The Impact of Immigration on California

By Steven A. Camarota July 1998

pp. 1-6 in Immigration Review no. 32, Summer 1998


Earlier this year, Rand released an extensive new study on immigration's impact on California. The report, authored by Kevin F. McCarthy and Georges Vernez, contains both new research as well as information drawn from several recent monographs published by Rand and concludes that immigration has both positive and negative effects on the states economy. The authors specifically do not explore the potential impact of immigrant-induced population growth on the environment or the general quality of life in the state. This article examines the report's findings, which include:


  • Immigration to California in the last three decades has been extraordinary. By the mid-1990s, California's eight million immigrants represented one in four state residents and fully one-third of all immigrants in the United States.

  • Of the 16-percentage-point advantage in the creation of jobs California enjoyed in the 1980s over the rest of the nation, two percentage points can be attributed to immigration; however, few of these jobs went to natives; overall, in fact, immigration reduces job opportunities for natives.

  • Immigration in the 1970s lowered the wages of high school dropouts by between 10 and 16 percent annually ($2,250 to $3,800) and, in the 1980s, immigration primarily affected employment, with between 128,000 and 195,000 natives in California either unemployed or withdrawn from the labor force because of immigration.

  • Immigration is increasingly out of step with the needs of the state's economy. Few if any new jobs are created that require only a high school degree or less, yet most immigrants are either high school dropouts or have a high school education.

  • Immigrants as a group do not pay enough in taxes to cover their consumption of public services, though the size of the impact is undetermined and varies considerably by country of origin, education level, and admission category.

  • The authors suggest reducing immigration to the United States to between 300,000 and 800,000 annually and selecting more immigrants based on needed skills and fewer based on family relationships.

Demographic Effects

As the report makes clear, immigration to California in recent years has been unprecedented. Between 1960 and 1995, the number of immigrants living in the state increased six-fold, from 1.3 million to eight million, and tripled as a percentage of the state's population, from 8.2 percent to 24.1 percent. Relative to the rest of the country, growth in California's immigrant population has been just as dramatic. In 1960, California had 8.8 percent of the nation's total population and was home to 13.9 percent of its immigrants. By 1995, California accounted for 12.1 percent of the country's population and 32.7 percent of the nation's immigrants.

The high concentration of immigrants in California makes the state unique: Immigrants account for less than five percent of the population in 33 states. In addition to their high concentration, California's immigrants differ from the rest of the country in a number of important ways. Compared to immigrants in the rest of the country, California's 1995 immigrants had a much higher percentage of Mexican and Central Americans (50 percent in California vs. 23 percent nationwide), Asian immigrants (33 percent vs. 21 percent) illegal aliens (20 percent vs. 14 percent), amnesty recipients (19 percent vs. 7 percent), and refugees (9 percent vs. 6 percent). California's immigrants also had lower rates of naturalization (29 percent vs. 41 percent).

Not only has the level of immigration changed, there has also been a significant shift in the countries sending immigrants to the state. In the 1950s, half of California's immigrants came from either Canada or Europe and the majority of the remainder came from Mexico. By 1990, the number of European and Canadian immigrants had fallen dramatically, to less than 10 percent, and the number of immigrants from Mexico and Central America had climbed to well over half of the total. Additionally, California's share of Asian immigrants doubled and now accounts for 40 percent of new immigrants in the state. These trends have transformed California into the most racially and ethnically diverse state in the country, so that by the year 2000, if not already, no racial/ethnic group will constitute a majority.

Economic Effects

Table 1 (below) provides information about the educational level of immigrants and natives. It indicates that there is a sizable gap between the educational attainment of natives and that of immigrants both for the nation as a whole and for California, though the difference is much greater in California. Compared to immigrants in the rest of the country, California's immigrants are much more likely to lack a high school degree and have one year less of schooling on average.

