Opening America's Borders: The High Cost of Cheap Labor

By Steven A. Camarota on September 30, 2001

The Denver Post, September 30, 2001

Although the horrific attacks of Sept. 11 have made it very unlikely that Congress will pass an amnesty for illegal immigrants any time soon, the issue will almost certainly come up again. President Bush has already indicated that he still intends to move ahead with plans for amnesty.

Talks last month between Secretary of State Colin Powell, Attorney General Robert Ashcroft and their Mexican counterparts may have produced the broad outline of an agreement on immigration. It would involve a two-step amnesty, first rechristening the approximately 4 million Mexican illegal immigrants in the United States as 'temporary' workers, then giving them green cards (permanent residence) after a period of time. In addition, new workers from Mexico would arrive as 'temporary' workers, also eventually getting green cards.

Does this 'guest worker amnesty' make sense for the United States? In a new study published by the Center for Immigration Studies, we tried to answer this question. Based on an analysis of data collected by the Census Bureau in 2000, we concluded that unskilled immigration from Mexico, whether legal or illegal, reduces wages for the lowest paid workers and creates large fiscal costs for taxpayers, all without generating significant economic benefits. Here's why.

Two-thirds of Mexican immigrants are high school dropouts, compared to 10 percent of U.S. natives. As a result, during the 1990s Mexican immigration (legal and illegal) increased the number of dropouts in the labor force by 11 percent while increasing the supply of all other workers by one-half of 1 percent. While the vast majority of natives are more educated and therefore do not face significant competition from Mexican immigrants, we found that the 10 million natives who lack a high school degree are adversely affected by Mexican immigration.

By increasing the supply of unskilled labor, Mexican immigration in the 1990s has likely reduced the wages for workers without a high school education by an estimated 5 percent. The wage reduction does not stem primarily from a willingness of illegal entrants to work for less. Rather, the lower wages are an unavoidable byproduct of significantly increasing the supply of unskilled labor. It's basic economics: Increase the supply of something and you lower its price.

This should concern policymakers because dropouts are already America's lowest-paid workers, making up a large share of the working poor and those trying to move from welfare to work.

Of course, consumers clearly benefit from lower wages for the unskilled. But the impact on prices is very small because high school dropouts account for less than 4 percent of total economic output. We estimated that Mexican immigration in the 1990s reduced prices by less than two-tenths of one percent. It is simply not possible to generate significant savings to consumers by lowering the wages of the poorest workers.

Moreover, there is a high cost to cheap labor. While there is debate over whether immigrants overall pay enough in taxes to cover their consumption of public services, there is absolute consensus that unskilled immigrants, because of their much lower incomes and heavier use of means-tested programs, create large fiscal costs. Based on fiscal estimates developed by the National Academy of Sciences for immigrants by age and education at arrival, the lifetime net fiscal drain (all taxes paid minus all services used) for the average adult Mexican immigrant is a negative $ 55,200.

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 low-income population. Like any subsidy, businesses who receive it want it to continue, but for the nation as a whole, it's a bad deal.

It is true that legalization of undocumentant entrants would mean that some who work under the table would become subject to taxation. But it would not change the basic fact that those with little education earn very little and therefore pay little in taxes. Moreover, we estimated that welfare use by legal Mexicans is about 40 percent higher than for illegal workers. Legalization would almost certainly increase fiscal costs, not reduce them.

It is clear that illegal immigration, because it is unskilled, creates significant costs, but can we reduce it? In fact, the problem is not intractable. The Immigration and Naturalization Service estimates that each year 150,000 illegal aliens return home on their own, another 50,000 are deported and 200,000 get green cards as part of the normal 'legal' immigration process. In sum, there is already an 'out-migration' of at least 400,000 illegal workers annually. Of course, an estimated 600,000 replacements arrive each year. Nonetheless, if we significantly reduce the number of new illegal aliens entering the country and even modestly increase the number leaving, the problem would largely take care of itself over time.

The key is to cut illegal workers off from jobs. Although a well-regarded pilot program already exists, Congress has never funded a national verification system enabling employers to quickly check whether new hires have the right to work. Moreover, there are only the equivalent of 300 INS inspectors devoted to stopping employers from hiring the millions of illegal immigrants in the United States. Establishing a verification system and hiring enough inspectors to enforce the law could dramatically reduce the number of illegal workers coming in and increase the number leaving.

An integrated program of worksite enforcement and border control would increase wages for the working poor, save taxpayers money and protect American sovereignty. An amnesty, dressed up as a guest worker program, would achieve none of these ends.

Steven Camarota is Director of Research at the Center for Immigration Studies.