Working at Cross Purposes: Welfare Reform and Immigration

By Steven A. Camarota on December 1, 1996

pp. 8-10 in Immigration Review no. 27, Fall/Winter, 1996-97

The welfare reform law signed last year by President Clinton with much fanfare and hand-wringing certainly will have a dramatic impact on "welfare as we know it." The law's supporters see it as a long-overdue reform needed to move welfare recipients into jobs. Some critics view it as mean-spirited and misguided — especially the time limits it places on welfare use. Others argue that there simply are not enough jobs available for welfare recipients, and that the jobs that are available pay less than welfare. While scholars disagree about the relative importance of the factors that lead to welfare dependence, there is widespread agreement that the labor market is an important part of the equation. By failing to reduce legal immigration and implement a secure national work authorization verification system to control illegal immigration, the federal government has undermined the goal of welfare reform: moving people from welfare to work.

The new welfare law shifts much of the administration and responsibility for assisting the poor to state and local governments. The states must follow certain federal guidelines in order to qualify for the new block grants that the federal government will provide. These guidelines limit welfare recipients to two consecutive years of public assistance and to no more than five years over the course of a lifetime. These time-limit provisions, as well as the restrictions on welfare use by immigrants, will result in hundreds of thousands of people being forced off the welfare rolls and into the labor market.

About half of those currently using welfare are women with young children going through the economic disruption associated with divorce or temporary job loss. Generally, such recipients become self-sufficient within a few years. Depending on how the states ultimately use their new latitude, it seems likely that the impact of the new law on short-term welfare recipients will be limited. However, for those who would normally rely on welfare for ten or more years — about 48 percent of current recipients — finding and holding a job will not be easy. This is an exceptionally low-skilled population facing bleak employment prospects. Roughly two-thirds are high school dropouts, and many are functionally illiterate. Data from the Department of Labor's Bureau of Labor Statistics indicate that the real wages (adjusting for inflation) of high school dropouts have declined by 30 percent over the last 17 years, and dropouts are among the most likely to be unemployed or to have given up looking for work altogether.

Most scholars of welfare use point to the low earning potential of unskilled workers as being a determinate factor in explaining welfare dependence. They argue that the real key to welfare reform is to "make work pay." In other words, the current wage rate for unskilled labor is so low that welfare recipients, especially long-term recipients, are better off collecting welfare. A leading proponent of this position is David Ellwood, a former Assistant Secretary for Planning and Evaluation in the Department of Health and Human Services. He argues in his 1994 book, Welfare Realities that, unless we find a way to make low-skill work pay, we can never make progress in improving the lives of poor people. Nor will we be successful in moving people off welfare.

If the goal of the new welfare law is to encourage the long-term welfare population to become economically self-sufficient, it makes no sense to flood the unskilled labor market at the same time that welfare users will be seeking unskilled, entry-level jobs. Yet this is precisely what current U.S. immigration policy is doing. About 40 percent of the adult immigrants the United States admits in any given year are high school dropouts. David Jaeger, an economist at the Bureau of Labor Statistics, calculated that the 3.06 million immigrant high school dropouts made up one-fifth of all high school dropouts in the labor market in 1990. In contrast, immigrants comprised only one-tenth of all high school dropouts in the labor market in 1980. Thus, the share of immigrant dropouts doubled in just ten years. The March 1995 Current Population Survey (CPS) found that an additional 1.05 million adult high school dropouts immigrated to the United States between 1990 and 1995. While the CPS data do not include an estimate of labor force participation rates, it is reasonable to assume that the majority of these recent immigrants have entered the labor market, given their young average age.

As any student of Economics 101 knows, increasing the supply of a commodity without a corresponding increase in demand reduces the price of that commodity — in this case, unskilled labor. Thus, mass unskilled immigration drives down wages in unskilled occupations by dramatically increasing the supply of workers. Current U.S. immigration policy therefore undermines welfare reform by disallowing a tighter labor market that would increase wages and "make work pay" for unskilled workers — native born and immigrant.

Some proponents of high immigration argue that unskilled immigrants do not compete for jobs with unskilled natives, but instead, take only jobs that natives do not want. However, data from the Census Bureau, the Labor Department and the Immigration and Naturalization Service show that immigrants are dispersed across all occupations. Moreover, there are no occupations that are majority immigrant — even in the lowest-paying and lowest-skilled occupations, the majority of workers is native born.

Recent economic research also suggests that unskilled immigrants compete for jobs with unskilled natives. David Jaeger found that native-born and immigrant high school dropouts are almost perfect substitutes for one another in the labor market, and so compete for the same jobs. He concluded that half the decline in wages for high school dropouts in the 50 largest U.S. cities is directly attributable to immigration. Harvard economist George Borjas found that immigration was responsible for one-third of the decline in wages for dropouts nationwide during the 1980s. And my research indicates that, in the early 1990s, immigration caused a ten percent reduction in wages for workers in low-skilled occupations. These are precisely the kind of jobs that long-term welfare recipients will need, as they require few years of formal schooling and little experience.

Some scholars of welfare dependency believe that the low wages available to unskilled workers are not the central problem. New York University professor Lawrence Mead, in his 1992 book, The New Politics of Poverty, argues that welfare recipients, particularly the long-term population, lack the values and discipline to find and hold a job. He concedes, however, that the very low wage rates for unskilled labor undermine the incentive to work and make welfare more attractive. He acknowledged in a recent interview that the availability of immigrant workers probably allows employers to be "less patient" than would otherwise be the case with long-term welfare users seeking employment. Thus, even Mead agrees that mass unskilled immigration likely makes welfare reform more difficult.

In addition to the loose labor market, there are other factors hindering the long-term welfare population from moving into jobs, including a lack of affordable health and child care. But, by driving down wages, current U.S. immigration policy exacerbates these other problems by, for instance, pushing health care and child care out of reach for unskilled workers.

Absent a change in immigration policy, the wages and number of low-skilled jobs available likely will continue to decline, making effective welfare reform an almost impossible task. Ironically, shortly before Congress passed the welfare reform law last year, it killed, with the administration's support, a proposed modest reduction in legal immigration. The illegal immigration law that Congress was able to pass is unlikely to have much impact on the labor market, especially since illegal immigrants comprise less than one-quarter of the total immigrant population in the United States. Whatever one thinks of the new welfare law, the incongruity between immigration policy and welfare policy is stark.