NTU No. : N0435323 Eniola Ogunbanwo Question............

Abstract MIPEX finds that the US has some slightly favourable policies to encourage immigrants to participate and become full citizens. Introduction The United States of America (USA), in 2011 had a total population of 311.6 (World Bank). There are only 2 ways in which a population can grow: either by natural birth increase or by immigration. Immigration is the movement of non-native people into a country in order to settle there and today 13% of Americas population are immigrants. There have been many debates and concerns from the USA government and the public to whether immigration harms or benefits the economy. In a recent poll, 28% of Americans said that immigration had a negative impact on the availability of jobs in their communities (NBC News/Wall Street Journal Poll). This report will examine with the aid of a neoclassical model the affects of immigration in the USA labour force.
Literature review The USAs culture and economy has always represented a sense of freedom; freedom of speech, freedom of information and freedom of movement. These pull factors have made America become more attractive and therefore has led it to be a top destination for immigrants to reside in. The Guardian article titled US is still the world's leading destination for immigrants shows that the USA are still leading with 43 million immigrants coming into the country in 2010 with the closest country, Russia, following behind with 12.3 million immigrants in 2010. John F Kennedy, 35th President of the USA, described the USA as a nation of immigrants, as is rightly so because according to the 2000 census, 99% of todays American population can trace its ancestry to origin across the sea. In Kennedys book, A Nation Of Immigrants, he outlines three main reasons why immigration to the USA took place, these include; freedom from religious persecution, political oppression and economic hardship. As shown in figure 2, the USAs immigration inflows have fluctuated which can be due to the economic conditions in that time period, however there were important peaks of immigration flows and this can broken down into 4 major immigration waves. The first batch of immigrants came from the colonial periods, with most immigrants coming from Europe, with the English made up 60 percent of the population in 1790. At this time England saw a rise in religious intolerance and lack of freedom (http://www.prb.org/Source/54.2ImmigrationToUS.pdf). West Africans also involuntarily contributed to high immigration levels at this time due to the slave trade. With immigration share peaking at just under 15% during 1820 till late mid 19th century, the second wave of immigration occurred, where immigrants predominantly from, again European countries e.g.

Ireland and Germany, and China. Ireland was then currently experience the potato famine which led to almost half of Americas immigrants being from Ireland alone. The Chinese were pulled to the USA because of the railway job opportunities there and so they would be able to send remittances to help support their families back in China. In third wave, immigrants primarily came from Eastern and Southern European countries during the 1880s and 1920s. Industrialisation made it easier and cheaper for Europeans to travel across the sea and work. Many religious groups such as the Jews and Catholics also immigrant to the USA and because of the vast numbers of movers, it led to strict barriers being put in place to slowed down the amount of arriving in the USA. The last wave, which started in 1965 and is still ongoing, occurred because the restricts to immigration were being lifted. Latin Americas, especially Mexico and also some Asian countries have started to dominant immigration. The North American Free Trade Agreement (NAFTA) is also a reason to why most immigrants nowadays are from Mexico.

Figure 1 (Data sourced: Global Religion and Migration Database 2010)

Number of Immigrants and Immigrants as Percentage of the US Population, 1850 to 2011

Figure 2 (Migration Policy Institute, 2011)

Immigration and the neoclassical model

S Wage Rate C

W1, B

E1, F

D O O1, G Output (GDP)

Graph 1 (Based on data from The New Americans: Economic, Demographic and Fiscal Effects of Immigration) The help outline the effects of immigration on native-skilled workers, a neoclassical graph above will be used. In this example, the term skilled means workers who have a higher level of education or expertise levels which results them into generally having a higher wage than median average wages. Graph 1 shows the relationship between the wage rate and output of workers in the USA. To understand the effects better, we are assuming that labour is homogeneous but there are 2 types of workers in the USA: skilled and unskilled, who only produce one good, is Gross Domestic Product (GDP). GDP is the value of output (or income or expenditure) in terms of prices actually paid (Dean et al). The supply curve is horizontal drawn as we are assuming the number of native skilled and unskilled workers willing to supply their labour is fixed. The demand for the native unskilled workers curve is diagonally sloping downwards because as another unskilled worker is hired, productive goes down which reduces the firms revenue and so the firms demand for that worker decrease as the wage rate increases. The elasticity or steepness of demand curve will determine how severe a change in the wage rate would affect output. So for example, the steeper or inelastic the slope is, the less demand for labour changes given a change in the wage rate. Conversely, the more flatter or elastic the demand for labour curve is, the more demand change compared to the change in the wage rate. Where the demand curve meets the supply curve is called our equilibrium point, E1. This equilibrium determines the wage price and output for the native-unskilled workers, therefore all unskilled native