Table 1 also indicates that, while the educational level of both immigrants and natives has improved significantly since 1970, the increase has been more rapid for natives. As a result, the educational gap between immigrants and natives has grown more pronounced nationwide, almost entirely because of the relative deterioration in California. The larger educational gap in California is caused primarily by the high concentration of immigrants from Mexico and Central America, who tend to have much lower levels of educational attainment than other immigrant groups.

This high concentration of low-education immigrants in the state has supplied California's businesses with a large pool of unskilled labor. In addition, the authors found that California's immigrants earn lower wages than natives in almost all educational categories and occupations. This pattern contrasts sharply with the pattern observed nationally, where immigrant wages either exceed or roughly equal those of similarly skilled natives.

While the reasons for this disparity are not entirely clear, the report suggests that it is due to the younger age, lower English proficiency, and higher percentage of illegal aliens and immigrants educated abroad living in the state as well as increased competition among immigrants for jobs. The authors do not think that discrimination accounts for the difference because there is no systematic evidence that it is more prevalent in California and because surveys of employers generally find that immigrants are viewed as reliable and hard working. The authors conclude that employers' ability to pay immigrants less than natives coupled with the fact that there is no indication that immigrant labor is less productive than native labor, gives businesses in California a competitive advantage. The authors state: "Although the characteristics of immigrants have changed... the state's economy continues to benefit from immigration."

Based on a cross-industry comparison of the concentration of immigrants and job creation, the report estimates that, in the 1980s, about two percentage points of the 16 percentage point advantage that California enjoyed in employment growth was attributable to immigration. While the authors acknowledge that comparisons of this kind do not establish causality and the effect appears small, their analysis suggest that the arrival of immigrants in an industry is positively associated with growth.

This positive effect on job growth does not, however, seem to translate into more jobs or higher wages for native-born workers. In fact, the labor market opportunities available to less-educated natives are reduced by immigration. Thus, by "benefit" to the economy the authors mean that the immigrants and employers are better off. Native-born workers either are unaffected or are harmed by immigration.

The negative effect on native workers has varied over time and is dependent on education level. The report controls for a variety of factors and compares differences between California and the rest of the country. The authors conclude that, in the 1970s, the wages of native-born high school dropouts were between 10 and 16 percent lower ($2,250 to $3,800) in California because of immigration. In the 1980s, the negative effect primarily took the form of reduced job opportunities for natives, with perhaps 200,000 natives in the state either unemployed or withdrawn from the labor force because of immigration. Table 2 (see below) reports the job displacement effect of immigration on native workers using two different estimation methods. The study also concluded that the presence of immigrants does not negatively affect natives with a college degree and may actually improve the job prospects for this group.

The reason that immigration's effect on native workers was different in the 1970s and 1980s is not entirely clear. The most likely explanation is that there was higher overall employment growth in the 1970s than in the 1980s, allowing for easier incorporation of immigrants into the labor force — though wages for native-born dropouts declined significantly because of immigration. In the 1980s, wages declined for the less-educated for a number of reasons and, as a result, less-educated workers withdrew from the work force. Increased competition from immigrants exacerbated this trend.

The authors acknowledge that the estimates found in Table 2 probably understate the size of the impact of immigration. They point out that many less-educated natives either left the state or did not come to California because of immigrant competition, the same conclusion reached by the National Research Council in its report last year (see Immigration Review Nos. 29, 30, and 31). Thus, because it changes the internal migration patterns of natives, immigration alters the supply of labor throughout the country. As a result, the effect of immigration is likely to be felt nationally, not simply in areas of high immigration. The authors also concluded that African-Americans were more adversely affected by immigration than any other racial/ethnic group because they are more likely to be in the adversely affected educational categories and because employers may view immigrants as more desirable workers.

