Executive Summary

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At their summit in February of this year, the new Presidents of Mexico and the United States promised to work together to create an "orderly framework for migration" between their countries. As a result of the summit, a new high-level working group has been established to study migration between the United States and Mexico. A number of members of Congress have also proposed changes in the laws governing immigration from Mexico, including a new guestworker program for Mexicans, an increase in legal immigration from Mexico, and an amnesty for illegal aliens. Whatever the outcome of these initiatives, policymakers in the United States clearly need up-to-date information in order to weigh the costs and benefits of such programs. Using the latest data available, this report examines the characteristics of the Mexican-born population in the United States in order to shed light on the effect Mexican immigration has on this country and to provide insight into the likely impact of future immigration from Mexico.

The report comes to some very troubling conclusions. By increasing the supply of unskilled labor, Mexican immigration has reduced the wages of workers who lack a high school education. This reduction in wages for the unskilled (who are already among the poorest workers in the United States) may reduce prices in the United States by no more than one or two tenths of one percent. The effect is so small because unskilled workers account for only a tiny share of economic output. Thus, even a substantial reduction in their wages cannot generate large benefits for consumers. Moreover, because such a large share of Mexicans are unskilled at a time when the U.S. economy offers limited opportunities to unskilled workers, Mexican immigration has added significantly to the size of the poor and uninsured populations, and to the nation’s welfare case load. Their much lower incomes and resulting lower tax contribution coupled with heavy use of means-tested programs creates very significant fiscal costs for the country. In effect, Mexican immigration acts as a subsidy to businesses that employ unskilled workers — holding down labor costs — while taxpayers pick up the costs of providing services to a much larger poor and low-income population.


  • Large-scale immigration from Mexico is a very recent phenomenon. In 1970, the Mexican immigrant population was less than 800,000, compared to nearly 8 million in 2000.

  • The Mexican immigrant population is highly concentrated, with 78 percent living in just four states, and nearly half living in California alone.

  • Almost two-thirds of adult Mexican immigrants have not completed high school, compared to less than 10 percent of natives. As a result, the primary effect of Mexican immigration on the U.S. labor force is to increase the supply of unskilled workers — 22 percent of all the high school dropouts in the U.S. labor force were born in Mexico.

  • Since the vast majority of natives have completed high school and are employed in higher skilled occupations, most natives do not face significant job competition from Mexican immigrants. However, there are more than 10 million adult native-born workers who lack a high school education in the U.S. workforce. Consistent with previous research, the results in this study indicate that these less-educated natives face significant job competition from Mexican immigrants.

  • By increasing the supply of unskilled labor, Mexican immigration during the 1990s likely has lowered the wages of workers who lack a high school education by roughly 5 percent. The native-born workers adversely affected by Mexican immigration are already among the poorest in the United States. More than one-fourth of the native-born working poor lack a high school education. Natives without a high school education also comprise a large share of Americans trying to move from welfare to work.

  • There is no evidence to indicate that the United States has a shortage of unskilled workers that needs to be satisfied by immigration from Mexico. The real wages (adjusted for inflation) of high school dropouts who work full-time actually declined 7.2 percent in the 1990s, while the real wages for other workers increased. Also, the number of jobs available for unskilled workers declined by 400,000.

  • Although Mexican immigration is likely to have a significant impact on the wages of unskilled natives, its overall impact on prices in the United States is very modest because unskilled labor accounts for a very small share of economic output. By lowering the wages of unskilled workers, Mexican immigration in the 1990s reduced prices by between 0.08 and 0.2 percent. As a result, immigration from Mexico is almost certainly not an effective tool for holding inflation in check during periods of economic expansion.

  • Because the modern American economy increasingly rewards skilled workers, while offering very limited opportunities to the unskilled, Mexican immigrants experience limited economic mobility in the United States. The average income of Mexican immigrants is less than half that of natives. While their income rises steadily the longer they live in the United States, even long-time Mexican immigrants do not come close to closing the gap with natives. More than half of legal Mexican immigrants who have been in the United States for more than 20 years and their U.S.-born children (under age 18) live in or near poverty (see Figure 1).

