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Immigration and Economic Growth in the U.S., 2000-2015

By Giovanni Peri·March 16
University of California, Davis

The Issue:

Many of the concerns regarding immigration during last year's presidential election revolved around undocumented immigrants entering through the U.S.-Mexico border. Issues such as crime and competition for low-wage jobs between immigrants and native workers took prominent roles. However, the focus on immigrants with low-levels of education does not take into account a shift towards more educated immigrants over the last 15 years-- as well as the contributions of recent immigrants towards raising productivity and U.S. economic growth.
Policy efforts should focus on current immigration trends with policies regulating the flows of highly educated immigrants arriving mainly from Asia.

The Facts:

  • After a decade of large inflows of less educated workers from Mexico and Latin America, the United States experienced a very strong net growth of highly educated immigrants since 2000, with the largest increases coming from Asia (India and China in particular), and among workers with a college education or more. In the last 15 years new immigrants have added proportionally much more to the groups of foreign-born individuals with college education and beyond than to those with a high-school education or less (see chart). At the same time, more Mexican immigrants have been leaving the U.S. than coming in, resulting in a zero net inflow of less educated immigrants coming from Mexico in the last decade. These trends are likely to continue, due to the increased mobility of skilled middle class Asians and to the decline in fertility rates in Mexico. If immigration had an effect on wages by simply changing the supply of skilled workers relative to that of unskilled workers, then its impact in the last 15 years would be of reducing wage inequality across education groups.
  • College educated immigrants are much more likely to have a degree in science, technology, engineering or mathematics (STEM) fields than U.S.-born workers with a college education. Between 2009 and 2012, over 45 percent of college educated foreign-born individuals in the United States had a degree in STEM disciplines, relative to only 28 percent of college-educated natives. Moreover, foreign-born workers accounted for 80 percent of the growth in college-educated STEM workers as share of all employment between 1990 and 2010. Highly educated scientists and engineers are primary contributors to the creation and adoption of technological innovation. They play a key role in generating sustained economic growth because technological advancements that allow workers to become more productive are at the basis of long-run wage and income growth. In a recent study my co-authors and I find evidence that across U.S. metropolitan areas, the growth of foreign STEM workers was associated with increased productivity among native workers, leading to about 7-8 percent growth in wages among those with a college degree and a smaller increase in the wages of less educated workers of around 3-4 percent.
  • Immigrants have mainly increased population and employment in large, densely populated urban areas where productivity is much higher than elsewhere — contributing to increases in U.S. productivity and income per person. The increase in the concentration of foreign-born individuals in the United States has been much larger in cities than in the rest of the country: Only 5 percent of the non-urban population was foreign-born compared to 20 percent of the urban adult population as of 2014. And the concentration of immigrants was higher in larger cities: Immigrants represented 30 percent of the population in the top 10 U.S. metropolitan areas (see here for my review of the trends). The productivity of workers is higher in more populated cities because the population density facilitates learning and sharing ideas, and allows workers with different skills to complement each other and specialize in the work areas they do best. Hence, by increasing economic activity where it is most productive, immigrants have contributed to the increase in national average productivity.
  • Regardless of education level, just by increasing the overall size of the economy, immigrants have produced a proportional growth of the nation's gross domestic product (GDP). Between 2000 and 2015 the growth of the immigrant population constituted 50 percent of U.S. population and labor force growth (see this EconoFact memo for details on how labor force growth factors into economic growth). Without immigration, population growth in the United States would have been only 0.5 percent per year since 1965, while with immigration it has been close to 1.0 percent per year, according to a report by the Pew Research Center. The immigrant inflow in the labor force has been rather gradual (about 0.5 percent of the labor force per year) and predictable. Therefore, the increased contribution of immigrants to employment did not reduce the capital intensity of the U.S. economy allowing firms to expand and adjust. There is little evidence that it has produced job displacement. However, immigration's contribution to labor force growth has grown in importance over the past decade as the baby boom generation began to reach retirement age, increasing the share of workers ageing out of the workforce.

What this Means:

Focusing immigration policy on the US-Mexico Border misses completely the reality of the last 15 years of immigration. We should instead address the immigration of the next years with appropriate policies regulating the flows of highly educated immigrants, mainly from Asia. The growth of professionals with college degrees in Science, Engineering and Math (STEM) has come in large part from foreign-born workers. The contributions to innovation and technological growth from this group have positive long-run productivity effects on the U.S. economy. Policies slowing and eventually reducing high-skilled immigration, such as imposing delays and limitations on H1B visas are likely to result in slower growth of innovation and productivity in the long run. The goal of creating and protecting American jobs in the medium and long run should encourage more high-skilled immigration. It is unclear whether fewer high-skilled immigrants would protect high-skilled American jobs in the short run, but it would certainly hurt growth and jobs for all in the long run.

Topics:

Economic Growth / Immigration Policy / Productivity
Written by The EconoFact Network. To contact with any questions or comments, please email contact@econofact.org.

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