Effects of immigration on overall US economy

Labor Economics

The last time the U.S. enacted an amnesty act was in 1986, with nearly 2.7 million undocumented immigrants being granted amnesty. The Immigration Reform and Control Act (IRCA) was the most extensive course of action that the U.S. government had implemented regarding immigration policy in years and the efforts are still felt today.

The question today on the minds of many politicians, economists, employers, employees, and regular taxpayers is how will granting amnesty to illegal immigrants affect the labor market and the economy in general. In order to answer this question, analyzing the past amnesty act can shed some light on the subject.

The IRCA in 1986 was intended to control the undocumented immigration problems by the legalization of illegal immigrants and stop future influx of illegal workers from coming into the U.S. The IRCA required employers to only hire employees that were eligible to work in the U.S. legally. The act would also try to control the borders by increasing the funding for border patrol.

In hindsight, it is easy to see that it didn’t work. Two decades later the U.S. is facing one of the largest undocumented immigrant levels ever, estimated to be about 11 million or more presently working in this country. These current levels have brought the issue of amnesty to the forefront again, and we are, as before, currently discussing a new amnesty program.

Effects on the Labor Market depends on viewpoint

It sounds like a straightforward question. But, like most highly debated issues it depends on the group of people you are asking. Viewpoints are usually self-motivated and answers usually depend on how it helps the individual or select groups of people financially, not the U.S.

economy as a whole.

One’s own beliefs or a group’ belief always impact the answer given when asked about how illegal immigration affects a person both individually and how it either positively or negatively affects this country’s labor market and economy. If you’re a taxpayer and a consumer, you may find a variety of interpretations about different aspects of the impact of illegal immigration.

If you are a college student seeking part-time employment at Burger King for the summer to earn enough money to get through school, most likely, if I ask you about illegal immigration you’d have some pretty strong negative feelings since you might be finding that illegal immigrants are taking those lower-paying jobs that you want.

But if you own that Burger King or another company which employs those low-paid workers, illegal immigration might be the answer to your cash flow and profitability. You can hire numbers of illegals at wages far less than full-time U.S. workers would accept.

How would wages be affected?

Again, it’s those college students seeking part-time work and the high-school dropouts who might be able to take advantage from a stoppage of illegal immigration. Most experts believe that the salary levels of this class of workers are negatively impacted approximately three to eight percent because of the immigrant competition for those jobs. And to that part-time American worker, the loss is significant even though it may not seem like that much. To most of these employees it would be the equivalent of about a $25 a week increase in pay.

So, again it all depends on your working situation, where you are located geographically, the type of employment you seek, and if your skill set exceeds those an immigrant possesses, whether legal or illegal. But it can be said that it does not appear that immigrants do not have a significant effect on U.S. wages. Most research studies indicate that, if illegal immigrants all left the U.S., the overall impact on wages would be minimal at the full-time worker level. Why? Because, really, when you look at the big picture, the large majority of American’s do not compete with illegals for employment (Davidson).

Again, it depends on who one talks to. Illegal immigrants drive down wages in the lower-paid job levels, say certain economic experts. “No, they don’t,” say others. The impact is almost zero. Not only that, the second group adds, but the larger the number of these workers with lesser skill sets, the more new industries can utilize them to increase profitability, hire American workers, and succeed as a new business in the U.S.

The most-cited study of immigrants hurting wages was published by Harvard economists George Borjas and Lawrence Katz. They found that illegal Mexican immigrants undercut wages for U.S.-born high school dropouts by 8.2% from 1980 through 2000.

“That’s 40 cents an hour (less) as a result of 20 years of Mexican migration,” said David Card, an economics professor at UC Berkeley. “In the several studies I’ve done over almost 20 years, if there are such effects (of lowering wages), they are very, very small (Said).”

His studies have compared cities with large immigrant populations to those with few or no immigrants. He found that wage differentials between high-school dropouts and more-educated workers were the same in cities, regardless of the size of immigrant population (Said).

Effects of immigration on the overall U.S. economy?

Significant, most experts would say, and that’s the comment on both sides of the debate.

There is no question that more employees increases the amount of products the U.S. economy can produce, whether the employees are legal or illegal. It’s just a matter of numbers. More output is possible with more workers. And spending increases as well. If there are millions more consumers buying all sorts of necessities like food and rent, as well as the little luxuries in life like movies and ice cream, then the economy is going to benefit (Said).

And, if illegal immigration is stopped, both sides also forecast significant change. Those who want the illegal immigration stopped predict that U.S. employers would be in a position where they had to raise wages to compete with a “non-illegal worker” environment, and that, because of this, the economy would benefit.

Of course, those who support illegal immigration have the opposite view. The U.S. economy would stall if illegals were eliminated from the workforce they say. This working class fills all those positions that American workers don’t want, and no one would step in to fill them (Davidson).

Granting Amnesty to Illegal Immigrants Affects the Economy Other Ways

There would be more tax receipts into the U.S. Treasury if amnesty were granted. However, there is a negative side to that as well. Since it would greatly impact the number of taxpaying U.S. workers, it would also increase the numbers on the roles of welfare, social services and government benefits. More work means more taxes and an increased labor market for people to compete; it also means more government handouts to a brand new, but low-skilled, low-paid class of citizens.