  • Even after welfare reform, welfare use among Mexican immigrant households remains much higher than that of natives. An estimated 33.9 percent of households headed by legal Mexican immigrants and 24.9 percent of those headed by illegal Mexican immigrants used at least one major welfare program. In contrast, 14.8 percent of native households used welfare. Moreover, Mexican immigrant welfare use remains much higher than that of natives, even among Mexican immigrants who have lived in the United States for many years (see Figure 1).

  • More than one-half (52.6 percent) of Mexican immigrants do not have health insurance, compared to 13.5 percent of natives, and Mexican immigration by itself accounts for 3.3 million or 29 percent of the growth in the size of the nation’s total uninsured population since 1987. Even among legal Mexican immigrants who have lived in the country for more than 20 years, more than one-third are still uninsured (see Figure 1).

  • By itself, Mexican immigration accounts for 2.9 million or one-third of the national increase in the school-age population since 1982. The impact on public schools in some states has been even larger.

  • Because of their much lower average incomes and resulting lower tax payments, coupled with their heavy use of means-tested programs, Mexican immigrants have a significant negative effect on public coffers. Based on estimates developed by the National Academy of Sciences for immigrants by age and education level at arrival, the estimated life-time net fiscal drain (taxes paid minus services used) for the average adult Mexican immigrant is negative $55,200.

  • The lower educational attainment of Mexican immigrants appears to persist across generations. The high school dropout rates of native-born Mexican-Americans (both second and third generation) are two and a half times that of other natives. As a result, native-born Mexican Americans lag far behind other natives in income, welfare use, and other measures of socio-economic well being.

  • The findings of this report point to two conclusions: First, policy makers in the United States need to consider programs designed to improve the labor market skills of legal Mexican immigrants so that they can better compete in the modern American economy. Second, because Mexican immigration reduces wages for the poorest American workers and imposes significant fiscal costs without generating significant economic benefits, the United States should consider policies designed to reduce unskilled legal and illegal immigration from Mexico and elsewhere.

Data Sources

The data for this study come primarily from the March Current Population Survey (CPS) conducted by the Census Bureau.1 The March CPS includes an extra-large sample of Hispanics and is considered the best source for information on persons born outside of the United States — referred to as foreign-born by the Census Bureau, though for the purposes of this report, foreign-born and immigrant are used synonymously. Because all children born in the United States to immigrants (including illegal aliens) are by definition natives, the sole reason for the dramatic increase in the Mexican immigrant population in the United States is new immigration. The issuance of permanent residency visas and the settlement of illegal aliens greatly exceeds deaths and return-migration to Mexico. For this reason the Mexican immigrant population continues to grow very rapidly. In the March 2000 CPS, 850,000 Mexican immigrants indicated that they had entered the country in 1998, 1999, or the first three months of 2000. This means that nearly 400,000 legal and illegal Mexican immigrants now arrive in the United States each year.

Policy Recommendations

There are a number of potential reasons why the United States may wish to allow in large numbers of people from Mexico. These include preserving a good relationship with that country, providing an "escape valve" for Mexican workers who cannot find jobs at home, and simple altruism. However, the findings of this study indicate that if policy makers wish to act in the best interests of the United States, then it would make far more sense to reduce both legal unskilled immigration and illegal immigration from Mexico. The available evidence indicates that Mexican immigration reduces wages for the poorest American workers and imposes significant costs on the United States, while generating only very small benefits for consumers. Therefore, allowing in more unskilled workers from Mexico would not be in the best interest of the United States. Rather, it would make more sense to reduce unskilled immigration from both Mexico and elsewhere, while at the same time working to improve the situation for those legal Mexican immigrants and their children already here.

Improving the Situation for Legal Mexican Immigrants.