workers are being paid at the wage rate of W1 and are producing at O1. We can also work out the total amount these natives are being paid, times W1 by O1 or the area (OBFG). Although we are only focusing on the unskilled population, we can derive from the graph the total income for the native skilled workers and by how much they contribute to GDP. As implied before, the total GDP area is the area at OCFG, and below the wage rate W1 , underneath the demand curve , OBFG, is what the unskilled domestic workers receive as income. The area left over that is still under the demand curve but above the wage rate W1, area BCF, will be paid the domestic skilled workers. Another factor this model assumes it that the majority of foreign born workers coming into the USA are either as equally as equally skilled or even less skilled as the unskilled native born. Later on in this report, it will examine with data if this assumption is in fact true. Nevertheless for now, we can therefore recognise that the foreign born workers and unskilled native born are very closely substituted; Substituted in the sense that if the cost or wage rate increases for the native born increases, then the firm would exchange them and employ foreign born workers, so the demand for them rises.

S Wage Rate C

S+I

W1, B

E1, F

W2, A J

E2, H D

K O O1, G O2, L Output (GDP)

Graph 2 (Based on data from The New Americans: Economic, Demographic and Fiscal Effects of Immigration)

Graph 2 now shows the effects to output and the wage rate once immigration occurs. In other words, now due immigration there are more workers in the USAs labour force therefore this would cause the supply curve to shift to the right, S + I. This shift in supply has then caused a new equilibrium to arise, E2. As we can see from the graph, the wage rate has also decreased from W1 to W2.This wage rate applies to both the immigrants and unskilled native workers, and so collectively they get paid the area OAEL. Consequently, the native unskilled workers are worse off as the total amount that they get paid decrease to the area OAJG, losing the area ABFJ as a result of immigration. From this, we can conclude that immigration does depress the wage rate for native unskilled workers. The native domestic workers are also affected by immigration. Again here, we can work out their total income as a residual. Now that national GDP has increased to the area OCHL, due to immigration and unskilled workers, including both domestic and foreign, only receive the area OAHL, this has left over the area ACH which would be received by the domestic skilled workers, meaning that domestically skilled workers have actually gained. Despite the depression on the wage rate caused by the increase in the supply of workers, output (GDP) did increase, from O1 to O2. Immigrants have helped to produce more and new goods and services in the economy however, with the current unskilled domestic workers wage being at W2, their wage cannot buy as much as it would have done at the wage rate W1 as the value of it has gone down. However, not all hope is lost because the decrease in the wage rate could act as an incentive to the unskilled workers to get trained to get be better skilled as the skilled-workers income looks more attractive so they would want to tap into this increased income. On the other hand, the lower wage rate could as well as a disincentive as an incentive to the unskilled domestic workers. If perhaps, Americas unemployment benefit pay is higher than the new wage rate, then the unskilled workers would trade off work for the employment benefits as the benefits pay them more. Consequently, this would increase government spending and decrease tax revenues therefore leading the USA economy in a deficit. In summary, immigration has had a positive impact and has redistributed employment, however not equally. Skilled workers can therefore be seen as complements as they gain in income when immigrants come into the market, however as for unskilled workers, they are worse off as immigration lowers their wage rate. The extent of the effect also relies on how elastic the demand for labour is; if the demand for labour is perfectly elastic, then the increase in supply would cause a greater output with only little change in the wage rate.... Even though this model in the short run, a period of time over at least one factor is fixed, only assumes that immigration can only affect the supply of labour, it can also affect the demand for labour too. With the increased population that immigration brings, it would ultimately increase the total quantity demanded for goods and services in the USA. Therefore the demand for labour to produce these goods and services should increase as well. This is an example of derived demand, where the demand for labour, a factor of production, depends on the demand for the good which uses it. This increase in demand can be illustrated in a model as the demand curve would shift to the right D2, as shown in graph 3. The rightward shift in demand has caused there to be a new equilibrium, E3 and for wage rate to back to its original state, W1. So in short, the unskilled workers and the economy as a whole has benefitted as wages are still the same but output has increased.

