counter-arguments, qualifications, and stunning conclusions, but let me get right to the heart of the argument. He distinguishes between two categories of immigrants. The first comprises people hose subsequent lifetime earnings in America are less, on average, than lifetime earnings of Americans already here. Most of the people in this category are unskilled, and have fewer years of education than the average American. And a surprisingly large number of them (larger, in proportion to their numbers, than Americans already here) end up on welfare.

The second category of immigrants is people whose subsequent lifetime earnings in the United States are higher than those of Americans already here, who are skilled, have more years of education than the average American, and are very unlikely to end up on welfare. Borjas assumes that we would prefer to attract more of this second category than the first.

New wave

But here's the rub. Since the 1950s, a higher and her percentage of immigrants to the United States have come from the first category-unskilled, unschooled, schooled and more likely to end up on welfare. In 1950, the typical immigrant had .3 more years of schooling than the average American; by the late 1970s, .7 fewer. In the 1980s, some 10 million people legally immigrated to the United States-more than in any previous decade, and well ahead of the huge 1900-1909 wave that brought in 8.2 million people. But a much larger portion of this recent wave was from the first category of immigrants than in any previous wave. In addition, Borjas estimates that 3 to 4 million illegal immigrants entered the United States, most of them also coming well within category one.

Does this mean that most of the people who immigrate to another country these days are less skilled, educated, and productive than the people who immigrated years ago? Not at all. Borjas contrasts the sort of immigrants the United States has been getting with immigrants elsewhere. Besides the United States, the other major destinations for the world's immigrants are Australia and Canada (between 1975 and 1980, the three countries together accounted for about twothirds of where immigrants went). Australia and Canada have been attracting a much larger proportion from the second category than the United States has. In fact, while our proportion of category one has been rising, their proportion of category two's have been rising. Why? Borjas offers two reasons.

Theory of Relativity

The first reason has to do with laws that determine who gets in. In the 1960s and early 1970s, Canada and Australia changed their systems for allocating visas. Previously, visas had been allocated on the basis of national origin, so that if you were a skilled engineer from India you'd have a much harder time entering these nations than if you were a taxi driver from Great Britain. But after the changes, it was just the reverse. Higher skill and educational attainments received a higher priority, regardless of country of origin.

United States immigration policy has also shifted away from national origin. But, in contrast to Australia and Canada, the United States gives priority to the relatives of Americans, regardless of how skilled or unskilled they may be. This is the legacy of the 1965 amendments to the immigration law, which, as Borjas notes, were passed at a time when the American public was still sensitive to the issues of civil and human rights, which made family unification a central objective of immigration policy. Of the total number of visas that are issued every year, approximately 80 percent now go to close relatives of American citizens or residents. The remaining 20 percent are supposed to be allocated on the basis of skill but, as a practical matter, they typically go to more distant relatives.

What's more, you can bypass the quota system entirely and become an American citizen if you are an immediate relative (spouse or child) of someone already here legally. In 1987, more immigrants entered as immediate relatives than entered under all the family reunification provisions combined. Combining these numbers with the number of people allocated restricted-entry visas reveals that only 4 percent of the people who legally immigrated to the United States in 1987 were allowed in because of their skills. The rest-96 percent-came in because they had relations here.

Borjas concludes that the 1965 amendments have resulted in a sizable decline in the quality of immigrants coming to the United States. The effect is rather like compounded interest. A somewhat small number of unskilled and unschooled immigrants results, over time, in a huge number, once their relations get here, and then their relation's relations, and so on. In the 1960s, more than 50 percent of new immigrants came from Europe, and most had higher lifetime earnings than the Americans they joined. By the 1970s, however, more than 80 percent of the new immigrants to our shores came from Asia and Latin America-among them Mexicans, Filipinos, and Koreans, who, Borjas tells us, typically have lower lifetime earnings than the Americans already here.

Borjas concludes that we're losing the competitive race for skilled immigrants. While Australia and Canada actively solicit skilled people from around the world, even going so far as to sell visas to residents of Hong Kong (now shopping for new places to live in anticipation of 1997, when Hong Kong becomes part of the People's Republic of China), the United States remains mired in an inflexible system based upon humanitarian, rather than economic, concerns.

Money talks, everyone walks

So, what we should do is adopt the Australian and Canadian system, right? Not so fast. Even if the law makes it easier for skilled immigrants to come here, there's no guarantee that they will. In fact, argues Borjas, they probably won't. Herewith the second reason why we're no longer attracting immigrants from category two. Regardless of what the law might permit, only people who gain from immigration will want to immigrate, and the United States is no longer as attractive a place for skilled people to come to as it was decades ago.

Referring to a number of studies and econometric techniques, Borjas attempts to demonstrate that highly skilled people want to move where they can get relatively higher returns on their skills, while unskilled people want to move to where they can earn relatively more on their unskills. It sounds logical enough, but the implication is not comforting. Highly skilled people will want to leave egalitarian countries where they in effect subsidize their unskilled compatriots and to immigrate to where the income gap is wider and where they thus receive a relatively higher return. Unskilled people will want to do precisely the reverse-moving away from where the gap is wide and to where they can be subsidized by highly skilled people. Thus, the typical immigrant to the United States in the 1950s came from a European social-democratic country in which the ratio of income accruing to the top 10 percent of households relative to the bottom 20 percent was 1: 1 1.2. The typical immigrant in the 1970s came from a highly segmented society in which this measure of inequality was 1: 16. 1.

