Immigrants in the U.S. economy: a host-country perspective.(Report)

Introduction

The contributions of immigrants are many, particularly when it comes to the pace of economic growth. (1) Immigrants both power and grease the engines that run the economy. In fact, just over half of the increase in the U.S. labor force over the last decade was the result of immigration--legal and illegal. (2) Immigrants' labor force contributions will continue to be important in the near future as the U.S. workforce ages and the baby boomers retire. Immigration also plays a key role in the business cycle. Immigration is pro-cyclical, meaning foreigners come in greater numbers when U.S. job growth accelerates and in fewer numbers when it wanes. In a similar vein, immigrants help resolve bottlenecks and shortages that arise in growing regions and sectors by moving to areas and industries experiencing high labor demand.

Despite immigrants' contributions to economic growth and efficiency, policymakers will continue to debate the costs and benefits of immigration because, while economic growth makes the economy bigger, a larger economy does not necessarily make U.S. natives better off. For example, the economic benefits of low-skilled immigration for U.S. natives are offset to a certain extent by the adverse fiscal impact that an increased number of poor households have on taxpayers. Globally, the reallocation of workers from low- to high-income countries still has huge benefits but, because most of these benefits accrue to the migrants, the effect on host-country natives is far less positive. In this way, the perspective from which immigration is viewed makes all the difference to the conclusions of the analysis. Worker migration that is globally optimal and beneficial to the origin country may have negative implications for the host country in certain cases.

U.S. immigrants: How many?

The foreign-born population reached a 20th century low point in 1970. Since then, the U.S. has witnessed over three decades of mass immigration with large effects on economic growth. Between 1970 and 2007, the foreign-born population rose from 9.6 to 38.1 million and, as a share of the population, immigrants increased from 4.7 percent in 1970 to 12.6 percent in 2007 (Chart 1).

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By 2007, immigrants made up 15.6 percent of the U.S. labor force. (3) Over the last decade or so, foreign-born workers have contributed roughly half of annual labor force growth. Natives have had a shrinking role in labor force growth due to many factors, notably their declining labor force participation rates. As the native-born population ages and the baby boomers retire over the next twenty years, the foreign-born contribution to labor force growth is expected to stay high or even increase. The retirement of baby boomers is expected to result in 80 million workers leaving the U.S. workforce over the next two decades (Social Security Administration, 2007).