S Wage Rate

S+I

E1 W1

E3

W2

E2

D1 O1 O2

D2 Output (GDP)

Graph 3 (Based on data from The New Americans: Economic, Demographic and Fiscal Effects of Immigration)

Figure 3 (Source: Center For Immigration Studies, 2011) Education levels are one of the most important and significant indicators of economic success, this is the reason why it is included into one of the highest rated economic measurement, Human Development Index (HDI). Figure 3 shows the different education levels of both native and immigrants in the USA in 2011. As shown by the table, we can deduct that immigrants generally have a lower education attainment than the natives and this does affect the type of job they apply for and get and most importantly their level of income. From looking at the percentages in those in the labour force, nearly 30% of immigrants have a bachelor degree or a higher education degree level which is quite close to the natives level. The percentage of immigrants who only have less than high school education levels is

also quite high at, a little over 25% while the natives percentage is considerably lower at 6.1%. This is quite key as more immigrants will be accepting more unskilled jobs as those are the only jobs available to them. Also there will be more competition for more highly skilled jobs between native and foreign workers. An increase in highly skilled immigrants will have an impact on the job prospects for the highly skilled native workers, but it is not fair to say that foreign workers take up native jobs as other factors affect the level of employment of the native workers. Increased competition could again here, act as an incentive to improve on their skills which would increase their productivity. Increased productivity and efficiency would be a huge benefit to the US economy and would promote growth.

Figure 4 (Source: Center For Immigration Studies, 2011)

Figure 4 above shows the percentage share of immigrants and native workers in work or in the labour force. The labour force contains people who have a job and also those who are looking for a job. Overall, according to this data, immigrants especially male immigrants participate more in the labour force than native workers do. With 75.2% of immigrants being the labour force, this would mean their tax contributions will be large as well. The government could use this extra revenue to thus could create wider ripple economic effects.

In 2011, of these roughly 38 million immigrants nearly one-third is in the country without legal authorization (Hofer et al, 2011). An illegal immigrant is an alien (non-citizen) who has entered the United States without government permission or stayed beyond the termination date of a visa. This unauthorised way of immigration causes more problems to the USA than legal immigration does. "Illegal immigration costs U.S. taxpayers about $113 billion a year at the federal, state and local level The annual outlay that illegal aliens cost U.S. taxpayers is an average amount per nativeheaded household of $1,117... Education for the children of illegal aliens constitutes the single largest cost to taxpayers, at an annual price tag of nearly $52 billion... (Feb. 2011 - Federation for American Immigration Reform (FAIR). As well as this, illegal immigrants tend not to pay income tax but however still receive government services e.g., schools for free, and this will therefore worsen the local governments fiscal policy.

Conclusion Dating back to the colonial periods, the USA has always attracted immigrants to their country. Because of the large quantities of immigrants coming in, there have been debates as what the outcomes are to immigration. From using the economic model, the outcomes that have shown from an increase in the supply of labour from immigration are wage depression and increased output. The model showed how immigration leads to a reallocation of national employment and a redistribution of national income within the domestic workers.

Immigration policies aim to determine how many, from where, and under what status immigrants arrive (Martin et al). The USAs current president, Barack Obama recently expressed his views on the need to protect middle class jobs and strengthen immigration policies especially on illegal immigration. However he does recognise that immigration also provides it benefits, Our country is stronger when we harness the talents and ingenuity of striving, hopeful immigrants (Obama, 2013).To ensure that education levels of the younger generation including immigrants are kept to a high standard, targeted programmes such as the No Child Left Behind act was introduced in 2001. This type of investment in education will be very costly and would increase government spending, and in the current economic state its in at the moment, this may not be a wise decision. However, the long-run benefit is that Americas labour force will have a highly skilled workers which will only bring benefits to the economy.

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Michael Hofer, Nancy Rytina, and Bryan C. Baker, Estimates of the Unauthorized Immigrant Population Residing in the United States: January 2009 (Washington, DC: DHS Office of Immigration Statistics, 2010)

http://www.prb.org/Source/54.2ImmigrationToUS.pdf