The households of illegal immigrants usually have less education, low salary levels, and, as a result, pay very little in taxes to the federal government. They also receive less in federal benefits. However, on average, the amount received by the immigrant family from the U.S. government in those benefits exceeds what they pay in taxes. These were results found by the Center for Immigration Studies (CIS) studying the specific fiscal impacts of amnesty.

Granting amnesty would render illegal immi-grants eligible for federal benefit programs. The CIS study estimated the additional taxes that would be paid and the additional government costs that would occur as a result of amnesty. It assumed that welfare utilization and tax payments among current illegal immigrants would rise to equal the levels among legally-admitted immigrants of similar national, educational, and demographic back-grounds. If all illegal immigrants were granted amnesty, federal tax payments would increase by some $3,000 per household, but federal benefits and social services would increase by $8,000 per household. Total federal welfare benefits would reach around $9,500 per household, or $35 billion per year total. The study estimates that the net cost to the federal government of granting amnesty to some 3.8 million illegal alien households would be around $5,000 per household, for a total federal fiscal cost of $19 billion per year (Rector).

Granting Amnesty is Likely to Further Increase Illegal Immigration

The basic fact about the 1986 IRCA, which granted amnesty to 2.7 million immigrants, is that it was totally ineffective in stopping the flow of illegal immigration — its primary purpose.

Basically, seeing the good deal that amnesty was, illegal immigrants increased the pace of entry into the U.S. By a magnitude of five between the 1980s and today.

About 140,000 immigrants came into the U.S. illegally thirty years ago vs. about 700,000 a year in the early 2000s. And the rate of illegal entries increased significantly almost immediately after the initiation of IRCA. As we mentioned, illegal immigrants, figured out that if the U.S. granted amnesty once, it might do it again, so that promise of a “future” new life as an American citizen became the magnet. (Rector).

S. 2611

Senate bill S. 2611, the Comprehensive Immigration Reform Act of 2006, sponsored by Senator Arlen Specter of Pennsylvania, passed the Senate but was never voted on in the House.

It would have repeated the 1986 bill, though on a grand scale — ten million illegals granted amnesty — another magnet for yet another increase in the rate of illegal immigration into this country? The purpose of the bill, as with IRCA was to eliminate immigration, but, as with IRCA, no wording or regulations contained in the bill would have accomplished this goal (Rector). There is little reason to believe, based on its contents, that’d. 2611 would have had any different consequences other than to increase federal welfare roles by magnitudes and, due to the enormous scope of the bill, increase poverty in this country (Rector).

Effects Different For Men and Women?

Would the amnesty provision for undocumented foreign workers in the U.S. Immigration Reform and Control Act (IRCA) of 1986 affect outcomes in the labor market for those workers, and if so, were the affects different for men and women. Classical economic theory holds wages should have risen for both men and women foreign workers after the amnesty provision was implemented. Research is presented showing that raises did indeed rise for both men and women newly legalized workers, but that so did unemployment rates. This is attributed to the increased mobility of legal workers, and of the eligibility of women for the social services given mothers of families. Amnesty is found to have increased the efficiency of the U.S. labor market and led to a noticeable improvement in the economic status of affected workers (Amuedo-Dorantes, Bansak and Raphael).


It is a debate that will go on and on, perhaps, never to end in a satisfactory conclusion. We are at a time in our country’s history that clamors for restraint in federal government spending and programs. Is universal healthcare our primary goal right now at a cost of a trillion or so dollars? Do we have any idea how amnesty to illegal immigrants right now would impact that national goal? Well, we do, sort of. We know that our legislators are reassuring the American public that illegal immigrants will NOT be included in the healthcare program — absolutely no way. We know by that, that tens of millions of “newly amnestied” immigrants will be included, if not immediately then in the near future. They must be. It will happen. The financial impact on our economy in addition to the trillion dollars? Enormous.

If at any time in our history, now is the time for federal restraint. The American public is angry. We are overspent and underemployed. We know that amnesty will impact our economy in significant ways — mostly negative. For now, with the economy in the dumps, that is all we need to know.


Amuedo-Dorantes, Catalina, Cynthia Bansak and Steven Raphael. “Gender Differences in the Labor Market: Impact of IRCA’s Amnesty Provisions.” American Economic Review (2007): 412-416.

Davidson, Adam. “Q&A: Illegal Immigrants and the U.S. Economy.” 30 March 2006. npr.org. 23 Nov 2009 .

Fairus.org. “U.S. Legislative Immigration Update.” 20 April 2009. Rightsidenews.com. 24 November 2009 .

Orrenius, Pia and Madeline Zavoday. “What are the Consequences of an Amnesty for Undocumented Immigrants.” May 2004. Federal Reserve Bank of Atlanta. 23 Nov 2009 .

Phillips, Julie and Douglas Massey. “The New Labor Market: Immigrants and Wages after IRCA.” May 1999. JSTOR. 23 Nov 2009 .

Rector, Robert. “Amnesty and Continued Low Skill Immigration Will Substantially Raise Welfare Costs and Poverty.” 12 May 2006. The Heritage Foundation. 23 Nov 2009 .

Said, Carolyn. “THE IMMIGRATION DEBATE Effect on economy depends on viewpoint.” 26 May 2006. SFGate. 23 Nov 2009 .

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