The findings in this report indicate that the primary reason for the higher rates of poverty, welfare use, and lack of health insurance coverage — and the large fiscal costs Mexican immigrants impose on taxpayers — is that most Mexican immigrants have little formal education. because the long-term trend of increasing wages for more skilled workers and declining or stagnant wages for the unskilled is likely to continue, the most obvious means to improve the situation for Mexican immigrants already here would be to increase their skills. Our efforts to integrate Mexican immigrants into the economic mainstream should therefore focus on job retraining and other efforts designed to improve the ability of Mexican immigrants to compete in the modern American economy. This would not only improve their economic situation, it would reduce the fiscal costs they impose on other Americans. Related to these efforts, more resources should also be devoted to increasing Mexican immigrants’ familiarity with their new country. This may include public/private partnerships for adult education programs designed to increase knowledge of English and the U.S. job market. Perhaps most important, a greater effort must be made to improve public education in areas of heavy immigrant settlement to ensure that the lower education level of Mexican immigrants does not persist through the generations. Clearly, the success of the millions of Mexican immigrants and children who now live in the United States is important not only to their future but also to the future of the country as a whole. A significant investment in their future would clearly be in the best interests of the country.

Reducing Future Unskilled Legal Mexican Immigration.font>

In most years, more than 90 percent of visas allotted to Mexican immigrants go to the family members of U.S. citizens and non-citizen lawful permanent residents (LPRs). Of course, immigration policy should not be changed in order to reduce Mexican immigration specifically, rather it should be changed to reduce unskilled immigration. Any change must apply to all countries, not just Mexico. By limiting which relatives are eligible for admission, we could reduce the number of immigrants admitted without regard to their skills. The Commission on Immigration Reform chaired by the late Barbra Jordan suggested limiting family immigration to the spouses, minor children, and parents of citizens and the spouses and minor children of LPRs, eliminating the preferences for adult children and siblings. The preference for the spouses and children of non-citizens should also probably be eliminated, since these provisions apply to family members acquired after the alien has received a green card, but before he has become a citizen. If the parents of citizens were also eliminated as a category, family immigration from Mexico would be reduced by more than half to roughly 50,000 or 60,000 a year. Changing legal immigration in this way would significantly reduce the number of legal immigrants admitted in the future without regard to their ability to compete in the modern U.S. economy.

Reducing Future Illegal Mexican Immigration.

Reducing illegal immigration should also be made a much higher national priority. The analysis done here indicates that there are at least three million and perhaps closer to four million illegal aliens from Mexico living in the United States. There are also three to four million illegal aliens from other countries living in the United States. Illegal immigrants from Mexico have added significantly to the size of the poor and uninsured population in the United States and, because they receive benefits on behalf of their native-born children, they have also added to the welfare case load.

Among those who study the issue, there is broad agreement that cutting illegal immigrants off from jobs offers the best hope of reducing illegal immigration. Since 1986, it has been unlawful to employ illegal aliens. To date, however, worksite enforcement efforts have been ineffective. There are three steps that are needed to make worksite enforcement more effective. First, a national computerized system that allows employers to verify that persons are legally entitled to work in the United States needs to be implemented. Tests of such systems have generally been well received by employers. Second, the Immigration and Naturalization Service (INS) must significantly increase worksite enforcement efforts. Congress has repeatedly failed to increase funding for worksite enforcement, even though the INS continues to ask for more agents. Third, more could also be done at the border. Despite increases in funding over the last few years, efforts along the southern border remain grossly inadequate. A real effort to control the border with Mexico would require perhaps 20,000 agents and the development of a system of formidable fences and other barriers along those parts of the border used for illegal crossings.

The cuts in legal immigration proposed earlier would also go a long way toward reducing illegal immigration in the long run because the current system of legal immigration creates a strong incentive to come illegally. There are approximately four million people qualified for immigration to the United States, but who are waiting their turn to receive the limited number of visas available each year in the various family categories. Such a system encourages those who have been selected, but have to wait, to simply come to the United States and settle illegally in anticipation of the day they are granted visas. Eliminating the sibling and adult children categories would alleviate this situation by doing away with the huge waiting lists. In addition to reducing the incentive to come before a green card is issued, cuts in legal immigration would also be very helpful in controlling illegal immigration because communities of recent immigrants serve as magnets for illegal immigration; providing housing, jobs, and entree to America for illegals from the same country. It is no coincidence that the top immigrant-sending countries are also the top countries in sending illegal immigrants to the United States. Sociological research shows that one of the primary factors influencing a person’s decision to emigrate is whether a family member or member of their community has already come to United States. Thus, allowing in large numbers of legal immigrants is one of the leading causes of large-scale illegal immigration.

