The Economics of Immigration
It is often said that America is a nation of immigrants. Generations have moved here seeking opportunity and liberty, and have contributed to making this country the wealthiest in history.
However, immigration has been a controversial topic almost since the first waves of immigrants arrived on our shores. Periodically, opposition swells from advocates who claim that enough people are already here and that too much immigration is bad for the country legally, culturally or economically.
Such a controversy has again arisen recently. From the formation of vigilante squads of "Minutemen" along the U.S. border, to nationwide protests over immigrant rights and congressional debates about "guest worker" programs, immigration has flared up again as a social issue.
For this reason, the Federal Reserve Bank of Minneapolis has chosen the topic for its nineteenth annual essay contest, asking students the question, "Is immigration good or bad for the U.S. economy?"
Of course casting immigration as simply good or bad is a simplification. Immigration is a complex topic. But the point is to get you to pick a side and defend it. By doing so, you'll come to better understand the issue.
What can economics contribute? Economists probably won't have much to say about the effect of immigration on crime, language or American culture. But as with any other issue, economic analysis can provide insight into crucial trade-offs in the face of scarcity
As you tackle this essay, try to think about the many different aspects on which economics can be brought to bear. Since immigration is such a multifaceted topic, the intent of this primer isn't to give a complete overview of the controversy, but to highlight some important points.
Trade in goods vs. Trade in services
Ever since the British writer David Ricardo 200 years ago, economists have generally held that allowing the free movement of goods between two nations enhances the overall wealth of both nations by allowing them to use their comparative advantages. Shouldn't the same be true for services? If you think immigration is bad for the economy, you'll have to argue that labor is different from other commodities, and explain why.
Immigration affects labor markets
Most immigrants moving to the United States come for the work opportunities. This can dramatically improve the lives of those who come from poorer countries with fewer opportunities, but it also affects workers already living here. All else equal, a greater supply of workers will reduce wages for those already in the market. How much it changes wages is an empirical question for you to investigate.
Immigration has social costs
Like everyone else, immigrants use social services—education, public transportation, health-care, etc. But since many immigrants earn lower incomes, they are more likely to use certain services than higher-income Americans. An increasing immigrant population then places extra burden on government programs.
Immigration has social benefits
It is often said that poor immigrants work hard, unpleasant jobs that "Americans won't do." Economists will tell you this is wrong—it's not that Americans won't take the work, just not at the prevailing low wages. The problem is that for many of these jobs the return is low enough that they won't be profitable at the much higher wages required for Americans to take them. So, rather than immigrants "taking American jobs" on the one side versus working where Americans are "too spoiled to work" on the other, they are often performing valuable services that otherwise wouldn't get done at all.
What is the balance of costs and benefits for the U.S.? That is for you to answer in this essay. Take a look at our bibliography and find your own sources. Start reading about the topic and gathering evidence. Then take a side, keep your economic principles in mind, and try to be persuasive.
If you have any questions, contact Joe Mahon at Joseph.Mahon@mpls.frb.org or call 612-204-5254.