The Economics of Illegal Immigration

Taxes, Benefits, Remittances, and Billions of Dollars

Jul 14, 2009 Andre Tartar

The question of illegal immigration has become supremely political in recent times, but the facts about what it costs us and how it benefits us are rarely made clear.

According to the Department of Homeland Security, there were 11.6 million "unauthorized" immigrants in the United States as of January 2008, 63% of who had already been in the county at least 10 years. When compared with 2000 government estimates of 8.5 million that translates into a 37% increase over just eight years. Numbers provided by the Pew Hispanic Center and The Federation for American Immigration Reform - an anti-immigration outfit - are similar.

The Department of Homeland Security also reports that over 1 million people were made "legal permanent residents" in 2008 alone; over half were already in the country and even included some eligible undocumented immigrants. The Federation for American Immigration Reform (FAIR) claims that as many as 850,000 new illegal immigrants arrived over the same period. That means that a new city the size of Washington D.C. could be populated each year with the number of immigrants, legal and illegal, flowing into the United States.

These immigration numbers certainly are big, but out of a total population exceeding 300 million, their economic impact is likely less than what many opponents claim.

A Cost-Benefit Analysis

The economics of illegal immigration involves a relatively simple mathematical operation. Add up the benefits:

1. the money illegal immigrants take home from their work as construction workers, migrant laborers, orange-pickers, and housekeepers
2. the money they pay in taxes – and, yes, many illegal immigrants pay taxes
3. the extra profits their employers make from paying below-market wages

Subtract the costs:

1. the value of any public services – emergency healthcare and "free" public education – they receive
2. remittances, money sent by (illegal) immigrants to their families still back in their native countries
3. the costs associated with preventing illegal immigration, enforcing border security, and incarcerating arrested illegal immigrants

Depending which list outweighs the other, illegal immigration will have a net cost or net benefit.

Competing Interpretations

Polls of economists often show robust majorities that think the first list outweighs the second. Francine Lipman, a Professor of Law, Business and Economics at Chapman University, itself in California, writes in an academic article, "Taxing Undocumented Immigrants: Separate, Unequal, and Without Representation" that, "Every empirical study of illegals' economic impact demonstrates ... undocumented immigrants contribute more to public coffers in taxes than they cost in social services."

But policymakers, journalists, academics, and pundits don't always hold up the same numbers.

The Center for Immigration Studies - which openly admits it seeks lower immigration numbers - estimates the "net fiscal cost" at between $11 billion and $22 billion per year and cites California officials that estimate the "net cost to [their] state" at about $3 billion a year. Though in the red, these numbers are small in the grand scheme of things – a national economy going on $14 trillion and California with a greater GDP than neighboring Mexico.

Public Perceptions

Polls of U.S. citizens generally display less ambiguity. A 2006 Time Magazine poll found that 89% of Americans think illegal immigration is a problem, with 63% saying it is either a "very serious" or "extremely serious" problem. In two separate Rasmussen polls from mid-2009, 80% of likely voters opposed healthcare for illegal aliens and wanted the military to guard the border with Mexico. But maybe this represents a political or demographic fear, more than an economic one.

A 2008 Zogby poll found a slim majority of voters, 57%, who believed amnesty for illegal immigrants would harm American workers and further strain public resources. That means that almost half of people believe that the net effect of illegal immigrants is, at the very least, neutral. (Only 26% of voters polled believed an amnesty would actually help an economic recovery and lessen the burden on public finances.)

Illegal Immigration Statistics

So why the different reads on the situation? It's all in the name. Illegal immigrants – unauthorized workers – lack the clean paper trail that most citizens have. They may pay taxes, but won't have a valid Social Security Number to go with it. This makes it hard for the IRS to confidently ascertain the contribution of illegal immigrants.

As for what they get paid, we have even less of a notion. Many of them are paid "under the table" and employers are loath to confess any questionable hiring practices. These accountability problems are what make the question of illegal immigration such a thorny one.

The politics of illegal immigration may be quite clear, especially when it comes to election season, but the economics, sadly, require firmer statistics.

References:

Department of Homeland Security - "Estimates of the Unauthorized Immigrant Population Residing in the United States: January 2008"

The copyright of the article The Economics of Illegal Immigration in American Affairs is owned by Andre Tartar. Permission to republish The Economics of Illegal Immigration in print or online must be granted by the author in writing.

Helicopter and boats of U.S. Border Patrol

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