Guestworker Programs Do Not Solve the Problem.

While some may favor guest worker programs in an effort to have access to immigrant labor without the fiscal costs (guestworkers would be ineligible for welfare), the heavy use of means-tested programs by the families of illegal aliens shows that this is unlikely to work. While illegals are generally barred from using means-tested programs, this has not prevented them from making use of such programs because they typically receive welfare on behalf of their U.S.-born children, who have eligibility like any other native. Moreover, the negative fiscal effects from Mexican immigration are not simply a result of their heavy use of means-tested programs; they are also caused by their much lower incomes and resulting lower tax payments. Because the primary reason for their low incomes is that so many are unskilled, and this fact would not be changed by making them guestworkers, a new guestworker program is likely to impose significant costs on American taxpayers. It is simply not possible to bring in large numbers of unskilled workers — whether they come illegally, as legal immigrants, or as guestworkers — without creating significant fiscal costs. In addition, by increasing the supply of unskilled workers, guestworkers would still adversely effect the wages of natives and immigrants already here working in low-wage, unskilled jobs. And these workers already have the lowest incomes and highest unemployment rates. Finally, it is worth considering that in every country that has attempted to have guestworker programs, it has always resulted in permanent settlement. As one commentator has observed, "there is nothing more permanent than a temporary worker."


This report has found that Mexican immigration has added significantly to the size of the poor and uninsured populations, as well as to the welfare case load in the United States. For example, while Mexican immigrants and their children comprise 4.2 percent of the nation’s total population, they comprise 10.2 percent of all persons in poverty and 12.5 percent of those without health insurance. Perhaps most troubling, the findings of this report show that the welfare use, income, and other measures of socio-economic status of legal Mexican immigrants do not converge with natives over time. Their low incomes coupled with heavy use of means-tested programs create very significant fiscal costs as well. While employers may want increased access to unskilled labor from Mexico or elsewhere, this cheap labor comes with a very high cost.

The primary reason why Mexican immigrants have not fared well is that a very large share have little formal education at a time when the U.S. labor market increasingly rewards skilled workers while offering very limited opportunities to unskilled workers. The heavy concentration of Mexican immigrants at the bottom of the labor market is also likely to have a significant negative effect on the wages of the more than 10 million unskilled natives who are in direct competition with unskilled immigrants. Consistent with previous research, the results in this study indicate that these less-educated natives face significant job competition from Mexican immigrants. And those native-born workers adversely affected by Mexican immigration are disproportionately native-born minorities and are already among the poorest in the United States.

Although reducing the wages for unskilled workers creates benefits for consumers, the size of the benefit is estimated to be extremely small (one to two tenths of one percent) because high school dropouts account for only a tiny fraction of expenses incurred by employers. It is simply not possible for a technology-based economy such as the United States’, in which skilled labor and capital comprise the overwhelming share of economic output, to derive large benefits from unskilled immigration. Despite this fact, those businesses that rely on unskilled labor will likely fight very hard to make sure that there is an abundant supply of such labor in order to keep down their labor costs. Mexican immigration in particular and unskilled immigration in general, in effect, acts as a subsidy for employers who use unskilled low-wage labor. The fact that many Mexican families are dependent on means-tested programs to survive is not something employers take into account. Nonetheless, because it harms the poor and creates significant fiscal costs for taxpayers, policy makers need to consider policies designed to lower the level of unskilled immigration, both legal and illegal. Much greater attention must also be devoted to dealing with the plight of legal Mexican immigrants and their young children already here.

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End Note

1 The Current Population Survey is conducted each month and includes over 130,000 individuals. While its primary purpose is to collect information on employment, the survey contains detailed questions on income, welfare use, health insurance coverage, and many other topics.