Findings We Never Found

The New York Times, December 10, 1997

By GEORGE J. BORJAS and RICHARD B. FREEMAN

CAMBRIDGE -- Last May, the National Academy of Sciences released a 
long-awaited report on the economic impact of immigration. As members of the 
panel that wrote the report, we have been distressed to hear public 
officials repeatedly misrepresent its findings as the immigration debate has 
evolved in the last seven months.

These officials have distorted the study's main point: that immigration has 
positive and negative effects on current citizens, effects that must be 
weighed in any assessment of whether to increase or decrease immigration 
levels. Instead, these officials make it seem as if immigration is a free 
lunch for Americans.

Most recently, Senator Spencer Abraham of Michigan, chairman of the Senate 
subcommittee on immigration, quoted James Smith, the Rand Corporation 
economist who led the academy panel, as saying that immigration raises total 
gross national product by $200 billion a year. Mr. Abraham then reasoned 
that immigrants would add $2 trillion to the G.N.P. -- the value of the 
output of goods and services -- in the 1990's.

But these numbers appear nowhere in the academy's report. Instead, the 
report concluded that immigration raised the income of the native born by $1 
billion to $10 billion a year -- a minuscule amount in the $8 trillion 
American economy.

What explains this discrepancy? Numerical errors? Differences in economic 
models? No, Mr. Smith and Mr. Abraham simply failed to mention that the bulk 
of the increase in the G.N.P. goes to the immigrants themselves as wages and 
salaries, not to the native born. To take the point to its absurdity, our 
G.N.P. would skyrocket if we let in the entire world -- but most Americans 
would surely lose.

The academy report also concluded that 44 percent of the decline in the real 
wages of high school dropouts from 1980 to 1995 resulted from immigration. 
Is this group too small to worry about? There are 13 million such workers, 
people who are struggling severely. Yet both Mr. Smith and Mr. Abraham have 
argued that the immigration-induced wage cut is good for these people 
because it encourages them to stay in school. Why not take this ludicrous 
argument further and pass legislation to limit the salary of these workers 
to $1 an hour? That will teach them to stay in school!

Some Americans lose from immigration, particularly professionals in fields 
where immigration is high and the less educated who compete with 
less-skilled immigrants. Other Americans gain, mainly owners of businesses 
that hire immigrants and consumers of what suchbusinesses produce. Over all, 
there is a modest income gain, but it is no bonanza for natives.

The academy also presented a model of immigration's effects on taxes paid by 
current residents. The model showed that immigrants are a burden for about 
20 years. (In California, each native household now pays an additional 
$1,200 a year because of immigration.) But after 20 years, immigrants 
provide a net fiscal benefit, and over the long run -- 300 years! -- each 
person admitted and his or her descendants pay $80,000 more in taxes than 
they cost us. 

The 20-year tax burden turns into a plus because the model assumes that the 
Federal Government stabilizes the ratio of debt to gross domestic product in 
2016, using a tax increase or a reduction in social spending. Immigration is 
then beneficial because we can spread the pain of higher taxes over a larger 
population.

But who knows if that model will hold up? The economy grew its way out of 
the budget deficit in the 1990's. If the expansion continues, we can grow 
our way to a fiscal surplus. Immigration would then have an adverse effect 
on natives because they would have to share the savings generated by 
economic growth with more people.

In short, any assessment of immigration must take into account the fiscal 
impact, but the long-term fiscal effects hinge on questionable economic 
assumptions. There is no such uncertainty about the short-term costs.

 Over all, the academy report is not a one-sided pro-immigration tract. 
Immigration creates winners and losers. Low-income workers and taxpayers in 
immigrant states lose; those who employ immigrants or use immigrant services 
win, as do the immigrants themselves. The critical issue is how much we care 
about the well-being of immigrants compared with that of the Americans who 
win and the Americans who lose. 


George J. Borjas and Richard B. Freeman are economists and professors at 
Harvard University