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Immigration Reform and the American Economy

Written By The Shapiro Law Group on September 12, 2016

America’s broken immigration system is in desperate need of reform, and according to expert analysts, changes to the system could have a significant impact on the U.S. economy. While advocates for immigration reform are quick to highlight the economic boost that would likely result, critics point out a number of negative effects it could have on the American economy, native born laborers, and the United States as a whole.

The Impact of Unauthorized Immigrants

According to Pew Research Center, there are currently more than 11 million undocumented immigrants in the United States, making up approximately 3.5 percent of the nation’s population. Six states; California, Florida, New York, Texas, New Jersey and Illinois, account for an estimated 60 percent of the nation’s unauthorized immigrants. These immigrants make up approximately 5.1 percent of the American labor force. For many of these workers, wages earned are never reported to the Internal Revenue Service (IRS) for tax purposes, so the U.S. government never sees the monetary benefits.

By legalizing immigrants who currently lack legal documentation, analysts predict that billions of dollars in tax revenue could be realized. In support of this argument, President Obama’s recent move to grant amnesty to more than 4 million unauthorized immigrants is used as an example. His executive order is expected to create more than 160,000 new jobs and generate an estimated $2.5 billion in taxes in the short term alone.

Immigration Reform and Wages

While the Presidents’ Council of Economic Advisors (CEA) predicts that reform will result in increased wages for both native-born and immigrant workers, (approximately 0.3 percent by 2024), critics disagree. Many politicians and economists claim that immigration reform will add millions of currently undocumented workers to the American labor force, placing a downward pressure on wages- particularly for those in low-skill industries. In many of those industries, the number of available workers already outnumbers the number of open positions. In the field of construction, for example, there were an estimated 1 million unemployed laborers in 2014, compared with just 200,000 available jobs.

Although immigration reform will obviously help American employers in many industries fill open positions that illegal immigrants would otherwise not have pursued, it could have the opposite effect on the agricultural industry. A field that is already starved for help, agriculture is often a popular employment choice for undocumented immigrants. By providing more than 4 million immigrants with the legal ability to come out of the shadows and pursue other types of careers, immigration reform could reduce agricultural employers’ already dwindling labor force significantly. In an attempt to fill available positions, agricultural employers could be forced to raise wages.

Immigration Reform and American Development

While approximately 24.3 percent of foreign-born workers are what is considered to be on the low-skill end of the spectrum, a large number of immigrants are highly-skilled, holding a bachelor’s degree or higher. Many immigrants are especially talented in specialty areas that the American economy is in need of. According to The Fiscal Times, foreign-born individuals were awarded a full 56 percent of engineering doctoral degrees, approximately 51 percent of computer science doctoral degrees and 44 percent of physics doctoral degrees in 2011. Additionally, an estimated 163,000 grad students who studied science, mathematics, engineering or technology were foreign-born.

Immigration reform that encourages the employment of well educated and talented people from other countries will enable many of these highly-skilled individuals to pursue jobs in American industry that complement their talents, skills and potential. Many experts assert that this will boost innovation and increase the competitiveness of the United States while helping to ensue that technological breakthroughs and those in medicine are realized in America.

Immigration Reform and New Business

CNN reports that immigrants are twice as likely to start a new business than native-born Americans. According to the Partnership for a New American Economy, 28 percent of all new businesses in the United States were started by immigrants in 2011. These immigrant-owned companies employ an estimated 4.7 million individuals and generate over $776 billion in revenue each year. In addition to providing Americans with jobs, the development of new businesses in America boosts the demand for local goods and services and increases exports as well. The United States Small Business Administration claims that businesses that are owned by immigrants are more likely to export their goods and services (7.1 percent) than those that are not immigrant-owned (4.4 percent).

The Partnership for a New American Economy also states that an estimated 40 percent of fortune 500 companies are founded by immigrants or their children, and the National Venture Capital Association estimates that 25 percent of United States companies that were backed by venture capital investors were founded by immigrants. Examples are Google, Intel, Yahoo!, Sun Microsystems, and eBay.