By this logic, the United States has a slight advantage over Canada, since we have a less equal distribution of income. Thus, unskilled Americans are relatively better off in Canada. In fact, several studies have confirmed that the immigrant flow from the United States to Canada has been composed of relatively unskilled Americans seeking the protection and social insurance that the Canadian economy provides, while Canadians who have immigrated to the United States are predicted to have much higher lifetime earnings while here than American natives.

What are we to make of all this? Borjas seems to be saying (although he takes pains not to say it too directly) that if we want to have a more egalitarian distribution of income within the United States and also allow families to be reunited with their foreign members, then we'll have to content ourselves with new immigrants who are unskilled, relatively unproductive, and likely to spend part of their lives on welfare. On the other hand, the way to attract more skilled and educated immigrants is clear: Permit rich Americans to get even richer, poor Americans to become even poorer, and allow into the country only those meeting certain criteria for skill and education. The boys at the American Enterprise Institute could hardly wish for a more convenient rationale for their neoconservative agenda.

Are we then faced with this rather discomfiting trade-off between social justice and economic growth? Only if we neglect to consider the identity of the "we" who's making the choice in the first place.

Most discussions about what must be done to spur our" national economic growth leave out the important pronoun question, which was asked by Tonto after the Lone Ranger informed him "We're surrounded." To wit: "Who's we, kemosabe?" Borjas assumes that an influx of skilled (as opposed to unskilled) immigrants would help us, but he never examines exactly who the "us" is who would be helped. Surely not unskilled immigrants, who now can't enter the United States legally. Presumably not skilled immigrarits, who have it made regardless of whether America opens its borders to them. The group he's referring to must be those already living in America.

But some of the people already living here have family members on the outside, many of whom couldn't easily immigrate if the United States limited entry to skilled workers. Likewise, some people already living in America are poor, and many would become even poorer if the nation were to reduce or eliminate income transfers from the more wealthy. Thus, the cost of attracting more skilled immigrants to these shores would fall especially heavily on these two groups of Americans, who nonetheless might benefit, on balance, from such a policy if they were to share in the additional productivity and economic growth induced by the new immigrants. We the people of ... ?

But here again, the global economy intrudes. With money and technology so footloose, there's no longer any guarantee that wealth and knowledge produced within the borders of a nation will benefit compatriots to any greater extent than anyone else in the world. It is partly for this reason that "trickle-down" economics has proved such a cruel hoax. America's highly skilled, whose insights are in great demand around the globe, are getting richer; America's unskilled are getting poorer. Nor would less fortunate Americans benefit from more generous income transfers from the new group of skilled immigrants, since such transfers will have been ruled out in order to attract skilled immigrants in the first place. But perhaps skilled and wealthy Americans would now be more willing to invest in the education and training of poor Americans, thus rendering them more productive? Don't hold your breath. For precisely the same reasons that everything else now moves so easily across borders, skilled Americans are less likely to have an enlightened self-interest in enhancing the productivity of the unskilled. Increasingly, the economic fates of skilled Americans are linked to worldwide enterprise. The skilled engineer living in a wealthy Dallas suburb is apt to be more financially dependent on West German designers, Tokyo financiers, and Mexican fabricators than on unskilled Hispanic-Americans living in downtown Fort Worth. National borders used to define realms of economic interdependence in which citizens had an enlightened self-interest in preparing one another for productive lives. No longer.

What this means is that the premise of Borjas's book-that "we" stand to gain more from skilled immigrants than from unskilled-is becoming less and less obvious. Particularly if the price to be paid for attracting more skilled immigrants is a further diminution in social equality within the United States, coupled with a permanent splintering of immigrant families, there's no reason to suppose that we" come out ahead. Economic analyses can help reveal different consequences following from different policy choices. But as this book serves to remind us, economics is no help at all in telling us what we should do, or why.

One of the major tasks of nations in the new global economy will be to redefine that "we" of citizenship and the mutual obligations that citizenship represents. The new democracies of Eastern Europe and Latin America will be among the first to grapple openly with these questions, but there is no hiding from them. The United States, in its own elliptic ways, will be forced to struggle with them as well. The next round in the debate over immigration policy will surely serve as an occasion.

When that time arrives, many economists will summon data of a sort that Borjas has offered. Pontificators at the American Enterprise Institute, among other august locations, will conclude that skilled immigrants provide the answer to our problems. The response must be that the nation needs good citizens as much as, if not more than, it needs good skills. As America once understood, poor people from other lands, desperately yearning to be free, may have a greater claim on this nation's future than well-educated people seeking a higher return on their diplomas. And in the long run, given half a chance, it is precisely these individuals-who are most grateful for the opportunity to be here-who are most likely to benefit us all. They will take their obligations most seriously.
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Author:Reich, Robert
Publication:Washington Monthly
Article Type:Book Review
Date:Feb 1, 1990
Words:2343
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