In addition to the reduction in labor market opportunities available to natives, the second economic problem identified in the study is that there is an increasing discongruity between the kinds of jobs being created in the state and the skills of entering immigrants. The number of jobs for persons with only a high school degree or less has held steady or declined in the last 20 years and immigrants have, in effect, been "back filling" less-skilled jobs as the number of natives doing such work has declined; however, this cannot continue indefinitely. Moreover, this process has caused a slow and steady "downskilling" of California's work force relative to the rest of the country. Whereas the state's work force was once more educated on average than the rest of the country, this advantage has now been entirely eliminated by immigration (see "California's Labor Force" on page 1).

In addition to expressing concern about the competitiveness of the state's economy, McCarthy and Vernez also point out that the low educational level of immigrants may adversely affect the social mobility of today's immigrants and perhaps their children. More than at any time in the past, earnings and employment are dependent on educational level. What's more, one of the best predictors of the future labor-market performance of children is the educational level of their parents. Immigration policy, therefore, may be setting the stage for large ethnic differentials in economic outcomes that could have important socio-economic and political implication for decades to come.

Fiscal Effects

The report does not contain any new research on the fiscal impact of immigration; instead, the chapter on the public sector summarizes the authors' previous study of the issue (Vernez and McCarthy, 1996), which explored the relevant questions and reviewed findings from a number of different studies. As in their earlier work, the authors conclude that there is no consensus regarding the budgetary consequences of immigration in California, as different studies have produced a wide range of estimates. The reason for the divergent findings stems from a number of factors: In many cases there is no agreement on how to estimate immigrant and native tax revenue and public service use from existing administrative and survey data. There is also a disagreement on whether to count public services, such as welfare, used by the U.S.-born minor children of immigrants as a cost attributable to immigration.

Despite a wide range of estimates from various studies, the authors draw a number of general observations. First, the average tax revenue from all residents, immigrant or native, is generally found not to equal average expenditures in the state. This is because not all sources of revenue to state and local government are included in any of the studies. At both the state and local level, revenue from the federal government and from other sources such as the taxation of businesses are used to close this "deficit." Second, no matter how it is defined, the size of the deficit is larger in California for immigrants than it is for natives. Third, the deficit is larger for illegal aliens than for legal residents.

The authors also point out that the larger fiscal burden created by immigrants is explained almost entirely by educational and other socio-economic characteristics of immigrants and not by their immigrant status per se. In other words, immigrants create a burden on public coffers in California because they are less educated, hold lower paying jobs, and have larger families than natives. This means that they generally pay less in taxes and have a greater propensity to consume public services than natives. It is also clear that the large differences between immigrants from different countries is almost entirely due to differences in socio-economic characteristics.

Policy Recommendations

The authors make a number of policy recommendations in the final chapter of their report. Partly out of concern for less-skilled natives, the social mobility of immigrants, and the competitiveness of the California economy, the authors suggest increasing the number of immigrants admitted based on needed skills and admitting fewer based on family relationships. The authors do not provide much guidance on what specific changes should be made to immigration policy, nor do they provide a specific number, except to suggest that the annual level of immigration be set at between 300,000 and 800,000. The authors also suggest several other changes, including: special treatment for Mexico, establishing specific programs designed to facilitate the incorporation of immigrants, and more flexibility in immigration policy to meet changing circumstances. While the authors acknowledge that illegal immigration is a significant problem, both for economic and non-economic reasons, the report contains no new suggestions on how to deal with this issue.

Conclusion

Immigration in a Changing Economy is clearly an important work. Though at times the narrative tends to be more positive than the data warrant, the report provides the most detailed picture of California's immigrant population produced to date. Moreover, their general observation that immigration should not be seen as inherently positive or negative, but instead that its effects are dependent on the volume and characteristics of the immigrants, is unassailable. Anyone seeking to better understand the implications of immigration for California, the largest and most important state in the country, would do well to read this book.

— Steven Camarota

To obtain a copy of Immigration in a Changing Economy: California's Experience, contact Rand at (310) 451-7002 or http://www.rand.org The cost is $20.